UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 30, 1997
KARRINGTON HEALTH, INC.
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(Exact name of registrant as specified in its charter)
Ohio 0-28656 31-1461482
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
919 Old Henderson Road, Columbus, Ohio 43220
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 451-5151
Not Applicable
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(Former name or former address, if changed since last report.)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KARRINGTON HEALTH, INC.
Date: May 21, 1997 By: /s/Mark N. Mace
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Mark N. Mace
Senior Vice President, Finance
and Treasurer
<PAGE>
INDEX TO EXHIBITS
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Exhibit Number Description
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2.1 Stock Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington Health,
Inc., Kensington Cottages Corporation of Minnesota and the
individual shareholders of Kensington Cottages Corporation of
Minnesota.
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2.2 Agreement and Plan of Merger dated April 24, 1997 by and
among Karrington Health, Inc., Kensington Mergeco, Inc.,
Kensington Management Group, Inc. and Jon D. Rappaport.
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2.3 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington
Health, Inc., Buffalo Hills Residence and Jon D. Rappaport.
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2.4 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington Health,
Inc., Centex-Kensington (Mankato I) Partnership, Centex Senior
Services Corporation, Centex Life Solutions, Inc., Kensington
Cottages Corporation of Mankato and Jon D. Rappaport.
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2.5 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington Health,
Inc., Kensington Cottages Corporation of North Dakota and the
individual shareholders of Kensington Cottages Corporation of
North Dakota.
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2.6 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington
Health, Inc., Kensington Cottages Corporation of Rochester
and Jon D. Rappaport.
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2.7 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington Health,
Inc., Kensington Cottages Corporation of Iowa and the
individual shareholders of Kensington Cottages Corporation of
Iowa.
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2.8 Asset Purchase Agreement dated April 24, 1997 by and among
Kensington Cottages Corporation of America, Karrington
Health, Inc., Bismarck Investors, Kensington Living Centers,
Inc. and Jon D. Rappaport.
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STOCK PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
KENSINGTON COTTAGES CORPORATION OF MINNESOTA
AND
THE INDIVIDUAL SHAREHOLDERS OF
KENSINGTON COTTAGES CORPORATION OF MINNESOTA
APRIL 24, 1997
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among
Kensington Cottages Corporation of Minnesota, a Minnesota
corporation ("Kensington-Minnesota"), Jon D. Rappaport
("Rappaport"), Murray Klane ("Klane"), and Michael Demmer
("Demmer"), the individual shareholders of Kensington-Minnesota
(the "Kensington-Minnesota Shareholders"), Kensington Cottages
Corporation of America, a Minnesota corporation (Kensington
Cottages Corporation of America is a wholly-owned subsidiary of
Karrington Operating Company, Inc., an Ohio corporation, and is
referred to as "Karrington"), and Karrington Health, Inc., an Ohio
corporation ("Parent").
RECITALS
Kensington-Minnesota owns and operates a 40-bed
dementia-specific assisted living facility with 8 adult foster care
licenses in Buffalo, Minnesota, known as Kensington Cottages of
Buffalo I & II.
Karrington desires to purchase the Kensington-Minnesota
Shares (as defined below) from the Kensington-Minnesota
Shareholders, and they wish to sell the Kensington-Minnesota
Shares to Karrington upon the terms set forth in this Agreement
(the Transaction).
The parties desire to make certain agreements,
representations and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1. Definitions.
The following capitalized terms shall have the meaning set
forth:
1.1.1. Assets. All of Kensington-Minnesota's right, title,
and interest in and to the assets pertaining to the operations of
Kensington Cottages of Buffalo I & II.
1.1.2. Land. All of the real property owned in fee
simple by Kensington-Minnesota as more particularly described in
Schedule 1.1.2.
1.1.3. Improvements. All buildings, improvements, and
fixtures located on the Land.
1.1.4. Real Estate. All right, title and interest of
Kensington-Minnesota in and to the streets, alleys, and rights-of-
way adjacent to the Land, if any.
1.1.5. Personal Property. All of the tangible and
intangible personal property located upon, relating to, or used in
connection with or in the operation and maintenance of the Real
Estate, including, but not limited to, electric and gas appliances,
maintenance equipment, furniture, books and records, inventory
and supplies, leases, security deposits, trade names and signage, as
more fully itemized on Schedule 1.1.5.
1.1.6. Property. The Real Estate and Personal Property,
collectively.
1.1.7. Services. The provision or administration of
assisted living services to the residents of Kensington Cottages
Corporation of Minnesota.
1.1.8. Service Employees. Employees associated with
the Services.
1.1.9. Employee Accruals. The amount of accrued
vacation and sick pay liabilities for employees associated with the
Services, as of the Closing, as set forth on Schedule 1.1.9.
1.1.10. Resident Agreements. Any residential leases or
similar agreements with residents of Kensington Cottages
Corporation of Minnesota or their legal representatives or
caregivers.
1.1.11. Contracts. All contracts pertaining to Services
or Resident Agreements, as more fully itemized on Schedule 1.1.11.
1.1.12. Equipment Leases. All leased equipment used in
connection with the Services, as more fully itemized on Schedule
1.1.12.
1.1.13. Software Licenses. All licenses from or to third
parties relating to software as more fully itemized on Schedule
1.1.13.
1.1.14. Motor Vehicles. All motor vehicles associated
with the Services, as more fully itemized on Schedule 1.1.14,
including Motor Vehicles subject to Vehicle Leases.
1.1.15. Vehicle Leases. Leases to which any Motor
Vehicles are subject, as fully itemized on Schedule 1.1.15.
1.1.16. Vehicle Financing. Obligations under the bank
financing identified on Schedule 1.1.16 for certain of the Motor
Vehicles.
Certain other terms used in this Agreement (which may or may not
be capitalized) are defined in Annex A.
1.2. Meaning of Certain Words and Phrases.
The word "including" shall mean "including without
limitation." Except where expressly provided to the contrary,
"discretion" means "sole and absolute discretion." References to
any agreements or other documents include groups of related
agreements or other documents.
1.3. Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport (the sole shareholder of
Kensington Cottages Corporation of Rochester);
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Kensington Cottages Corporation of Mankato,
Centex Senior Services Corporation, Centex Life Solutions,
Inc., and Jon D. Rappaport;
g. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence and Jon D.
Rappaport; and,
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF STOCK
2.1. Purchase Price.
The total monetary consideration for the Transaction (the
"Purchase Price") shall be Three Million Dollars ($3,000,000.00) minus
the principal amount of Mortgage Debt as of the Closing Date, plus the
increase, if any, in "Current Asset Spread" from December 31, 1996 to
the Closing Date. For purposes of this Section, "Current Asset Spread"
shall mean the amount by which on any specified date the current assets of
Kensington-Minnesota exceed its current liabilities. A Closing Statement
setting forth the principal amount of Mortgage Debt will be agreed upon
by Kensington-Minnesota and Karrington not less than five days prior to
closing. A Closing Statement setting forth the current assets and current
liabilities of Kensington-Minnesota at the Closing Date will be agreed
upon by Kensington-Minnesota and Karrington as soon as possible after
the Closing Date. The Purchase Price shall be payable at Closing by wire
transfer or in other immediately available funds (except for the portion
attributable to the increase in Current Asset Spread, which shall be paid
upon final determination).
2.2. Surrender of Certificates.
At Closing, each Kensington-Minnesota Shareholder shall
surrender all stock certificates representing his Kensington-
Minnesota Shares (or affidavits for lost shares) to Parent or any
agent it designates.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to the Kensington-Minnesota Shareholders as follows:
3.1. Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2. Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3. Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4. Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5. No Notice or Consent.
Neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6. Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7. Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction or have a material adverse effect
on Karrington's business operations or financial condition, taken as
a whole.
3.8. Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY THE KENSINGTON-MINNESOTA SHAREHOLDERS
Each of the Kensington-Minnesota Shareholders separately
represents and warrants to Karrington and Parent as follows:
4.1. Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2. Organization, Qualification.
Kensington-Minnesota is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. It is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required. It has full corporate
power and corporate authority to carry on its business and to own
and use its property. It has not filed for relief as a debtor under any
state receivership laws or federal bankruptcy laws.
4.3. Governing Documents.
Kensington-Minnesota has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.4. Authorization of Transaction.
Kensington-Minnesota has full power and authority to
execute, deliver, and perform this Agreement. This Agreement
constitutes Kensington-Minnesota's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
4.5. Effect on Other Governing Documents.
Kensington-Minnesota's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Kensington-
Minnesota is subject or any provision of its Governing Documents.
4.6. Finder's Fees.
To the Knowledge of such shareholder, no person or entity
is entitled to any brokerage commission, finder's fee, or similar
compensation in connection with the execution, delivery, or
performance of this Agreement.
4.7. Stock Ownership; No Agreement.
4.7.1. Kensington-Minnesota's entire authorized capital
stock consists of 1,000,000 shares of common stock without par
value, of which 5,874 shares are issued and outstanding, all of
which are owned of record by the Kensington-Minnesota
Shareholders (collectively , the "Kensington-Minnesota Shares").
The Kensington-Minnesota Shares constitute all issued and
outstanding shares of capital stock or other equity securities of
Kensington-Minnesota. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that
could require Kensington-Minnesota to issue, sell, or otherwise
cause to become outstanding any of its capital stock. The
Minnesota Business Corporation Act does not have the concept of
treasury shares. The Kensington-Minnesota Shares have been duly
authorized for issuance by all necessary corporate action of
Kensington-Minnesota and are validly issued, fully paid and
nonassessable. Rappaport separately represents on his own behalf
that he owns beneficially and of record 4,406 shares of Kensington-
Minnesota. Klane separately represents on his own behalf that he
owns beneficially and of record 880.5 shares of Kensington-
Minnesota. Demmer separately represents on his own behalf that
he owns beneficially and of record 587.5 shares of Kensington-
Minnesota. Each Kensington-Minnesota Shareholder separately
represents on his own behalf that the Kensington-Minnesota Shares
owned beneficially and of record by him are free and clear of any
restrictions on transfer (other than any restrictions applicable under
the Securities Act and state securities laws, restrictions under that
certain Shareholder Control Agreement, dated May 26, 1994, by
and among Kensington-Minnesota and the Kensington-Minnesota
Shareholders (the "Shareholder Control Agreement") and
restrictions under that certain Stock Transfer Restriction
Agreement, dated May 26, 1994, by and among Kensington-
Minnesota and the Kensington-Minnesota Shareholders (the "Stock
Transfer Agreement")), Taxes, Security Interests, preemptive or
similar rights, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. Each Kensington-
Minnesota Shareholder separately represents on his own behalf that
he is not a party to any option, warrant, purchase right, or other
contract or commitment that could require him to sell, transfer, or
otherwise dispose of any capital stock of Kensington-Minnesota,
including the Kensington-Minnesota Shares, other than this
Agreement and the Stock Transfer Agreement. Each Kensington-
Minnesota Shareholder separately represents on his own behalf that
he has full power and authority to transfer his Kensington-
Minnesota Shares to Karrington under this Agreement free of any
adverse claims or other restrictions and, upon consummation of the
Closing hereunder, Karrington shall own his Kensington-Minnesota
Shares free and clear of all adverse claims and restrictions on
transferability (other than any restrictions applicable under the
Securities Act and state securities laws). Each Kensington-
Minnesota Shareholder separately represents on his own behalf that
he is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of
Kensington-Minnesota other than the Shareholder Control
Agreement.
4.7.2. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights
with respect to Kensington-Minnesota capital stock.
4.8. Subsidiaries.
Kensington-Minnesota has no Subsidiaries. Kensington-
Minnesota owns no equity securities of any other person or entity.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF JON D. RAPPAPORT
Jon D. Rappaport represents and warrants to Karrington
and Parent as follows:
5.1. Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2. Financial Statements.
Attached as Schedule 5.2 are the following financial
statements of Kensington-Minnesota (the "Kensington-Minnesota
Financial Statements"): (a) unaudited balance sheets and statements
of income for the fiscal years ended on December 31st of each of
the years 1994, 1995, and 1996 and (b) unaudited balance sheets
and statements of income for the one month ended January 31,
1997 (the "Most Recent Financial Statements" - December 31,
1996 is the "Most Recent Fiscal Year End" and January 31, 1997 is
the "Most Recent Fiscal Month End'), all of which are consistent
with Kensington-Minnesota's books and records, and fairly present
Kensington-Minnesota's results of operations for the periods
indicated. "Most Recent Balance Sheet" means the balance sheet
contained within the Most Recent Financial Statements.
5.3. Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Kensington-Minnesota's Business, financial condition,
operations, or results of operations which have a material adverse
effect thereon, either separately or in the aggregate (a "Material
Adverse Effect"). Without limiting the generality of the preceding
sentence, since that date, Kensington-Minnesota has not:
5.3.1. imposed any Security Interest of any kind upon
any of the Assets;
5.3.2. granted any license or sublicense pertaining to the
Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
5.3.3. experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
5.3.4. sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
5.3.5. entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
5.3.6. entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Kensington-Minnesota is a party or
by which it is bound which pertains in any way to the Assets or the
Services; or
5.3.7. committed to any of the foregoing.
5.4. Undisclosed Liabilities.
5.4.1. Kensington-Minnesota has no Liability and, to the
Knowledge of Rappaport, there is no Basis for any Liability which
would have a Material Adverse Effect except for (a) Liabilities set
forth on the Most Recent Balance Sheet or which would not be
required to be set forth on a balance sheet prepared in accordance
with GAAP, and (b) Liabilities which have arisen after the Most
Recent Fiscal Month End in the Ordinary Course of Business, none
of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort,
infringement, violation of law, or similar cause.
5.4.2. Kensington-Minnesota is not a guarantor or
otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
5.5. Insurance.
5.5.1. Kensington-Minnesota, through KMGI, maintains
insurance policies (copies of which have been delivered to or made
reasonably available to Karrington) reasonable in scope and amount
in connection with the Assets and Services, and has done so for the
past four years, provided, however, that no representation or
warranty is made as to the reasonableness of such insurance after
the Closing and it will be Karrington's exclusive responsibility to
determine the insurance policies to be put in place after the Closing.
5.5.2. Schedule 5.5 sets forth a true and accurate list of
all insurance policies carried on the Assets. The casualty insurance
covering the Property insures the full replacement value thereof.
5.5.3. Kensington-Minnesota has complied with all
notices or requests it has received from any insurance company
issuing any of the insurance policies required to be set forth on
Schedule 5.5.
5.6. Effect on Other Agreements.
Except as disclosed in Schedule 5.6, Kensington-
Minnesota's execution and delivery of this Agreement and its
consummation of the Transaction will not breach, conflict with,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, mortgage, lease,
license, instrument, or other arrangement to which Kensington-
Minnesota is a party or by which it is bound or to which any of its
assets is subject, or result in the imposition of any Security Interest
upon any of its assets.
5.7. No Notice or Consent.
Except as disclosed in Schedule 5.7, Kensington-Minnesota
is not required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the
Transaction.
5.8. Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
5.9. Property Matters.
5.9.1. Except as disclosed on Schedule 5.9, no notices
have been received by Kensington-Minnesota from the holder of
any of the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
5.9.2. Except as disclosed on Schedule 5.9, the Property
and the present use of the Property does not violate any provisions
of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
5.9.3. Except as disclosed on Schedule 5.9, there are no
hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or any roof or wall leaks,
or backed up sewer problems. All improvements on the Real Estate
were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington.
5.9.4. Except as disclosed on Schedule 5.9, there are no
leases affecting the Real Estate except for the Resident
Agreements.
5.9.5. To the Knowledge of Rappaport there is no
threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
5.9.6. To the Knowledge of Rappaport, except as
disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
5.10. Legal Compliance.
5.10.1. Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property (the
"Mortgage Debt"), the Equipment Leases, Vehicle Leases, and the
Vehicle Financing, and as otherwise required to be disclosed in this
Agreement, Kensington-Minnesota has not taken or failed to take
any action with respect to any legal matter which has resulted in, or
may result in (a) the imposition of any Security Interest on the
Assets, or (b) any Liability with respect to the Assets or Services to
which Karrington may be subject after Closing.
5.10.2. Kensington-Minnesota has complied with all
laws (including any related rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges) of
federal, state, local and foreign governments (including any
governmental agencies) the failure to comply with which would
have a Material Adverse Effect, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced against Kensington-Minnesota
alleging any failure to comply.
5.10.3. Kensington-Minnesota has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform the
Services (the "Kensington-Minnesota Permits") with respect to
which the failure to have would have a Material Adverse Effect.
To the Knowledge of Rappaport, no violations have occurred with
respect to the Kensington-Minnesota Permits, and no proceeding is
pending or threatened which might have the effect of revoking or
rescinding, or otherwise having a materially adverse effect upon,
any Kensington-Minnesota Permit. Kensington-Minnesota has filed
all reports, cost reports, registrations and statements, together with
any required amendments, that are or were required to be filed with
any governmental authorities (or with any fiscal intermediaries)
pursuant to the Kensington-Minnesota Permits or otherwise. As of
their respective dates, all such reports, cost reports, registrations
and statements complied in all material respects with the terms of
the then-existing contracts between any governmental authorities or
fiscal intermediaries and Kensington-Minnesota, and with all
statutes, rules and regulations enforced or promulgated by the
regulatory authority (or by any fiscal intermediary) with which they
were filed, and were true, correct and complete as filed in all
material respects.
5.10.4. Kensington-Minnesota is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency.
5.10.5. Kensington-Minnesota does not qualify for cost
reporting or cost reimbursement under any health care or similar
program administered by any governmental authority or agency.
5.11. Litigation.
5.11.1. Except as disclosed on Schedule 5.11,
Kensington-Minnesota is not a party and, to the Knowledge of
Rappaport, has not been threatened to be made a party, to any
action, suit, proceeding, hearing, or investigation of, in, or before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
5.11.2. Kensington-Minnesota is not subject, and, to the
Knowledge of Rappaport, has not been threatened to be made
subject, to any injunction, judgment, order, decree, ruling, or
charge.
5.12. Tax Matters.
5.12.1. Kensington-Minnesota has delivered to
Karrington true and complete copies of (a) the most recent real
estate tax and assessment bills for the Property, (b) all Tax Returns
that have been or are currently subject to audit, and (c) all
examination reports and statements of deficiencies assessed against
or agreed to by Kensington-Minnesota.
5.12.2. Kensington-Minnesota has not taken or failed to
take any action with respect to any tax matter which has resulted in,
or, to the Knowledge of Rappaport, may result in (a) the imposition
of any Security Interest on the Assets, or (b) any Liability with
respect to which Kensington-Minnesota may be subject after
Closing.
5.12.3. Kensington-Minnesota has filed all required Tax
Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 5.12, no filing date has been extended for any
Tax Return Kensington-Minnesota is or has been required to file
which has not yet been filed. To the Knowledge of Rappaport, no
taxing authority in a jurisdiction where Kensington-Minnesota does
not file Tax Returns has ever asserted that Kensington-Minnesota is
or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the Assets that arose in connection with
any actual or alleged failure to pay any Tax.
5.12.4. Kensington-Minnesota has withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
5.12.5. To the Knowledge of Rappaport, no taxing
authority plans to assess any additional Taxes for any period for
which Tax Returns have been filed. To the Knowledge of
Rappaport, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
5.12.6. Kensington-Minnesota has not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
5.13. Intellectual Property.
Kensington-Minnesota does not own, license, or otherwise
possess any rights in any Intellectual Property which pertain in any
way to the Assets or Services, and is not subject to any such rights
held by third parties, other than rights made available to it by its
affiliate, KMGI.
5.14. Other Agreements.
5.14.1. Schedule 1.1.11 lists and briefly describes all
material written or oral agreements to which Kensington-Minnesota
is a party, including all maintenance contracts, concession
agreements, or other contracts affecting the Property (other than
the Equipment Leases, Software Licenses, and Vehicle Leases).
5.14.2. Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 5.6 or 5.7, will continue to be legal, valid, and
binding, and in full force and effect on identical terms immediately
following the consummation of the Transaction (Subject to
Equitable Principles). Kensington-Minnesota is not in default in the
performance of any such agreements and, to the Knowledge of
Rappaport no parties thereto have any defenses, set-offs or rebates
relating in default to any such agreements. Except as disclosed in
Schedule 5.14: to the Knowledge of Rappaport, no other party is in
breach or default of any such agreement; to the Knowledge of
Rappaport no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement, and no party has
repudiated any provision of the agreement.
5.14.3. Kensington-Minnesota has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
5.14.
5.14.4. All Resident Agreements have fixed rental
periods of no longer than twelve months.
5.15. Performance of Services.
Schedule 5.15 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Kensington-Minnesota has been in conformity in all material
respects with all applicable contractual commitments and all express
and implied warranties.
5.16. Employees.
5.16.1. To the Knowledge of Rappaport as of the date
hereof, no Service Employee employed in a management capacity
has any plans to terminate employment with Kensington-Minnesota
prior to Closing.
5.16.2. Except as provided in Subparagraph 1.1.9, as of
Closing, Kensington-Minnesota shall have discharged all obligations
to the Service Employees with respect to compensation or benefits
of any kind under any type of Employee Benefit Plan, and after
Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
Kensington-Minnesota.
5.16.3. Kensington-Minnesota is not and never has been
a party to or bound by any collective bargaining agreement. To the
Knowledge of Rappaport, there has never been and there is not
now any effort by any labor union to organize any employees of
Kensington-Minnesota into one or more collective bargaining units.
Kensington-Minnesota has not experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining
disputes. Kensington-Minnesota has not committed any unfair
labor practice or other violation of labor or employment law
relating to the Service Employees.
5.17. Employee Benefits.
5.17.1. Kensington-Minnesota does not now maintain
and is not now required to contribute to, and has never maintained
or been required to contribute to, any Employee Pension Benefit
Plan.
5.17.2. Schedule 5.17.2 lists and briefly describes each
Employee Benefit Plan the Kensington-Minnesota maintains or to
which Kensington-Minnesota contributes.
5.17.3. All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
5.17.4. Each item required to be listed on Schedule
5.17.2 and each related trust, insurance contract, or fund complies
in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
5.17.5. All required reports and descriptions (including
form 5500 annual Reports, Summary Annual Reports and Summary
Plan Descriptions) have been properly filed or distributed, and the
requirements of Part 6 of Subtitle B of Title I of ERISA and of
Code Sec. 4980B have been met with respect to each Employee
Welfare Benefit Plan. Kensington-Minnesota has delivered or made
reasonably available to Karrington copies of all such reports and
descriptions.
5.17.6. Kensington-Minnesota has delivered or made
reasonably available to Karrington correct and complete copies of
the plan documents and summary plan descriptions, and all related
trust agreements, insurance contracts and other funding agreements
which implement each Employee Benefit Plan.
5.17.7. All contributions, including all employer
contributions and employee salary reduction contributions, which
are due have been paid to each Employee Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each Employee Benefit
Plan or properly accrued. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with
respect to each Employee Welfare Benefit Plan.
5.17.8. There have been no Prohibited Transactions
with respect to any Employee Benefit Plan which Kensington-
Minnesota maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required to
contribute; no Fiduciary has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee
Benefit Plan; no action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of
any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of any of Kensington-
Minnesota and its directors, officers, or employees responsible for
employee benefits matters, threatened; neither Kensington-
Minnesota nor any of its directors, officers or employees
responsible for employee benefit matters has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
5.17.9. Kensington-Minnesota does not contribute to,
never has contributed to, and never has been required to contribute
to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
5.17.10. Kensington-Minnesota does not maintain or
contribute, never has contributed to, and never has been required to
contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, its spouses or its
dependents (other than in accordance with Code Section 4980B).
5.18. Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Kensington-Minnesota.
5.19. Environment, Health and Safety.
5.19.1. To the Knowledge of Rappaport, Kensington-
Minnesota has no Liability for any illness of or personal injury to
any employee or other individual, for damage to any site, location,
or body of water (surface or subsurface), for any damages or claims
under any past, present, or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice, or for
any other reason under any Environmental, Health and Safety Law
in any way pertaining to or affecting the Assets or Services.
5.19.2. Kensington-Minnesota and its predecessors (i)
have complied with all Environmental, Health and Safety Laws, and
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply, and (ii) have
obtained and been in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other
authorizations which are required under, and have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health and
Safety Laws.
5.19.3. Kensington-Minnesota has not disposed of or
arranged for the disposal of any Hazardous Substance on the
Property and Rappaport has no Knowledge of the disposal of any
Hazardous Substance on the Property by any other person or entity.
5.19.4. There have not been, and there currently are no
pending or, to the Knowledge of Rappaport, threatened claims
against Kensington-Minnesota alleging the violation of any
Environmental, Health and Safety Laws.
5.19.5. Except as disclosed in the Environmental Audit,
to the Knowledge of Rappaport the Property is free of asbestos,
PCB's, methylene chloride, trichloroethylene, dioxins,
dibenzofurans and Extremely Hazardous Substances.
5.20. Data Processing Matters.
5.20.1. With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Kensington-Minnesota owns, leases, or licenses
(the "Data Processing Systems"):
a. Kensington-Minnesota, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
Kensington-Minnesota has not sustained, and Rappaport is
not aware of any information or circumstances indicating
that Kensington-Minnesota may sustain, disruption of
business or loss by reason of unauthorized access, use,
copying, modification, theft, or destruction of any such
programs and files by its employees or any such other
persons; and
b. Kensington-Minnesota, through KMGI, has arranged
for back-up data processing services adequate to meet data
processing needs in the event that the Data Processing
Systems are rendered temporarily or permanently
inoperative as a result of a natural disaster or other cause.
5.20.2. Kensington-Minnesota's data processing and
data storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
5.21. Books and Records.
5.21.1. Kensington-Minnesota's books of account
pertaining to the Services reflect all material items of income and
expense and all material assets, liabilities and accruals, and are
prepared and maintained in form and substance adequate for
preparing financial statements and related information in
accordance with any accounting principles required by any
governmental agency with regulatory authority over Kensington-
Minnesota's financial statements and otherwise in accordance with
the standards required by this Agreement.
5.21.2. Kensington-Minnesota has devised and
maintained a system of internal accounting controls with respect to
the Services sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management
directives, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Subsection
5.21.1, (c) the recorded amounts are compared with the actual
levels at reasonable intervals and appropriate action is taken with
respect to any differences, and (d) access to information pertaining
to the preceding items (a) - (c) is permitted only in accordance with
management directives.
5.22. Residents' Assets.
Except for security deposits held in connection with the
Resident Agreements, Kensington-Minnesota does not hold, and
the Assets do not include, funds of any residents of Kensington
Cottages of Buffalo I & II in excess of two hundred dollars
($200.00) per resident.
ARTICLE 6
NATURE OF DISCLOSURES
6.1. Disclosure by Kensington-Minnesota and Jon D.
Rappaport.
Jon D. Rappaport represents and warrants to Karrington
and Parent as follows:
6.1.1. All items concerning Kensington-Minnesota
which are required to be disclosed or identified on the Schedules to
this Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
6.1.2. No representation or warranty made by or about
Kensington-Minnesota in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Kensington-Minnesota which is required under this Agreement
contains any untrue statement of a material fact or omits any
material fact necessary to make the statements made not
misleading.
6.1.3. To the Knowledge of Rappaport, there is no fact
which materially and adversely affects Kensington-Minnesota which
has not been set forth in this Agreement, the Schedules, or any
other materials Kensington-Minnesota is required to furnish under
this Agreement.
6.1.4. Karrington and Parent each agree that it is not
relying upon any representations and warranties of any or all of the
Kensington-Minnesota Shareholders that are not set forth in this
Agreement or required to be set forth in a schedule, list, certificate,
document or other instrument or exhibit required under this
Agreement and that there shall not be deemed to be any other
express or implied representations or warranties made by or on
behalf of any or all of the Kensington-Minnesota Shareholders in
connection with the Transaction.
6.2. Copies and Lists.
Unless a representation and warranty made about
Kensington-Minnesota in this Agreement is solely with respect to
the existence or non-existence of a document or other item, the
mere listing or inclusion of a copy of the document or other item
shall not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington to
understand the exception or (b) an exception to a representation or
warranty which is not permitted.
6.3. Due Diligence.
The obligations of the Kensington-Minnesota Shareholders
to make representations and warranties in accordance with the
standards set forth in this Agreement shall not be affected or
deemed waived on the grounds that Karrington, based upon its
investigation and review or otherwise, should have known that any
such representation or warranty is or might be inaccurate or
incomplete.
ARTICLE 7
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
7.1. Title Commitment and Policy.
7.1.1. Kensington-Minnesota, has furnished and
delivered to Karrington in form acceptable to Karrington, a current
Owner's Title Insurance Commitment (form ALTA 1966), together
with copies of all documents referred to therein (the "Title
Commitment").
7.1.2. Kensington-Minnesota shall furnish and deliver to
Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
7.2. Title.
The Updated Title Commitment shall show in Kensington-
Minnesota good and marketable title in fee simple to the Real
Estate, free and clear of all liens and encumbrances except those
listed in Section 7.3 (the "Permitted Encumbrances"), and the Title
Policy shall insure the same in Karrington.
7.3. Permitted Encumbrances.
Permitted Encumbrances are as follows:
7.3.1. Those created or assumed by Karrington, or
which are otherwise acceptable to Karrington in its discretion;
7.3.2. General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
7.3.3. Liens and encumbrances listed in Schedule 7.3.
7.4. Exceptions and Endorsements.
7.4.1. The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
7.4.2. The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
7.5. Survey and Legal Descriptions.
Kensington-Minnesota, has furnished to Karrington (a) plats
of survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of Minnesota who is
acceptable to Karrington (the "Surveys").
7.6. Occupancy Permits.
Kensington-Minnesota has provided Karrington with true
and complete copies of the occupancy permits for the Real Estate.
7.7. Environmental Audit
Karrington has received from Kensington-Minnesota a
Phase I Environmental Audit of the Real Property, in form and
content satisfactory to Karrington and performed by an
environmental engineer satisfactory to Karrington (the
"Environmental Audit").
ARTICLE 8
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
8.1. In General.
8.1.1. The Kensington-Minnesota Shareholders shall
cause Kensington-Minnesota to use its best efforts to take all action
and to do all things necessary, proper or advisable in order to
consummate the Transaction, including but not limited to those
actions specifically set forth in this Article.
8.1.2. Karrington will use its best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate the Transaction.
8.2. [Reserved]
8.3. Pre-Closing Audit.
Kensington-Minnesota shall fully cooperate with Ernst &
Young in connection with the completion of their audit, prior to
Closing, of Kensington-Minnesota's financial statements for the
fiscal years ending December 31, 1994, 1995, and 1996 (the
"Audit"). Karrington shall use its best efforts to cause the Audit to
be completed by Ernst & Young on or before April 30, 1997.
8.4. Insurance.
Kensington-Minnesota shall maintain the insurance required
to be set forth on Schedule 5.5 in full force and effect through
Closing.
8.5. First Union Financing.
The parties shall fully cooperate and use commercially
reasonably efforts to obtain the consent of First Union National
Bank of North Carolina, the first mortgage lender with respect to
the Property ("First Union"), with respect to the Transaction.
8.6. Operation of Business.
Kensington-Minnesota will not engage in any practice, take
any action or enter into any transaction which is outside the
Ordinary Course of Business, including any practice, action, or
transaction of a type described in Section 5.3.
8.7. Preservation of Assets.
Kensington-Minnesota will use commercially reasonable
efforts to keep the Assets and Services substantially intact,
including all present operations, physical facilities, working
conditions and relationships with lessors, licensors, suppliers,
lessees, residents, customers, and employees. Kensington-
Minnesota shall maintain the Assets in their present condition and
repair (ordinary wear and tear excepted), shall not enter into any
material contract which extends beyond the Closing Date without
the consent of Karrington, and shall continue the existing operation
of the Property including continuing its present advertising
commitments and its usual program of advertising. Kensington-
Minnesota shall not remove from the Property any items of
Personal Property between the date hereof and the Closing, except
as may be required for repair or replacement; and any replacements
shall be of equal or better quality and quantity. Nothing herein shall
require Kensington-Minnesota to repair or replace Property
substantially damaged or destroyed by fire or other casualty prior to
Closing.
8.8. Access to Properties.
Kensington-Minnesota will permit representatives of
Karrington full access during normal business hours to all of its
premises, properties, personnel, books, records, contracts,
documents and other materials as reasonably required by
Karrington.
8.9. Notice of Developments.
Karrington and Rappaport each will give prompt written
notice to one another of any development of which it has
Knowledge which reasonably appears to cause any representations
and warranties by any party in this Agreement not to be true and
correct in all material respects as of Closing (except as provided
with respect to the dates of financial statements under Section 5.2
and except for the date limitation concerning certain employee
matters set forth in Subsection 5.16.1). Such written notice shall
describe the matter with reasonable particularity and shall set forth
the manner in which it would cause any such representation and
warranty (identified by specific reference to the applicable provision
of this Agreement) not to be true as of Closing. No notice under
this Section 8.9 shall be deemed to amend or supplement any
representation or warranty or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the
party giving notice; provided that in the event a party would have
the right not to proceed to Closing by reason of such breach, if the
nondefaulting party elects to close notwithstanding such breach,
such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
8.10. Updated Schedules.
Kensington-Minnesota will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be
deemed to amend or supplement any representation or warranty or
any Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
8.11. Exclusivity.
So long as this Agreement has not been terminated,
Kensington-Minnesota will not (a) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Kensington-Minnesota will notify Karrington
immediately if any of the foregoing occur.
8.12. Confidentiality.
8.12.1. Each party will hold all Confidential Information
concerning every other party in strictest confidence, refrain from
using it except in connection with this Agreement, and, promptly
upon the direction of the other party, deliver to the other party or
destroy all originals or copies of the Confidential Information in its
possession. Each party shall immediately notify the other if it is
requested or required to disclose any Confidential Information in
any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process. If a protective order cannot be
obtained and the party is, on the written advice of counsel,
compelled to disclose the Confidential Information or else be held
in contempt, the party may disclose the Confidential Information to
the tribunal; provided, however, that it shall use its best efforts to
obtain an appropriate order or other assurance that confidential
treatment will be accorded to the Confidential Information
disclosed.
8.12.2. Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 8.12
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
8.12.3. The provisions of this Section 8.12 shall not
supersede any confidentiality provisions contained in the letter of
intent between KMGI and Karrington Operating Company, Inc.
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 9
DAMAGE, EMINENT DOMAIN
9.1. Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Kensington-Minnesota until Closing. If the Property is
substantially damaged or destroyed by fire or other casualty prior to
the Closing of the transaction, Kensington-Minnesota shall not be
obligated to repair or replace the damaged or destroyed Property,
but in that event Karrington may (a) elect to proceed with the
Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such damage or destruction, be
entitled to all insurance money payable to Kensington-Minnesota
under any and all policies of insurance covering the Property so
damaged or destroyed, or (b) elect to terminate this Agreement.
9.2. Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Kensington-Minnesota on account of such
taking, or (b) elect to terminate this Agreement.
ARTICLE 10
TERMINATION
10.1. Termination of Agreement.
10.1.1. The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
10.1.2. Karrington may terminate this Agreement as
provided in Article 9.
10.1.3. Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
10.2. Effect of Termination.
If the Agreement is terminated as provided in this Article
10, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 11
CONDITIONS TO OBLIGATION TO CLOSE
11.1. Conditions to Karrington's Obligation to Close.
The obligation of Karrington to consummate the
Transaction is subject to satisfaction in favor of Karrington or
waiver by Karrington of the following conditions as of Closing:
11.1.1. The representations and warranties by the
Kensington-Minnesota Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the Closing
Date as though made on such date, except as provided with respect
to the dates of financial statements under Section 5.2 and except for
the date limitation concerning certain employee matters set forth in
Subsection 5.16.1.
11.1.2. The Kensington-Minnesota Shareholders shall
have performed and complied in all material respects with all of
their covenants set forth in this Agreement through the Closing.
11.1.3. No action, suit, or proceeding shall be pending
or, to the Knowledge of Rappaport, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator, to which
Kensington-Minnesota or any Kensington-Minnesota Shareholder is
a party or is threatened or expected to be made a party, or which is
otherwise known to Rappaport, in which an unfavorable outcome
would prevent the Closing, cause the Transaction to be rescinded in
whole or in part after Closing, or adversely effect Karrington's right
to own and operate Kensington-Minnesota after Closing, and no
injunction, judgment, order, decree, ruling, charge or other holding
having such an effect shall be in force.
11.1.4. Rappaport shall have delivered to Karrington
certificates in the form set forth on Exhibit 11.1.4A certifying that
each of the conditions specified above in Sections 11.1.1 through
11.1.3 is satisfied as of the Closing Date, and each of the
Kensington-Minnesota Shareholders shall have delivered to
Karrington a certificate in the form set forth on Exhibit 11.1.4B
specifying that the representations and warranties made by each of
them are true and correct in all material respects as of the Closing
Date.
11.1.5. The consent of First Union shall have been
obtained as provided in Section 8.5.
11.1.6. Karrington shall have received the Updated Title
Commitment.
11.1.7. Kensington-Minnesota shall have executed and
delivered to Karrington and the title insurance company an affidavit
certifying that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in the Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 1.1.5; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
11.1.8. The closings under each of the Acquisition
Agreements shall occur simultaneously with the Closing under this
Agreement or in a sequence reasonably agreed upon by Parent,
Karrington, and Kensington-Minnesota;
11.1.9. The Rappaport Letter of Understanding shall
have been terminated.
11.1.10. The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Kensington-Minnesota's financial statements for the fiscal
years ended December 31, 1994, 1995 and 1996, and the results of
the Audit shall not require any material adjustments to the
Kensington-Minnesota Financial Statements.
11.1.11. Karrington shall have received a written
opinion from Kensington-Minnesota's legal counsel in form and
substance as set forth on Exhibit 11.1.11, dated as of the Closing
Date.
11.1.12. Kensington-Minnesota and the Kensington-
Minnesota Shareholders shall have taken all actions required of
them in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction will be reasonably satisfactory in form and substance to
Karrington and its legal counsel.
11.2. Conditions to Obligation of Kensington-Minnesota
Shareholders.
The obligation of the Kensington-Minnesota Shareholders
to consummate the Transaction is subject to satisfaction in favor of
the Kensington-Minnesota Shareholders or waiver by the
Kensington-Minnesota Shareholders of the following conditions as
of Closing:
11.2.1. Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
11.2.2. Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
11.2.3. No action, suit or proceeding shall be pending
or, to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be rescinded
in whole or in part after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
11.2.4. Karrington shall have delivered to Kensington-
Minnesota a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 11.2.4 certifying
that each of the conditions specified above in Sections 11.2.1
through 11.2.3 is satisfied in all respects.
11.2.5. The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington and
Kensington-Minnesota.
11.2.6. Kensington-Minnesota shall have received from
Karrington's legal counsel a written opinion in form and substance
as set forth on Exhibit 11.2.6, dated as of the Closing Date.
11.2.7. Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Kensington-Minnesota and its legal counsel.
ARTICLE 12
CLOSING
12.1. Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 11 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
12.2. Deliveries by the Parties at Closing.
12.2.1. At Closing, (a) Karrington shall pay the cash
purchase price in accordance with Article 2, and (b) each party shall
deliver to each other the various documents, instruments,
certificates, and opinions required to be delivered at Closing under
Article 11.
12.2.2. Deliveries by Kensington-Minnesota shall
include the following:
a. The Title Insurance Affidavit;
b. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
c. The Title Policy;
d. All appropriate evidence of authorization for the
execution of this Agreement;
e. Consents reasonably satisfactory to Karrington from
the parties to the Contracts which require consent to the
Transaction and approvals satisfactory to Karrington from
all federal, state, and local governmental authorities and
private parties which require approval of the Transactions;
f. Certificates representing all of the issued and
outstanding Shares duly endorses for transfer or
accompanied by duly executed stock powers, sufficient to
transfer the Shares to Karrington;
g. The complete and correct corporate minute book,
stock transfer book, and other corporate records of
Kensington-Minnesota;
h. Possession of the original of all Contracts,
commitments, franchises, licenses, permits, or instruments
evidencing rights or obligations of Kensington-Minnesota
and its Business and possession of all of the assets of
Kensington-Minnesota and all books, records, and other
documents relating to Kensington-Minnesota and its
Business (all such books and records being open for
Karrington's inspection prior to Closing during reasonable
business hours);
i. The revocation by Kensington-Minnesota of all prior
bank borrowing or depository authorizations;
j. Resignations of the officers and directors of
Kensington-Minnesota as requested by Karrington; and
k. Such other documents as are otherwise required of
Kensington-Minnesota by this Agreement.
12.2.3. Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement; and
c. Releases satisfactory to Rappaport of personal
guarantees of the Mortgage Debt.
ARTICLE 13
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
13.1. General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
13.2. Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Kensington-
Minnesota, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 14.
13.3. Transition.
Kensington-Minnesota Shareholders shall take no action
intended to discourage any lessor, licensor, lessee, resident,
customer, supplier or other business associate of Kensington-
Minnesota from maintaining the same business relationships with
Kensington-Minnesota after the Closing as it maintained with
Kensington-Minnesota prior to the Closing.
ARTICLE 14
INDEMNIFICATION
14.1. Meaning of Certain Terms.
14.1.1. In this Article, Kensington-Minnesota and the
Kensington-Minnesota Shareholders are collectively referred to as
the "Kensington Entities," and Karrington and Parent are
collectively referred to as the "Karrington Entities."
14.1.2. A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
14.1.3. For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
14.1.4. It is acknowledged and agreed that the
indemnification obligations of Klane under this Article shall pertain
only to those covenants, representations, or warranties expressly
made by him individually or in his capacity as a Kensington-
Minnesota Shareholder in this Agreement. It is acknowledged and
agreed that the indemnification obligations of Demmer under this
Article shall pertain only to those covenants, representations, or
warranties expressly made by him individually or in his capacity as a
Kensington-Minnesota Shareholder in this Agreement.
14.2. Survival of Representations and Warranties.
14.2.1. Except as provided in Section 14.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
14.2.2. "Survival Period" means the eighteen (18)
month period set forth in Subsection 14.2.1 or the period described
in Section 14.7, whichever applies.
14.2.3. In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
14.3. Indemnification Obligations of the Kensington
Entities.
14.3.1. If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington-
Minnesota Shareholders shall jointly and severally indemnify and
hold harmless the Karrington Entities from and against all related
Adverse Consequences, subject to the limitations set forth in
Sections 14.1.4, 14.5 and 14.6.
14.3.2. In addition, Rappaport shall indemnify and hold
harmless the Karrington Entities from and against all Adverse
Consequences related to (a) any Liability for the unpaid Taxes of (i)
Kensington-Minnesota relating to periods prior to the Closing Date
or (ii) any other Person (as a transferee or successor, by contract,
or otherwise) as a result of any action taken or not taken by
Kensington-Minnesota prior to the Closing Date, or (b) any matter
which is the subject of actual or threatened litigation, judicial order,
administrative action, or any similar matter concerning Kensington-
Minnesota (other than related to the enforcement of this Article) to
the extent, but only to the extent, it is the result of any action taken
or not taken by Kensington-Minnesota prior to the Closing Date,
whether or not disclosed or required to be disclosed on any
Schedule to this Agreement.
14.4. Indemnification Obligations of Karrington and
Parent.
14.4.1. If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington-Minnesota Shareholders from and against all related
Adverse Consequences, subject to the limitations set forth in
Section 14.5 and 14.6.
14.4.2. The Karrington Entities shall indemnify and hold
harmless the Kensington Minnesota Shareholders from and against
all Adverse Consequences arising from or in connection with
Kensington-Minnesota after the Closing Date, except to the extent
that any or all of the Kensington-Minnesota Shareholders are
required to indemnify the Karrington Entities in respect thereof
under this Article.
14.5. Basket Amount.
14.5.1. Except as provided in Section 14.7, the
Kensington-Minnesota Shareholders shall have no obligation to
indemnify the Karrington Entities under this Article unless and until
the Karrington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article of at least Thirty
Thousand Dollars ($30,000.00) in the aggregate (the "Basket
Amount"), and then only as to the amount by which aggregate
claims by the Karrington Entities exceed the Basket Amount.
14.5.2. Except as provided in Section 14.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington-Minnesota Shareholders under this Article unless and
until the Kensington-Minnesota Shareholders have suffered
Adverse Consequences giving rise to a right of indemnification
under this Article in the aggregate of at least the Basket Amount
(except with respect to Mortgage Debt as to which the Basket
Amount shall not apply); and then only as to the amount by which
aggregate claims by the Kensington-Minnesota Shareholders
exceed the Basket Amount.
14.6. Limitation on Recovery.
14.6.1. Except as provided in Section 14.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington-Minnesota Shareholders under this Article shall be
limited to Three Hundred Thousand Dollars ($300,000.00) (the
"Indemnity Cap").
14.6.2. Except as provided in Section 14.7, the
aggregate obligation of the Kensington-Minnesota Shareholders to
indemnify the Karrington Entities under this Article shall be limited
to the Indemnity Cap.
14.7. Liability for Certain Claims.
The limitations set forth in Sections 14.5 and 14.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
14.3.2, or (c) by the Kensington-Minnesota Shareholders under
Subsection 14.4.2. The aggregate obligation of the Karrington
Entities to indemnify the Kensington-Minnesota Shareholders for all
such indemnity claims shall be limited to the purchase price
(provided that such limitation shall not apply to any claims related
to the Mortgage Debt), and the Kensington-Minnesota
Shareholders' aggregate obligation to indemnify the Karrington
Entities for all such indemnity claims shall be limited to the
purchase price. The Survival Period for any such indemnity claim
shall be the greater of the eighteen (18) month period set forth in
Section 14.2.1 or the period set forth in the statute of limitations
under applicable law.
14.8. Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
14.9. Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
14.10. Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 15.14 or claims relating to
Intellectual Property, Confidential Information, and also except to
the extent this Agreement provides Karrington with a right of
insurance recovery (for example, and not in limitation, as provided
in Sections 9.1 and 9.2), or where it otherwise reasonably appears
that irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
14.11. Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
14.12. Matters Involving Third Parties.
14.12.1. If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
14.12.2. An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 14.12.2 shall be
reasonably satisfactory to the Indemnified Party.
14.12.3. At any time an Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 14.12.2, the Indemnified Party may retain separate co-
counsel at its own expense and participate in the defense. If both
the Indemnifying Party and the Indemnified Party are participating
in the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
14.12.4. If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 14.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 14.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1. Expenses.
Kensington-Minnesota Shareholders and Karrington share
equally all expenses (including the costs of the Audit and the
opinion of Ernst & Young with respect to such Audit, the Surveys,
the Title Commitment, Updated Title Commitment and Title Policy,
the Environmental Audit, but excluding any financing costs of
Karrington) incurred in connection with this Agreement and the
Transaction, except as provided in Article 14 or as otherwise
specifically provided to the contrary in this Agreement, and except
that each party shall bear its own attorneys' fees.
15.2. Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
15.3. No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
15.4. Entire Agreement.
Except as provided in Section 8.12.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI).
15.5. No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing as provided herein.
15.6. Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
the consent of Kensington-Minnesota or the Kensington-Minnesota
Shareholders.
15.7. Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
15.8. Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington-Minnesota:
Jon D. Rappaport
Vice President
Kensington Cottages Corporation of Minnesota
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Rappaport:
Jon D. Rappaport
Kensington Cottages Corporation of Minnesota
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Klane:
Murray Klane
7380 France Avenue
Suite 250
Edina, MN 55435
If to Demmer:
Michael Demmer
1660 South Highway 100
Suite 122
St. Louis Park, MN 55416
If to Kensington-Minnesota, Rappaport, Klane or
Demmer, copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 15.8 by giving the other parties written notice in the
manner set forth in this section.
15.9. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
15.10. Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
15.11. Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
15.12. General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
15.13. Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
15.14. Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
15.15. Forum.
Except as provided in Section 15.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
(Remainder of Page Blank)
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
KENSINGTON
COTTAGES
CORPORATION OF
MINNESOTA
By:
Jon D. Rappaport
Its: President
KENSINGTON-
MINNESOTA
SHAREHOLDERS
Jon D. Rappaport
Murray Klane
Michael Demmer
ANNEX A
TO
STOCK PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
1.1.1
Audit
8.3
Basket Amount
14.5
Closing
12.1
Closing Date
12.1
Contracts
1.1.11
Current Asset Spread
2.1
Data Processing Systems
5.20
Deeds
7.1
Environmental Audit
7.7
Employee Accruals
1.1.9
Equipment Leases
1.1.12
First Union
Improvements
8.5
1.1.3
Indemnity Cap
14.6
Karrington
Preamble
Karrington Entities
14.1
Kensington Cottages of Buffalo I & II
Recitals
Kensington-Minnesota
Preamble
Kensington-Minnesota Financial
Statements
5.2
Kensington-Minnesota Permits
5.10.3
Kensington-Minnesota Shareholders
Preamble
Kensington-Minnesota Shares
4.7
KMGI
1.3
Land
1.1.2
Material Adverse Effect
5.3
Mortgage Debt
5.10.1
Most Recent Financial Statements
5.2
Most Recent Fiscal Month End
5.2
Most Recent Fiscal Year End
5.2
Motor Vehicles
1.1.14
Parent
Preamble
Permitted Encumbrances
7.3
Personal Property
1.1.5
Property
1.1.6
Purchase Price
2.1
Rappaport Letter of Understanding
8.2
Real Estate
1.1.4
Resident
11.1.7
Resident Agreements
1.1.10
Service Employees
1.1.8
Services
1.1.7
Software Licenses
1.1.13
Surveys
7.5
Title Commitment
7.1.1
Title Insurance Affidavit
11.1.7
Title Policy
7.1.2
Transaction
Recitals
Updated Title Commitment
7.1.2
Vehicle Financing
1.1.16
Vehicle Leases
1.1.15
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual knowledge or knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any (a) Employee Welfare
Benefit Plan or other material fringe benefit plan or program, (b)
qualified defined contribution retirement plan or arrangement which
is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d)
nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan.
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KARRINGTON HEALTH, INC.,
KENSINGTON MERGECO, INC.
KENSINGTON MANAGEMENT GROUP, INC.,
AND
JON D. RAPPAPORT
APRIL 24, 1997
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of
April 24, 1997 (this "Agreement"), by and among Kensington
Management Group, Inc., a Minnesota corporation ("Kensington
Management"), Jon D. Rappaport, sole shareholder of Kensington
Management (the "Shareholder"), Karrington Health, Inc., an Ohio
corporation ("Karrington"), and Kensington Mergeco, Inc., a
Minnesota corporation that is a direct, wholly-owned subsidiary of
Karrington ("Mergeco").
RECITALS
WHEREAS, the Board of Directors of Kensington
Management, Karrington, and Mergeco have approved the merger
(the "Merger") of Mergeco with and into Kensington Management,
with Kensington Management as the surviving corporation, upon
the terms and subject to the conditions set forth herein;
WHEREAS, the respective Board of Directors of
Kensington Management, Karrington, and Mergeco have, by
resolutions, approved the execution and delivery of this Agreement
providing for the Merger;
WHEREAS, Karrington, as the sole shareholder of
Mergeco, has, by resolution, approved this Agreement and the
Merger as provided for by the Minnesota Business Corporation Act
(the "MBCA"); and
WHEREAS, the Shareholder has approved the Merger on
behalf of Kensington Management as provided for by the MBCA.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1. Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A. Certain other items
shall have the following meanings:
1.1.1. "Assets" means all of Kensington Management's
right, title, and interest in and to the assets pertaining to the
operations of Kensington Management, including property,
contracts, equipment leases, software licenses, motor vehicles,
vehicle leases, cash and accounts receivable.
1.1.2. "Property" means all of the tangible and intangible
property owned by, relating to, or used in connection with or in the
operation of Kensington Management, including, but not limited to,
furniture, books and records, inventory and supplies, leases, trade
names as more fully itemized on Schedule 1.1.2.
1.1.3. "Contracts" means all management contracts and
other material agreements to which Kensington Management is a
party, as more fully itemized on Schedule 5.24.1 (other than
Equipment Leases, Software Licenses and Vehicle Leases).
1.1.4. "Equipment Leases" means all leased equipment
used in connection with or in the operation of Kensington
Management, as more fully itemized on Schedule 1.1.4.
1.1.5. "Software Licenses" means all licenses from or to
third parties relating to software as more fully itemized on Schedule
1.1.5.
1.1.6. "Motor Vehicles" means all motor vehicles used
by Kensington Management in its operations, as more fully itemized
on Schedule 1.1.6, including Motor Vehicles owned or subject to
Vehicle Leases.
1.1.7. "Vehicle Leases" means all leases to which any
Motor Vehicles are subject, as fully itemized on Schedule 1.1.7.
1.2. Meaning of Certain Words and Phrases.
The word "including" shall mean "including without
limitation." Except where expressly provided to the contrary,
"discretion" means "sole and absolute discretion." References to
statements made to the Knowledge of Kensington Management
include the Knowledge of the Shareholder. References to any
agreements or other documents include groups of related
agreements or other documents.
1.3. Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Kensington Cottages Corporation of America
("America"), Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, America, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
d. the Asset Purchase Agreement by and among
Karrington, America, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, America, Buffalo Hills Residence, and Jon D.
Rappaport;
f. the Asset Purchase Agreement by and among
Karrington, America, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
g. the Asset Purchase Agreement by and among
Karrington, America, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport; and
h. the Stock Purchase Agreement by and among
Karrington, America, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota.
ARTICLE 2
THE MERGER
2.1. The Merger.
a. On the Closing Date, or as promptly as practicable
thereafter, and upon the terms and subject to the conditions
set forth in this Agreement and pursuant to the Plan of
Merger attached in the form included in Exhibit A hereto,
the parties hereto shall cause Mergeco to be merged with
and into Kensington Management, and Kensington
Management shall be the surviving corporation in the
Merger (hereinafter sometimes called the "Surviving
Corporation") and shall continue its corporate existence
under the laws of the State of Minnesota. At such time, the
separate existence of Mergeco shall cease.
b. The Merger shall have the effects set forth in Section
302A.641 of the MBCA. The Surviving Corporation shall
retain the name of Kensington Management and shall
possess all the rights, privileges, immunities, powers and
franchises of Mergeco and Kensington Management and
shall by operation of law become liable for all the debts,
obligations, liabilities and duties of Kensington Management
and Mergeco.
2.2. Articles of Incorporation
At the Effective Time, the Articles of Incorporation of
Mergeco (in the form included in Exhibit A hereto) shall become
the Articles of Incorporation of the Surviving Corporation, by
virtue of the Merger and this Agreement and without any further
action, provided that effective at the Closing Date, Article I of such
Articles of Incorporation shall be amended, by virtue of the Merger
and this Agreement so that the name of the Surviving Corporation
shall be "Kensington Management Group, Inc."
2.3. Bylaws.
At the Effective Time, the By-Laws of Mergeco shall
become the By-Laws of the Surviving Corporation.
2.4. Directors and Officers.
The directors of Mergeco and the officers of Kensington
Management immediately prior to the Closing Date shall be the
directors and officers, respectively, of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation
and By-Laws of the Surviving Corporation.
2.5. Effective Time.
The Merger shall become effective at the date and time
when properly executed Articles of Merger in the form included in
Exhibit A hereto (the "Articles of Merger") relating to the Merger
shall be filed with the Secretary of State of the State of Minnesota
in accordance with the MBCA or at such other later date and time,
if any, as Mergeco and Kensington Management shall agree and as
shall be specified in the Articles of Merger. The date and time
when the Merger shall become effective is herein referred to as the
"Effective Time."
2.6. Kensington Management Common Stock.
The manner and basis of converting the Shares (as
hereinafter defined) shall be as follows:
a. At the Effective Time, the shares of common stock,
without par value, of Kensington Management (the
"Shares") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted
into the right to receive the Merger Consideration upon
surrender of the certificates representing such Shares.
b. At the Effective Time, the Shareholder shall cease to
have any rights as a shareholder of Kensington
Management, except such rights, if any, as he may have
pursuant to the MBCA, and, except as aforesaid, his sole
right shall be the right to receive the Merger Consideration
for the Shares represented by certificates as aforesaid.
2.7. Mergeco Common Stock.
The manner and basis of converting the shares of Mergeco
shall be as follows: at the Effective Time, each share of common
stock, par value $.01 per share ("Mergeco Common Stock"), of
Mergeco issued and outstanding immediately prior to the Closing
Date shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into one fully paid and non-
assessable share of common stock, par value $.01 per share
("Surviving Corporation Common Stock"), of the Surviving
Corporation, and shall constitute the only issued and outstanding
shares of capital stock of the Surviving Corporation immediately
following the Merger. From and after the Closing Date, each
outstanding certificate theretofore representing shares of Mergeco
Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the same number of shares of
Surviving Corporation Common Stock.
2.8. Exchange of Shares.
At the Closing, the Shareholder shall deliver to Karrington
or its designees stock certificates representing the Shares, duly
endorsed in blank for transfer or accompanied by appropriate stock
powers duly executed in blank, with all taxes, direct or indirect,
attributable to the transfer of such Shares paid or provided for. At
the Effective Time, Karrington shall deliver to the Shareholder
shares of the common stock, without par value, of Karrington (the
"Common Stock") as determined in Section 2.9 hereof.
2.9. Merger Consideration.
As soon as practical after the Effective Time (and in any
event within fourteen (14) calendar days of the Closing Date).
Karrington shall deliver to the Shareholder (a) certificates for shares
of Common Stock with a value equal to $1,500,000, and (b) cash in
an amount equal to the increase, if any, in "Current Asset Spread"
from December 31, 1996 to the Closing Date (the "Merger
Consideration"). For purposes of this Section, "Current Asset
Spread" shall mean the amount by which on any specified date the
current assets of Kensington Management exceed its current
liabilities. The value of the Common Stock shall be based upon the
Common Stock Fair Market Value, rounded up, if necessary, to the
nearest whole share. A closing statement (the "Closing Statement")
setting forth the current assets and current liabilities of Kensington
Management at the Closing Date will be agreed upon by
Kensington Management and Karrington as soon as possible after
the Closing Date.
"Common Stock Fair Market Value" shall mean the average
of the closing price quotation or, if none, the average of the closing
bid and asked prices for a share of the Common Stock reported on
the National Association of Securities Dealers, Inc. Automated
Quotation/National Market for the fifteen (15) trading days ending
with the third business day preceding the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND MERGECO
Karrington and Mergeco represent and warrant to
Kensington Management and the Shareholder as follows:
3.1. Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2. Organization, Qualification.
Each of Karrington and Mergeco is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3. Authorization of Transaction.
Each of Karrington and Mergeco has full power and
authority to execute, deliver, and perform this Agreement. This
Agreement constitutes Karrington's and Mergeco's valid and legally
binding obligation, enforceable in accordance with its terms and
conditions (Subject to Equitable Principles).
3.4. Effect on Other Agreements.
Each of Karrington's and Mergeco's execution and delivery
of this Agreement and its consummation of the Merger will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which it is subject or any
provision of its Governing Documents or any indenture, contract or
agreement to which it is subject.
3.5. No Notice or Consent.
Neither Karrington nor Mergeco is not required to give any
notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in
order for the parties to consummate the Merger.
3.6. Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7. Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington, threatened against Karrington
which, if decided adversely to Karrington, may prevent or in any
material way impair the consummation of the Merger or have a
material adverse effect on Karrington's business, operations or
financial condition, taken as a whole.
3.8. Reserved.
3.9. Validity of Common Stock.
The shares of Common Stock to be issued to the
Shareholder hereunder as Merger Consideration will not be subject
to any preemptive rights, rights of first refusal or other preferential
rights that have not been waived, and such shares when issued and
delivered in accordance with the terms of this Agreement will be
validly issued, fully paid and non-assessable and will be free of any
liens or encumbrances whatsoever; provided, however, that such
shares shall be subject to restrictions upon transfer under state
and/or federal securities laws and as set forth herein. No holder of
Common Stock has registration rights other than pursuant to that
certain Registration Rights Agreement, dated as of May 8, 1996, by
and among JMAC, Inc., Richard R. Slager, Alan B. Satterwhite,
Gregory M. Barrows and Karrington, a true and correct copy of
which has been delivered to Kensington Management.
3.10. SEC Reports; Financial Statements.
3.10.1. Karrington has timely filed all forms, reports and
documents with the Securities and Exchange Commission ("SEC")
required to be filed by it pursuant to the Securities Act, and the
rules and regulations promulgated thereunder (collectively, the
"SEC Reports"), all of which have complied, at the time filed, in all
material respects with all applicable requirements of the Securities
Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable, and the rules and regulations
promulgated thereunder. None of the SEC Reports, at the time
filed, 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.
3.10.2. The consolidated balance sheets and the related
consolidated statements of operations, consolidated cash flow and
consolidated shareholders' equity (including the notes thereto) of
Karrington and its subsidiaries contained or incorporated by
reference in the SEC Reports comply in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and present fairly the
consolidated financial position of Karrington and its subsidiaries as
of their respective dates, and the consolidated results of their
operations and their cash flows for the periods presented therein, in
conformity with GAAP applied on a consistent basis, (i) except as
otherwise noted therein, (ii) subject in the case of unaudited
financial statements to normal year-end audit adjustments, (iii)
except that the unaudited financial statements do not contain all of
the footnote disclosures required by GAAP and (iv) except as
otherwise permitted by Form 10-Q.
ARTICLE 4
[Reserved]
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON MANAGEMENT AND SHAREHOLDER
Each of Kensington Management and the Shareholder
separately represents and warrants to Karrington as follows:
5.1. Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2. Organization, Qualification.
Kensington Management is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. It is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required. It has full corporate
power and corporate authority to carry on its business and to own
and use its property. It has not filed for relief as a debtor under any
state receivership laws or federal bankruptcy laws.
5.3. Governing Documents.
Kensington Management has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
5.4. Authorization of Transaction.
Each of Kensington Management and Shareholder has full
power and authority to execute, deliver, and perform this
Agreement. This Agreement constitutes Kensington Management's
and Shareholder's valid and legally binding obligation, enforceable
in accordance with its terms and conditions (Subject to Equitable
Principles).
5.5. Effect on Other Governing Documents.
Kensington Management's and Shareholder's execution and
delivery of this Agreement and the consummation of the Merger
will not violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which either is
subject, or any provision of Kensington Management's Governing
Documents.
5.6. Finder's Fees.
To Kensington Management's Knowledge, no person or
entity is entitled to any brokerage commission, finder's fee, or
similar compensation in connection with the execution, delivery, or
performance of this Agreement.
5.7. Stock Ownership; No Agreements.
Kensington Management's entire authorized capital stock
consists of 25,000 Shares of which 1,000 Shares are issued and
outstanding, all of which are owned beneficially and of record by
the Shareholder. The Shares constitute all issued and outstanding
shares of capital stock or other equity securities of Kensington
Management. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could
require Kensington Management to issue, sell, or otherwise cause
to become outstanding any of its capital stock. The Shares have
been duly authorized for issuance by all necessary corporate action
of Kensington Management, are validly issued, fully paid and
nonassessable, and are owned beneficially and of record by the
Shareholder, free and clear of any restrictions on transfer (other
than any restrictions applicable under the Securities Act and state
securities laws), Taxes, Security Interests, preemptive or similar
rights, options, warrants, purchase rights, contracts, commitments,
equities, liens, claims, and demands. The Shareholder is not a party
to any option, warrant, purchase right, or other contract or
commitment that could require him to sell, transfer, or otherwise
dispose of any capital stock of Kensington Management, including
the Shares, other than this Agreement. Neither the Shareholder nor
Kensington Management is a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of any
capital stock of Kensington Management. There are no outstanding
or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Kensington
Management capital stock.
5.8. [Reserved].
5.9. Subsidiaries.
Kensington Management has no Subsidiaries. Kensington
Management owns no equity securities of any other person or
entity.
5.10. Investment Representations.
In connection with the deliverance of the shares of Common
Stock, the Shareholder (a) is taking the shares of Common Stock
for the purposes of investment and not with a view to any resale or
distribution of such shares, (b) is an "accredited investor" as defined
in Rule 501 under the Securities Act of 1933 (the "Securities Act"),
(c) has been given an opportunity to ask questions and receive
answers from representatives of Karrington as to the terms of the
shares of Common Stock and the affairs of Karrington and has
received all information requested from Karrington, and (d)
understands that the shares of Common Stock will be subject to
substantial restrictions on transfer under the Securities Act. In this
regard, Shareholder acknowledges and confirms he has made an
independent review and investigation of the business and financial
condition of Karrington; that he, either alone or with his financial
advisors, has the necessary background and expertise to evaluate
the same; that he has examined and considered in detail such
information, documentation and financial statements and reports
which he deems necessary and material to such review and
investigation including, without limitation, the Prospectus dated
July 18, 1996 for the initial public offering of Common Stock and
the Form 10-K filed by Karrington for the year ended December 31,
1996; that he has had access to and the opportunity to inspect any
and all records, instruments, documents, financial statements,
reports and budgets and other information which he deemed
necessary and material in such determination; and that he has had
the opportunity to ask questions of and receive answers to such
questions from Karrington, and to obtain any additional information
which he requested. No Person other than the Shareholder is or
will be entitled to receive all or any portion of the Merger
Consideration and no Person other than the Shareholder has made
any claim that such Person is entitled to all or any portion of the
Merger Consideration.
5.11. [Reserved].
5.12. Financial Statements.
Attached as Schedule 5.12 are the following financial
statements of Kensington Management (the "Kensington
Management Financial Statements"): unaudited balance sheets and
statements of income for the fiscal years ended on December 31st
of each of the years 1994, 1995, and 1996, all of which are
consistent with Kensington Management's books and records
(which are maintained as provided in Section 5.31) and fairly
present Kensington Management's results of operations for the
periods indicated. The December 31, 1996 financial statements are
the "Most Recent Financial Statements" and December 31, 1996 is
the "Most Recent Fiscal Month End." December 31, 1996 is the
"Most Recent Fiscal Year End." "Most Recent Balance Sheet"
means the balance sheet contained within the Most Recent Financial
Statements.
5.13. Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Kensington Management's Business, financial condition,
operations, or results of operations which have a material adverse
effect thereon, either separately or in the aggregate (a "Material
Adverse Effect"). Without limiting the generality of the preceding
sentence, since that date, Kensington Management has not:
5.13.1. imposed any Security Interest of any kind upon
any of the Assets;
5.13.2. granted any license or sublicense pertaining to
the Software Licenses or any rights under or with respect to any
Intellectual Property;
5.13.3. experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
5.13.4. sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
5.13.5. entered into any written or oral employment
contract or collective bargaining agreement concerning Employees,
modified the terms of any such existing contract or agreement, or
made any other change in employment terms, except for changes in
compensation or terms of employment in the Ordinary Course of
Business and not in contemplation of this Agreement;
5.13.6. entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets to which Kensington Management is a party or by which it is
bound which pertains in any way to the Assets; or
5.13.7. committed to any of the foregoing.
5.14. Undisclosed Liabilities.
5.14.1. Kensington Management has no Liability and, to
the Knowledge of Kensington Management, there is no Basis for
any Liability which would have a Material Adverse Effect except
for (a) Liabilities set forth on the Most Recent Balance Sheet or
which would not be required to be disclosed on a balance sheet
prepared in accordance with GAAP, and (b) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary
Course of Business, none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, violation of law, or
similar cause.
5.14.2. Kensington Management is not a guarantor or
otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
5.15. Insurance.
5.15.1. Kensington Management maintains insurance
policies (copies of which have been delivered to or made reasonably
available to Karrington) reasonable in scope and amount in
connection with the Assets, and has done so for the past four years,
provided, however, that no representation or warranty is made as to
the reasonableness of such insurance after the Closing and it shall
be Karrington's exclusive responsibility to determine the insurance
policies to be put in place after the Closing.
5.15.2. Schedule 5.15 sets forth a true and accurate list
of all insurance policies carried on the Assets. The casualty
insurance covering the Property insures the full replacement value
thereof.
5.15.3. Kensington Management has complied with all
notices or requests it has received from any insurance company
issuing any of the insurance policies required to be set forth on
Schedule 5.15.
5.16. Effect on Other Agreements.
Except as disclosed in Schedule 5.16, Kensington
Management's execution and delivery of this Agreement and its
consummation of the Merger will not breach, conflict with,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, mortgage, lease,
license, instrument, or other arrangement to which Kensington
Management is a party or by which it is bound or to which any of
its assets is subject, or result in the imposition of any Security
Interest upon any of its assets.
5.17. No Notice or Consent.
Except as disclosed in Schedule 5.17, Kensington
Management is not required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the parties to
consummate the Merger.
5.18. Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
5.19. Real Property.
Kensington Management owns no real property.
5.20. Legal Compliance.
5.20.1. Kensington Management has not taken or failed
to take any action with respect to any legal matter which has
resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets to which Karrington may be subject after Closing.
5.20.2. Kensington Management has complied with all
laws (including any related rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges) of
federal, state, local and foreign governments (including any
governmental agencies), the failure to comply with which would
have a Material Adverse Effect, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced against Kensington Management
alleging any failure to comply.
5.20.3. Kensington Management has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform services
under the contracts (the "Kensington Management Permits") with
respect to which the failure to have would have a Material Adverse
Effect. To Kensington Management's Knowledge, no violations
have occurred with respect to the Kensington Management Permits,
and no proceeding is pending or threatened which might have the
effect of revoking or rescinding, or otherwise having a materially
adverse effect upon, any Kensington Management Permit.
Kensington Management has filed all reports, cost reports,
registrations and statements, together with any required
amendments, that are or were required to be filed with any
governmental authorities (or with any fiscal intermediaries)
pursuant to the Kensington Management Permits or otherwise. As
of their respective dates, all such reports, cost reports, registrations
and statements complied in all material respects with the terms of
the then-existing contracts between any governmental authorities or
fiscal intermediaries and Kensington Management, and with all
statutes, rules and regulations enforced or promulgated by the
regulatory authority (or by any fiscal intermediary) with which they
were filed, and were true, correct and complete as filed in all
material respects.
5.20.4. Kensington Management is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency.
5.20.5. Kensington Management does not qualify for
cost reporting or cost reimbursement under any health care or
similar program administered by any governmental authority or
agency except in connection with the facility managed by it known
as "The Kensington-Bismarck."
5.21. Litigation.
5.21.1. Except as disclosed on Schedule 5.21,
Kensington Management is not a party and, to the Knowledge of
Kensington Management, has not been threatened to be made a
party, to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator.
5.21.2. Kensington Management is not subject, and, to
the Knowledge of Kensington Management, has not been
threatened to be made subject, to any injunction, judgment, order,
decree, ruling, or charge.
5.22. Tax Matters.
5.22.1. Kensington Management has delivered to
Karrington true and complete copies of (a) all Tax Returns that
have been or are currently subject to audit, and (b) all examination
reports and statements of deficiencies assessed against or agreed to
by Kensington Management.
5.22.2. Kensington Management has not taken or failed
to take any action with respect to any tax matter which has resulted
in, or, to the Knowledge of Kensington Management, may result in
(a) the imposition of any Security Interest on the Assets, or (b) any
Liability with respect to which Kensington Management may be
subject after Closing.
5.22.3. Kensington Management has filed all required
Tax Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 5.22, no filing date has been extended for any
Tax Return Kensington Management is or has been required to file
which has not yet been filed. To Kensington Management's
Knowledge, no taxing authority in a jurisdiction where Kensington
Management does not file Tax Returns has ever asserted that
Kensington Management is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the Assets
that arose in connection with any actual or alleged failure to pay
any Tax.
5.22.4. Kensington Management has withheld and paid
all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
5.22.5. To the Knowledge of Kensington Management,
no taxing authority plans to assess any additional Taxes for any
period for which Tax Returns have been filed. To the Knowledge of
Kensington Management, there is no dispute or claim concerning
any Tax Liability claimed or raised by any taxing authority.
5.22.6. Kensington Management has not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
5.23. Intellectual Property.
To the Knowledge of Kensington Management, the current
use by Kensington Management of its Assets does not infringe the
rights of any other person or entity including, but not limited to,
patent, copyright, trademark and other intellectual property rights,
and Kensington has not received any notice claiming any such
infringement. Schedule 5.23 contains a true and complete list of all
Kensington Management trade names, trademarks or service marks,
patents, registered copyrights and licenses; and Kensington
Management has good title to all such intangible assets. As
indicated on Schedule 5.23, certain marks have been duly registered
with the United States Patent and Trademark Office, and such
registrations remain in full force and effect. Subject to (a) rights
provided under various management agreements of Kensington
Management with respect to the facilities which are being conveyed
to Karrington under the Acquisition Agreements, (b) the rights of
Robert L. Rappaport under that certain letter of understanding by
and between Robert L. Rappaport and Shareholder dated May 16,
1994, (c) that certain Licensing Agreement dated March 30, 1995
by and among Centex Senior Services Corporation, Shareholder
and Kensington Management, (d) that certain license agreement by
and between Kensington Management and Centex-Kensington
(Mankato I) Partnership, and (e) the license agreements identified
on Schedule 5.23, Kensington Management has the right to use the
intangible assets listed on Schedule 5.23 and has not licensed to any
other person the right to use such intangible assets.
5.24. Other Agreements.
5.24.1. Schedule 5.24.1 lists and briefly describes all
material written or oral agreements to which Kensington
Management is a party, including all management contracts and
leases (other than the Equipment Leases, Software Licenses, and
Vehicle Leases).
5.24.2. Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 5.11 or 5.17, will continue to be legal, valid,
and binding, and in full force and effect on identical terms
immediately following the consummation of the Merger (Subject to
Equitable Principles). Kensington Management is not in default in
the performance of any such agreements and, to the Knowledge of
Kensington Management no parties thereto have any defenses, set-
offs or rebates relating to any such agreements. Except as disclosed
in Schedule 5.24: to the Knowledge of Kensington Management,
no other party is in breach or default of any such agreement; to the
Knowledge of Kensington Management no event has occurred
which with notice or lapse of time would constitute a breach or
default, or permit termination, modification or acceleration, under
the agreement, and no party has repudiated any provision of the
agreement.
5.24.3. Kensington Management has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
5.24.
5.25. [Reserved]
5.26. Employees.
5.26.1. To Kensington Management's Knowledge as of
the date hereof, no Employee employed in a management capacity
has any plans to terminate employment with Kensington
Management prior to Closing or following Closing.
5.26.2. Kensington Management shall have discharged
all current obligations to the employees with respect to
compensation or benefits of any kind under any type of Employee
Benefit Plan.
5.26.3. Kensington Management is not and never has
been a party to or bound by any collective bargaining agreement.
To the Knowledge of Kensington Management, there has never
been and there is not now any effort by any labor union to organize
any employees of Kensington Management into one or more
collective bargaining units. Kensington Management has not
experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Kensington Management
has not committed any unfair labor practice or other violation of
labor or employment law relating to its employees.
5.27. Employee Benefits.
5.27.1. Kensington Management does not now maintain
and is not now required to contribute to, and has never maintained
or been required to contribute to, any Employee Pension Benefit
Plan.
5.27.2. Schedule 5.27.2 lists and briefly describes each
Employee Benefit Plan that Kensington Management maintains or
to which Kensington Management contributes.
5.27.3. All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
5.27.4. Each item required to be listed on Schedule
5.27.2 and each related trust, insurance contract, or fund complies
in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws.
5.27.5. All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports and
Summary Plan Descriptions) have been properly filed or distributed,
and the requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met with respect to each
Employee Welfare Benefit Plan. Kensington Management has
delivered or made reasonably available to Karrington copies of all
such reports and descriptions.
5.27.6. Kensington Management has delivered or made
reasonably available to Karrington correct and complete copies of
the plan documents and summary plan descriptions, and all related
trust agreements, insurance contracts and other funding agreements
which implement each Employee Benefit Plan.
5.27.7. All contributions, including all employer
contributions and employee salary reduction contributions, which
are due have been paid to each Employee Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each Employee Benefit
Plan or properly accrued. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with
respect to each Employee Welfare Benefit Plan.
5.27.8. There have been no Prohibited Transactions
with respect to any Employee Benefit Plan which Kensington
Management maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required to
contribute; no Fiduciary has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee
Benefit Plan; no action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of
any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of Kensington
Management, threatened; and Kensington Management has no
Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
5.27.9. Kensington Management does not contribute to,
never has contributed to, and never has been required to contribute
to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
5.28. Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Kensington Management.
5.29. Environment, Health and Safety.
5.29.1. To the Knowledge of Kensington Management,
it has no Liability for any illness of or personal injury to any
employee or other individual, for damage to any site, location, or
body of water (surface or subsurface), for any damages or claims
under any past, present, or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice, or for
any other reason under any Environmental, Health and Safety Law
in any way pertaining to or affecting the Assets.
5.29.2. Kensington Management and its predecessors (i)
have complied with all Environmental, Health and Safety Laws, and
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply, and (ii) have
obtained and been in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other
authorizations which are required under, and have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health and
Safety Laws.
5.29.3. There have not been, and there currently are no
pending or, to the Knowledge of Kensington Management,
threatened claims against Kensington Management alleging the
violation of any Environmental, Health and Safety Laws.
5.30. Data Processing Matters.
5.30.1. With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with its Business
which Kensington Management owns, leases, or licenses (the "Data
Processing Systems"):
a. Kensington Management has taken appropriate
action, by instruction, agreement, or otherwise, with its
employees or other persons permitted access to system
application programs and data files, to protect against
unauthorized access, use, copying, modification, theft and
destruction of any such programs and files; and Kensington
Management has not sustained, and Shareholder is not
aware of any information or circumstances indicating that it
may sustain, disruption of business or loss by reason of
unauthorized access, use, copying, modification, theft, or
destruction of any such programs and files by its employees
or any such other persons; and
b. Kensington Management has arranged for back-up
data processing services adequate to meet data processing
needs in the event that the Data Processing Systems are
rendered temporarily or permanently inoperative as a result
of a natural disaster or other cause.
5.30.2. Kensington Management's data processing and
data storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
5.31. Books and Records.
5.31.1. Kensington Management's books of account
pertaining to the Services reflect all material items of income and
expense and all material assets, liabilities and accruals, and are
prepared and maintained in form and substance adequate for
preparing financial statements and related information in
accordance with any accounting principles required by any
governmental agency with regulatory authority over Kensington
Management's financial statements and otherwise in accordance
with the standards required by this Agreement.
5.31.2. Kensington Management has devised and
maintained a system of internal accounting controls with respect to
the Services sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management
directives, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Subsection
5.31.1, (c) the recorded amounts are compared with the actual
levels at reasonable intervals and appropriate action is taken with
respect to any differences, and (d) access to information pertaining
to the preceding items (a) - (c) is permitted only in accordance with
management directives.
ARTICLE 6
NATURE OF DISCLOSURES
6.1. Disclosure by Kensington Management and
Shareholder.
Kensington Management and Shareholder each separately
represent and warrant to Karrington as follows:
6.1.1. All items concerning Kensington Management
which are required to be disclosed or identified on the Schedules to
this Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
6.1.2. No representation or warranty made by or about
Kensington Management in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Kensington Management which is required under this Agreement
contains any untrue statement of a material fact or omits any
material fact necessary to make the statements made not
misleading.
6.1.3. To the Knowledge of Kensington Management,
there is no fact which materially and adversely affects Kensington
Management which has not been set forth in this Agreement, the
Schedules, or any other materials Kensington Management is
required to furnish under this Agreement.
6.1.4. Karrington agrees that it is not relying upon any
representations and warranties of Kensington Management and the
Shareholder that are not set forth in this Agreement or required to
be set forth in a schedule, list, certificate, document or other
instrument or exhibit required under this Agreement and that there
shall not be deemed to be any other express or implied
representations or warranties made by or on behalf of Kensington
Management or the Shareholder in connection with the Merger.
6.2. Copies and Lists.
Unless a representation and warranty made by or about
Kensington Management in this Agreement is solely with respect to
the existence or non-existence of a document or other item, the
mere listing or inclusion of a copy of the document or other item
shall not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington to
understand the exception or (b) an exception to a representation or
warranty which is not permitted.
6.3. Due Diligence.
The obligations of Kensington Management and the
Shareholder to make representations and warranties in accordance
with the standards set forth in this Agreement shall not be affected
or deemed waived on the grounds that Karrington, based upon its
investigation and review or otherwise, should have known that any
such representation or warranty is or might be inaccurate or
incomplete.
ARTICLE 7
[RESERVED]
ARTICLE 8
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
8.1. In General.
Each of the parties will use its best efforts to take all actions
and to do all things necessary, proper or advisable in order to
consummate the Merger.
8.2. Rappaport Letter of Understanding.
Jon D. Rappaport and Robert L. Rappaport shall terminate
the letter of understanding by and between the two of them dated
May 16, 1994, as amended, in which they make certain agreements
regarding the development and ownership of Kensington Cottages
projects and related matters (the "Rappaport Letter of
Understanding").
8.3. Pre-Closing Audit.
Kensington Management shall fully cooperate with Ernst &
Young in connection with the completion of their audit, prior to
Closing, of Kensington Management's financial statements for the
fiscal years ending December 31, 1994, 1995, and 1996 (the
"Audit"). Karrington shall use its best efforts to cause the Audit to
be completed by Ernst & Young on or before April 30, 1997.
8.4. Insurance.
Kensington Management shall maintain the insurance
required to be set forth on Schedule 5.15 in full force and effect
through Closing.
8.5. Operation of Business.
Kensington Management will not engage in any practice,
take any action or enter into any transaction pertaining to the
Services which is outside the Ordinary Course of Business,
including any practice, action, or transaction of a type described in
Section 5.13.
8.6. Preservation of Assets.
Kensington Management will use commercially reasonable
efforts to keep the Assets substantially intact, including all present
operations, physical facilities, working conditions and relationships
with lessors, licensors, suppliers, lessees, residents, customers, and
employees. Kensington Management shall maintain the Assets in
their present condition and repair (ordinary wear and tear
excepted), shall not enter into any material contract relating to the
Assets or Services which extends beyond the Closing Date without
the consent of Karrington, and shall continue the existing Business
including continuing its present advertising commitments and its
usual program of advertising. Kensington Management shall not
remove any items of Property between the date hereof and the
Closing, except as may be required for repair or replacement; and
any replacements shall be of equal or better quality and quantity.
Nothing herein shall require Kensington Management to repair or
replace Property substantially damaged or destroyed by fire or
other casualty prior to Closing.
8.7. Access to Properties.
Kensington Management will permit representatives of
Karrington full access during normal business hours to all of its
premises, properties, personnel, books, records, contracts,
documents and other materials as reasonably required by
Karrington.
8.8. Notice of Developments.
Karrington and Kensington Management each will give
prompt written notice to one another of any development of which
it has Knowledge which reasonably appears to cause any
representations and warranties by any party in this Agreement not
to be true and correct in all material respects as of Closing (except
as provided with respect to the dates of financial statements under
Section 5.12 and except for the date limitation concerning certain
employee matters set forth in Subsection 5.26.1). Such written
notice shall describe the matter with reasonable particularity and
shall set forth the manner in which it would cause any such
representation and warranty (identified by specific reference to the
applicable provision of this Agreement) not to be true as of Closing.
No notice under this Section 8.8 shall be deemed to amend or
supplement any representation or warranty or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant
by the party giving notice; provided that in the event a party would
have the right not to proceed to Closing by reason of such breach,
if the nondefaulting party elects to close notwithstanding such
breach, such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
8.9. Updated Schedules.
Kensington Management will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be
deemed to amend or supplement any representation or warranty or
any Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
8.10. Exclusivity.
So long as this Agreement has not been terminated,
Kensington Management will not (a) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to
the acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Kensington Management will notify Karrington
immediately if any of the foregoing occur.
8.11. Confidentiality.
8.11.1. Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
8.11.2. Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 8.11
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
8.11.3. The provisions of this Section 8.11 shall not
supersede any confidentiality provisions contained in the letter of
intent between Kensington Management and Karrington Operating
Company, Inc. dated November 12, 1996, which shall remain in full
force and effect; provided that, the provisions of this Agreement
shall control in the event of any conflict.
ARTICLE 9
[RESERVED]
ARTICLE 10
TERMINATION
10.1. Termination of Agreement.
10.1.1. The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
10.1.2. Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Merger.
10.2. Effect of Termination.
If the Agreement is terminated as provided in this Article
10, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 11
CONDITIONS TO OBLIGATION TO CLOSE
11.1. Conditions to Karrington's and Mergeco's Obligation
to Close.
The obligation of Karrington and Mergeco to consummate
the Merger is subject to satisfaction in their favor or waiver by them
of the following conditions as of Closing:
11.1.1. The representations and warranties by or about
Kensington Management set forth in this Agreement shall be true
and correct in all material respects as of the Closing Date as though
made on such date, except as provided with respect to the dates of
financial statements under Section 5.12 and except for the date
limitation concerning certain employee matters set forth in
Subsection 5.26.1.
11.1.2. Kensington Management and the Shareholder
shall have performed and complied in all material respects with all
of their covenants set forth in this Agreement through the Closing.
11.1.3. No action, suit, or proceeding shall be pending
or, to the Knowledge of Kensington Management, threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator,
to which Kensington Management or Shareholder is a party or is
threatened or expected to be made a party, or which is otherwise
known to Kensington Management, in which an unfavorable
outcome would prevent the Closing, cause the Merger to be
rescinded in whole or in part after Closing, or adversely effect the
Surviving Corporation after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
11.1.4. Kensington Management and Shareholder shall
have delivered to Karrington certificates in the form set forth on
Exhibit 11.1.4 certifying that each of the conditions specified above
in Sections 11.1.1 through 11.1.3 is satisfied as of the Closing Date.
11.1.5. The closings under each of the Acquisition
Agreements shall occur simultaneously with the Closing under this
Agreement or in a sequence reasonably agreed upon by Karrington
and Shareholder;
11.1.6. The Rappaport Letter of Understanding shall
have been terminated.
11.1.7. Shareholder and America shall have entered into
an Employment Agreement in the form attached as Exhibit 11.1.7
(the "Employment Agreement").
11.1.8. The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Kensington Management's financial statements for the fiscal
years ended December 31, 1994, 1995 and 1996, and the results of
the Audit shall not require any material adverse adjustments to the
Kensington Management Financial Statements.
11.1.9. Karrington shall have received a written opinion
from Kensington Management's legal counsel in form and substance
as set forth on Exhibit 11.1.9, dated as of the Closing Date.
11.1.10. Kensington Management and the Shareholder
shall have taken all actions required of them in connection with the
Merger, and all certificates, opinions, instruments and other
documents required for the Merger will be reasonably satisfactory
in form and substance to Karrington and its legal counsel.
11.2. Conditions to Obligation of Kensington Management
and the Shareholder.
The obligation of Kensington Management and the
Shareholder to consummate the Transaction is subject to
satisfaction in favor of Kensington Management and the
Shareholder or waiver by Kensington Management and the
Shareholder of the following conditions as of Closing:
11.2.1. Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
11.2.2. Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
11.2.3. No action, suit or proceeding shall be pending
or, to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Merger to be rescinded in
whole or in part after Closing, and no injunction, judgment, order,
decree, ruling, charge or other holding having such an effect shall
be in force.
11.2.4. Karrington shall have delivered to Kensington
Management a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 11.2.4 certifying
that each of the conditions specified above in Sections 11.2.1
through 11.2.3 is satisfied in all respects.
11.2.5. The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Karrington and
Kensington Management.
11.2.6. Kensington Management shall have received
from Karrington's legal counsel a written opinion in form and
substance as set forth on Exhibit 11.2.6, dated as of the Closing
Date.
11.2.7. Karrington shall have taken all actions required
of it in connection with the Merger, and all certificates, opinions,
instruments and other documents required for the Merger shall be
reasonably satisfactory in form and substance to Kensington
Management and its legal counsel.
11.2.8. America shall have entered into the Employment
Agreement with Shareholder.
11.2.9. There shall not have been any event which
would cause the Common Stock of Karrington issued in connection
with Karrington's initial public offering to no longer be qualified for
trading on the National Association of Securities Dealers, Inc.
Automated Quotation/National Market.
ARTICLE 12
REGISTRATION RIGHTS AGREEMENT
12.1. Registration Rights Agreement.
The Shareholder shall be granted certain "piggyback"
registration rights with respect to the Common Shares pursuant to
the Registration Rights Agreement in the form attached as Exhibit
B, to be executed and delivered by the parties at Closing.
ARTICLE 13
CLOSING
13.1. Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 11 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date").
13.2. Deliveries by the Parties at Closing.
13.2.1. At Closing, each party shall deliver to each other
the various documents, instruments, certificates, and opinions
required to be delivered at Closing under Article 11.
13.2.2. Deliveries by Kensington Management and
Shareholder shall include the following:
a. All appropriate evidence of authorization for the
execution of this Agreement;
b. The executed Employment Agreement;
c. Consents reasonably satisfactory to Karrington from
the parties to the Contracts and Kensington Management
Permits which require consent to the Merger and approvals
satisfactory to Karrington from all federal, state, and local
governmental authorities and private parties which require
approval of the Merger;
d. Certificates representing all of the issued and
outstanding Shares duly endorsed for transfer or
accompanied by duly executed stock powers, sufficient to
transfer the Shares;
e. The complete and correct corporate minute book,
stock transfer book, and other corporate records of
Kensington Management;
f. Possession of the originals of all Contracts,
commitments, franchises, licenses, permits, or instruments
evidencing rights or obligations of Kensington Management
and its Business and possession of all of the assets of
Kensington Management and all books, records, and other
documents relating to Kensington Management and its
Business;
g. The revocation by Kensington Management of all
prior bank borrowing or depository authorizations;
h. Resignations of the officers and directors of
Kensington Management as requested by Karrington;
i. Such other documents as are otherwise required of
Kensington Management or Shareholder by this Agreement.
13.2.3. Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington;
b. Certificates evidencing the Common Stock (to be
delivered within 14 days of Closing);
c. The Registration Rights Agreement in the form
attached as Exhibit 12.1.
d. Cash in the amount determined pursuant to Section
2.9 (to be delivered upon final determination);
e. Such other documents as are otherwise required of
Karrington by this Agreement.
13.2.4. At the Closing, Karrington, Mergeco and
Kensington Management shall cause the Articles of Merger to be
filed with the Secretary of State of the State of Minnesota in
accordance with the MBCA, and shall take any and all other lawful
actions and do any and all other lawful things necessary to cause
the Merger to become effective.
ARTICLE 14
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
14.1. General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
14.2. Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Kensington
Management, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 15.
14.3. Transition.
Shareholder shall not take any action intended to discourage
any lessor, licensor, lessee, resident, customer, supplier or other
business associate of the Surviving Corporation from maintaining
the same business relationships with the Surviving Corporation
after the Closing as it maintained with Kensington Management
prior to the Closing.
14.4. Transfer Restrictions; Legend.
The Shareholder agrees that he will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (hereinafter, "Transfer") any of the shares of
Common Stock acquired pursuant to the Merger unless such
Transfer complies with the provisions of this Agreement and (i) the
Transfer is pursuant to an effective registration statement under the
Securities Act and the rules and regulations in effect thereunder, or
(ii) counsel for the Shareholder (which counsel shall be reasonably
acceptable to Karrington) shall have furnished Karrington with an
opinion, reasonably satisfactory in form and substance to
Karrington, to the effect that no such registration is required.
(b) The Shareholder acknowledges that each certificate
representing shares of Common Stock acquired pursuant to the
Merger shall bear the following legend:
The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act") and may not be sold,
assigned or transferred in the absence of an effective
registration statement under the Securities Act or an
opinion of counsel satisfactory to the issuer that
such registration is not required.
ARTICLE 15
INDEMNIFICATION
15.1. Meaning of Certain Terms.
15.1.1. In this Article, Kensington Management and the
Shareholder are collectively referred to as the "Kensington
Entities," and Karrington and its Subsidiaries are collectively
referred to as the "Karrington Entities."
15.1.2. A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
15.1.3. For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
15.1.4. For purposes of this Article, all covenants,
representations, and warranties made by Kensington Management
in this Agreement shall be deemed to have been made by
Shareholder, and Shareholder shall be solely liable for indemnity
claims related thereto.
15.2. Survival of Representations and Warranties.
15.2.1. Except as provided in Section 15.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
15.2.2. "Survival Period" means the eighteen (18)
month period set forth in Subsection 15.2.1 or the period described
in Section 15.7, whichever applies.
15.2.3. In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
15.3. Indemnification Obligations of the Kensington
Entities.
15.3.1. If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections
15.1.4, 15.5 and 15.6
15.3.2. In addition, Shareholder shall indemnify and
hold harmless the Karrington Entities from and against all Adverse
Consequences related to (a) any Liability for the unpaid Taxes of (i)
Kensington Management for periods prior to the Closing Date or
(ii) any other Person (as a transferee or successor, by contract, or
otherwise) as a result of any action taken or not taken by
Kensington Management prior to the Closing Date, or (b) any
matter which is the subject of actual or threatened litigation, judicial
order, administrative action, or any similar matter concerning
Kensington Management (other than related to the enforcement of
this Article) but only to the extent resulting from any action taken
or not taken by Kensington Management prior to the Closing Date,
whether or not disclosed or required to be disclosed on any
Schedule to this Agreement.
15.4. Indemnification Obligations of Karrington and
Karrington.
15.4.1. If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Section 15.5
and 15.6.
15.4.2. The Karrington Entities shall indemnify and hold
harmless the Shareholder from and against all Adverse
Consequences arising from or in connection with Kensington
Management after the Closing Date, except to the extent the
Kensington Entities are required to indemnify the Karrington
Entities in respect thereof under this Article.
15.5. Basket Amount.
15.5.1. Except as provided in Section 15.7, the
Kensington Entities shall have no obligation to indemnify the
Karrington Entities under this Article unless and until the
Karrington Entities have suffered Adverse Consequences giving rise
to a right of indemnification under this Article of at least $15,000 in
the aggregate (the "Basket Amount"), and then only as to the
amount by which aggregate claims by the Karrington Entities
exceed the Basket Amount.
15.5.2. Except as provided in Section 15.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington Entities under this Article unless and until the
Kensington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article in the aggregate
of at least the Basket Amount; and then only as to the amount by
which aggregate claims by the Kensington Entities exceed the
Basket Amount.
15.6. Limitation on Recovery.
15.6.1. Except as provided in Section 15.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington Entities under this Article shall be limited to $150,000
(the "Indemnity Cap").
15.6.2. Except as provided in Section 15.7, the
aggregate obligation of the Kensington Entities to indemnify the
Karrington Entities under this Article shall be limited to the
Indemnity Cap.
15.7. Liability for Certain Claims.
The limitations set forth in Sections 15.5 and 15.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
15.3.2, or (c) by the Kensington Entities under Subsection 15.4.2.
The aggregate obligation of the Karrington Entities to indemnify
the Kensington Entities for all such indemnity claims shall be limited
to the Merger Consideration, and the Kensington Entities'
aggregate obligation to indemnify the Karrington Entities for all
such indemnity claims shall be limited to the Merger Consideration.
The Survival Period for any such indemnity claim shall be the
greater of the eighteen (18) month period set forth in Section
15.2.1 or the period set forth in the statute of limitations under
applicable law.
15.8. Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
15.9. Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
15.10. Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 16.14 or claims relating to
Intellectual Property, Confidential Information or where it
otherwise reasonably appears that irreparable harm may occur or a
remedy in damages may be inadequate. In furtherance of the
foregoing, each of the parties, to the fullest extent permitted by
applicable law, waives any and all rights, claims and causes of
action that it may have against each of the other parties in
connection with any such claims arising under or based upon any
federal, state or local statute, law, ordinance, rule or regulation of,
arising under or based upon common law or otherwise, except to
the extent provided in this Article.
15.11. Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
15.12. Matters Involving Third Parties.
15.12.1. If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
15.12.2. An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 15.12.2 shall be
reasonably satisfactory to the Indemnified Party.
15.12.3. At any time an Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 15.12.2, the Indemnified Party may retain separate co-
counsel at its own expense and participate in the defense. If both
the Indemnifying Party and the Indemnified Party are participating
in the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
15.12.4. If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 15.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 15.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1. Expenses.
The Shareholder and Karrington shall share equally all
expenses (including the costs of the Audit and the opinion of Ernst
& Young with respect to such Audit), incurred in connection with
this Agreement and the Merger, except as provided in Article 15 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear it own attorneys'
fees.
16.2. Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Merger prior to the
Closing without the prior written approval of the other parties;
provided, however, that any party may make any public disclosure
it believes in good faith is required by applicable law, in which case
the disclosing party shall advise the other party and consult with the
legal counsel of such other party prior to making the disclosure.
16.3. No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
16.4. Entire Agreement.
Except as provided in Section 8.11.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and Kensington
Management).
16.5. No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing as provided herein.
16.6. Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
the consent of Kensington Management or the Shareholder.
16.7. Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
16.8. Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington Management:
Mr. Jon D. Rappaport
President
Kensington Management Group, Inc.
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Jon D. Rappaport:
Mr. Jon D. Rappaport
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Kensington Management or Jon D. Rappaport, copy
to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Karrington or Mergeco:
Alan B. Satterwhite
COO and CFO
Karrington Health, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 16.8 by giving the other parties written notice in the
manner set forth in this section.
16.9. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
16.10. Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
16.11. Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
16.12. General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
16.13. Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
16.14. Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
16.15. Forum.
Except as provided in Section 16.14, the forum for legal
action concerning this Agreement and the Merger shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: Chief Operating
Officer and Chief Financial
Officer
KENSINGTON
MERGECO, INC.
By:
Alan B. Satterwhite
Its: Vice President
KENSINGTON
MANAGEMENT GROUP,
INC.
By:
Jon D. Rappaport
Its: President and Chief
Executive Officer
SHAREHOLDER
________________________
________________________
Jon D. Rappaport,
Individually
ANNEX A
TO
SHARE EXCHANGE AGREEMENT
DEFINITIONS
Transactional Terms.
The following terms used in this Agreement are defined in
the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Agreement
Preamble
America
1.3
Articles of Merger
2.5
Assets
1.1.1
Audit
8.3
Basket Amount
15.5
Closing
13.1
Closing Date
13.1
Common Stock
2.6
Common Stock Fair Market Value
2.9
Contracts
1.1.3
Current Asset Spread
2.2
Data Processing Systems
5.30
Effective Time
2.5
Employment Agreement
11.1.7
Equipment Leases
1.1.4
Indemnity Cap
15.6
Karrington
Preamble
Karrington Entities
15.1
Kensington Management
Preamble
Kensington Management Financial
Statements
5.12
Kensington Management Permits
5.20.3
Knowledge of Kensington Management
1.2
MBCA
Recitals
Material Adverse Effect
5.13
Mergeco
Preamble
Mergeco Common Stock
2.7
Merger
Recitals
Merger Consideration
2.9
Most Recent Financial Statements
5.12
Most Recent Fiscal Month End
5.12
Most Recent Fiscal Year End
5.12
Motor Vehicles
1.1.6
Property
1.1.2
Rappaport Letter of Understanding
8.2
Securities Act
5.10
Shareholder
Preamble
Shares
2.6
Software Licenses
1.1.5
Surviving Corporation
2.1
Surviving Corporation Common Stock
2.7
Transfer
14.4
Vehicle Leases
1.1.7
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual knowledge or knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any (a) Employee Welfare
Benefit Plan or other material fringe benefit plan or program, (b)
qualified defined contribution retirement plan or arrangement which
is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d)
nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan.
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
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EXHIBIT A
PLAN OF MERGER
PLAN OF MERGER, dated as of April 24, 1997 (this
"Plan"), by and among Kensington Management Group, Inc., a
Minnesota corporation ("Kensington Management"), Jon D.
Rappaport, sole shareholder of Kensington Management (the
"Shareholder"), Karrington Health, Inc., an Ohio corporation
("Karrington"), and Kensington Mergeco, Inc., a Minnesota
corporation that is a direct, wholly-owned subsidiary of Karrington
("Mergeco").
RECITALS
WHEREAS, the Board of Directors of Kensington
Management, Karrington, and Mergeco have approved the merger
(the "Merger") of Mergeco with and into Kensington Management,
with Kensington Management as the surviving corporation;
WHEREAS, the respective Board of Directors of
Kensington Management, Karrington, and Mergeco have, by
resolutions, approved the execution and delivery of this Plan;
WHEREAS, Karrington, as the sole shareholder of
Mergeco, has, by resolution, approved this Plan and the Merger as
provided for by the Minnesota Business Corporation Act (the
"MBCA"); and
WHEREAS, the Shareholder has approved the Merger on
behalf of Kensington Management as provided for by the MBCA.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations and warranties, the parties
agree as follows.
1.1. The Merger.
a. At the Effective Time, the parties hereto shall cause
Mergeco to be merged with and into Kensington
Management, and Kensington Management shall be the
surviving corporation in the Merger (hereinafter sometimes
called the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of
Minnesota. At such time, the separate existence of
Mergeco shall cease.
b. The Merger shall have the effects set forth in Section
302A.641 of the MBCA. The Surviving Corporation shall
retain the name of Kensington Management and shall
possess all the rights, privileges, immunities, powers and
franchises of Mergeco and Kensington Management and
shall by operation of law become liable for all the debts,
obligations, liabilities and duties of Kensington Management
and Mergeco.
1.2. Articles of Incorporation
At the Effective Time, the Articles of Incorporation of
Mergeco (in the form included in Exhibit A hereto) shall become
the Articles of Incorporation of the Surviving Corporation, by
virtue of the Merger and without any further action, provided that
effective at the Closing Date, Article I of such Articles of
Incorporation shall be amended, by virtue of the Merger and this
Plan, so that the name of the Surviving Corporation shall be
"Kensington Management Group, Inc."
1.3. Bylaws.
At the Effective Time, the By-Laws of Mergeco shall
become the By-Laws of the Surviving Corporation.
1.4. Directors and Officers.
The directors of Mergeco and the officers of Kensington
Management immediately prior to the Closing Date shall be the
directors and officers, respectively, of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation
and By-Laws of the Surviving Corporation.
1.5. Effective Time.
The Merger shall become effective at the date and time
when properly executed Articles of Merger (the "Articles of
Merger") relating to the Merger shall be filed with the Secretary of
State of the State of Minnesota in accordance with the MBCA or at
such other later date and time, if any, as Mergeco and Kensington
Management shall agree and as shall be specified in the Articles of
Merger. The date and time when the Merger shall become effective
is herein referred to as the "Effective Time."
1.6. Kensington Management Common Stock.
The manner and basis of converting the Shares (as
hereinafter defined) shall be as follows:
a. At the Effective Time, the shares of common stock,
without par value, of Kensington Management (the
"Shares") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted
into the right to receive the Merger Consideration upon
surrender of the certificates representing such Shares.
b. At the Effective Time, the Shareholder shall cease to
have any rights as a shareholder of Kensington
Management, except such rights, if any, as he may have
pursuant to the MBCA, and, except as aforesaid, his sole
right shall be the right to receive the Merger Consideration
for the Shares represented by certificates as aforesaid.
1.7. Mergeco Common Stock.
The manner and basis of converting the shares of Mergeco
shall be as follows: at the Effective Time, each share of common
stock, par value $.01 per share ("Mergeco Common Stock"), of
Mergeco issued and outstanding immediately prior to the Closing
Date shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into one fully paid and non-
assessable share of common stock, par value $.01 per share
("Surviving Corporation Common Stock"), of the Surviving
Corporation, and shall constitute the only issued and outstanding
shares of capital stock of the Surviving Corporation immediately
following the Merger. From and after the Closing Date, each
outstanding certificate theretofore representing shares of Mergeco
Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the same number of shares of
Surviving Corporation Common Stock.
1.8. Exchange of Shares.
At the Closing, the Shareholder shall deliver to Karrington
or its designees stock certificates representing the Shares, duly
endorsed in blank for transfer or accompanied by appropriate stock
powers duly executed in blank, with all taxes, direct or indirect,
attributable to the transfer of such Shares paid or provided for. At
the Effective Time, Karrington shall deliver to the Shareholder
shares of common stock, without par value, of Karrington (the
"Common Stock") as determined pursuant to this Plan.
1.9. Merger Consideration.
As soon as practical after the Effective Time (and in any
event within fourteen (14) calendar days of the Closing Date).
Karrington shall deliver to the Shareholder (a) certificates for shares
of Common Stock with a value equal to $1,500,000, and (b) cash
in an amount equal to the increase, if any, in "Current Asset
Spread" from December 31, 1996 to the Closing Date (the "Merger
Consideration"). For purposes of this Section, "Current Asset
Spread" shall mean the amount by which on any specified date the
current assets of Kensington Management exceed its current
liabilities. The value of the Common Stock shall be based upon the
Common Stock Fair Market Value, rounded up, if necessary, to the
nearest whole share. A closing statement (the "Closing Statement")
setting forth the current assets and current liabilities of Kensington
Management at the Closing Date will be agreed upon by
Kensington Management and Karrington as soon as possible after
the Closing Date.
"Common Stock Fair Market Value" shall mean the average
of the closing price quotation or, if none, the average of the closing
bid and asked prices for a share of the Common Stock reported on
the National Association of Securities Dealers, Inc. Automated
Quotation/National Market for the fifteen (15) trading days ending
with the third business day preceding the Closing.
IN WITNESS WHEREOF, the parties have executed this
Plan as of the date indicated above.
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: Chief Operating
Officer and Chief Financial
Officer
KENSINGTON
MERGECO, INC.
By:
Alan B. Satterwhite
Its: Vice President
KENSINGTON
MANAGEMENT GROUP,
INC.
By:
Jon D. Rappaport
Its: President and Chief
Executive Officer
SHAREHOLDER
________________________
________________________
Jon D. Rappaport,
Individually
- -------------------------------------
EXHIBIT B
Registration Rights Agreement
This Registration Rights Agreement is entered into effective
as of April 30, 1997 by and between Karrington Health, Inc. (the
"Company") and Jon D. Rappaport ("Holder").
1. Background.
Pursuant to a certain Agreement and Plan of Merger dated
as of April 24, 1997, the Company has agreed to acquire from
Holder all of the outstanding shares of capital stock of Kensington
Management Group, Inc., a Minnesota corporation, in exchange for
cash and 137,363 common shares of the Company (the "Common
Shares"). Holder's agreement to acquire the Common Shares is on
the condition that the Company grant certain limited registration
rights with respect thereto. Pursuant to a certain Registration
Rights Agreement dated as of May 8, 1996, a copy of which is
attached hereto (the "Registration Rights Agreement"), the
Company previously has granted registration rights to certain other
holders of the Company's securities. Holder desires to become a
party to the Registration Rights Agreement for such limited
purposes with respect to the Common Shares.
2. Piggyback Registration Rights.
The Company and Holder agree that (i) the Common Shares
shall be deemed and treated as "Registrable Securities" under the
Registration Rights Agreement only for purposes of "Piggyback
Registration" under Section 3(g) and Section 4 of such agreement,
(ii) Holder shall not have any right with respect to, and the
Common Shares shall not be deemed "Registrable Securities" for
purposes of, any "Demand Registration" under such agreement, and
(iii) Holder shall be a party to the Registration Rights Agreement
for such purposes as if an original signatory thereto, and shall be
bound by the terms and conditions of the Registration Rights
Agreement.
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement effective as of the date first set forth
above.
Karrington Health, Inc.
By: _______________________
______________________
Alan B. Satterwhite Jon D.
Rappaport Chief Operating Officer and
Chief Financial Officer
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
BUFFALO HILLS RESIDENCE,
AND
JON D. RAPPAPORT
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among Buffalo
Hills Residence, a Minnesota general partnership, Kensington
Cottages Corporation of America, a Minnesota corporation
(Kensington Cottages Corporation of America is a wholly-owned
subsidiary of Karrington Operating Company, Inc., an Ohio
corporation, and is referred to as "Karrington"), Karrington Health,
Inc., an Ohio corporation ("Parent"), and Jon D. Rappaport.
RECITALS
Buffalo Hills Residence owns and operates a 72 room
assisted living facility in Buffalo, Minnesota, known as The
Kensington-Buffalo.
Karrington desires to acquire The Kensington-Buffalo and
certain assets related to the operations of Buffalo Hills Residence,
as more specifically described below, and Buffalo Hills Residence
wishes to sell them to Karrington upon the terms set forth in this
Agreement (the "Transaction").
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
1.2.1 The word "including" shall mean "including
without limitation." Except where expressly provided to the
contrary, "discretion" means "sole and absolute discretion."
References to any agreements or other documents include groups
of related agreements or other documents.
1.2.2 Covenants of Buffalo Hills Residence shall be
deemed to have been made separately by each of its general
partners. Representations and warranties of Buffalo Hills Residence
shall be deemed to have been made by Jon D. Rappaport
(individually and as a general partner of Buffalo Hills Residence)
and not by Diane S. Rappaport.
1.3 Acquisition Agreements.
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota;
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from Buffalo Hills
Residence (and Parent agrees to cause Karrington to purchase), and
Buffalo Hills Residence shall sell to Karrington, all of Buffalo Hills
Residence's right, title, and interest in and to the assets pertaining
to the operation of The Kensington-Buffalo (the "Assets"),
including the following:
2.1.1 The real property owned in fee simple by Buffalo
Hills Residence as more particularly described in Schedule 2.1.1
(the "Land"), together with all buildings, improvements, and
fixtures located thereon (the "Improvements") and all rights,
privileges, servitudes, and appurtenances thereunto belonging or
appertaining, including all right, title and interest of Buffalo Hills
Residence in and to the streets, alleys, and rights-of-way adjacent to
the Land, if any (the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of The
Kensington-Buffalo (the "Services"), including any residential
leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that Buffalo Hills Residence shall continue to have
reasonable access to such books and records to the extent necessary
to enable Buffalo Hills Residence to comply with applicable
financial or legal reporting requirements, and Buffalo Hills
Residence shall have the right to copy such materials as it desires,
at is own expense, for that purpose; and
2.1.8 All other assets of Buffalo Hills Residence,
including any Intellectual Property and any other rights, claims, or
interests, which are reasonably necessary to enable Karrington to
perform the Services (including the performance of all Contracts)
after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by Buffalo Hills Residence;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of Buffalo Hills Residence under any
claims, prepayments, refund, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment
(including such items relating to the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 8.1 and 8.2,
Buffalo Hills Residence's rights under any policies of insurance
purchased by Buffalo Hills Residence, or any benefits payable or
paid thereunder;
2.2.7 The taxpayer and other identification numbers,
general ledgers, tax returns, seals, minute books, and similar
documents relating to the organization, maintenance and existence
of Buffalo Hills Residence, provided, however, that Karrington
shall have reasonable access to such books and records to the
extent reasonably necessary for the operation of its Business and to
comply with applicable financial and legal reporting requirements,
and Karrington shall have the right to copy such materials as it
desires, at its own expense, for that purpose;
2.2.8 Any of the rights of Buffalo Hills Residence under
this Agreement or any other agreement between Buffalo Hills
Residence and Karrington entered into on or after the date of this
Agreement; and
2.2.9 Other tangible or intangible assets of Buffalo Hills
Residence which are not specifically included in the definition of
Assets.
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of Buffalo Hills Residence
which are associated with the Contracts, Equipment Leases,
Vehicle Leases, and Software Licenses, including Buffalo
Hills Residence's obligations with respect to the security
deposits included in the Assets as more fully described on
Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify Buffalo Hills Residence
with respect to all losses, costs, damages, and expenses arising out
of any act or omission relating to the Assumed Liabilities occurring
after Closing, and Buffalo Hills Residence shall indemnify
Karrington with respect to any such loss, cost, damage or expense
arising out of any act or omission relating to the Assumed
Liabilities occurring prior to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
Buffalo Hills Residence a purchase price equal to Four Million Nine
Hundred Thousand Dollars ($4,900,000.00) as follows:
a. An amount equal to the total amount of the Employee
Accruals shall be deemed paid by Karrington's assumption
thereof at Closing; and
b. The balance shall be paid at Closing by wire transfer
or other form of immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to Buffalo Hills Residence as follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of North
Dakota, neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY BUFFALO HILLS RESIDENCE
Buffalo Hills Residence and Jon D. Rappaport each
separately represents and warrants to Karrington and Parent as
follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 General Partners.
Jon D. Rappaport and Diane S. Rappaport are the general
partners of Buffalo Hills Residence and there are no other partners.
4.3 Organization, Qualification.
Buffalo Hills Residence is a general partnership duly
organized, validly existing, and in good standing under the laws of
Minnesota. It has full power and authority to carry on its business
and to own and use its property. It has not filed for relief as a
debtor under any state receivership laws or federal bankruptcy laws.
4.4 Governing Documents.
Buffalo Hills Residence has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.5 Authorization of Transaction.
Buffalo Hills Residence has full power and authority to
execute, deliver, and perform this Agreement. This Agreement
constitutes Buffalo Hills Residence's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
4.6 Effect on Other Governing Documents.
Buffalo Hills Residence's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buffalo Hills
Residence is subject or any provision of its Governing Documents.
4.7 Finder's Fees.
To Buffalo Hills Residence's Knowledge, no person or
entity is entitled to any brokerage commission, finder's fee, or
similar compensation in connection with the execution, delivery, or
performance of this Agreement.
4.8 Subsidiaries.
Buffalo Hills Residence owns no equity securities or similar
interest in any other person or entity.
4.9 Financial Statements.
Attached as Schedule 4.9 are the following financial
statements of Buffalo Hills Residence (the "Buffalo Hills Residence
Financial Statements"): (a) audited balance sheets and statements of
income for the fiscal years ended on December 31st of each of the
years 1994, 1995, and 1996, and (b) unaudited balance sheets and
statements of income for the one month period ended on January
31, 1997, all of which (including footnotes to the audited
statements) are consistent with Buffalo Hills Residence's books and
records, have been prepared in accordance with GAAP consistently
applied, and fairly present Buffalo Hills Residence's results of
operations for the periods indicated; provided, however, that the
Most Recent Financial Statements are subject to normal year-end
adjustments (which are not material either separately or in the
aggregate) and lack footnotes and other presentation items required
by GAAP. The January 31, 1997 financial statements are the "Most
Recent Financial Statements." January 31, 1997 is the "Most
Recent Fiscal Year End" and the "Most Recent Fiscal Month End."
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
4.10 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Buffalo Hills Residence's Business, financial condition,
operations, or results of operations which have a material adverse
effect on the Assets, Services, or Assumed Liabilities either
separately or in the aggregate (a "Material Adverse Effect").
Without limiting the generality of the preceding sentence, since that
date, Buffalo Hills Residence has not:
4.10.1 imposed any Security Interest of any kind upon
any of the Assets;
4.10.2 granted any license or sublicense pertaining to
the Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
4.10.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
4.10.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
4.10.5 defaulted on or postponed payment of the
Assumed Liabilities;
4.10.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
4.10.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Buffalo Hills Residence is a party
or by which it is bound which pertains in any way to the Assets or
the Services; or
4.10.8 committed to any of the foregoing.
4.11 Undisclosed Liabilities.
4.11.1 Buffalo Hills Residence has no Liability and, to
the Knowledge of Jon D. Rappaport, there is no Basis for any
Liability which would have a Material Adverse Effect except for (a)
Liabilities set forth on the Most Recent Balance Sheet or which
would not be required to be disclosed on a balance sheet prepared
in accordance with GAAP, and (b) Liabilities which have arisen
after the Most Recent Fiscal Month End in the Ordinary Course of
Business, none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, or similar cause.
4.11.2 Buffalo Hills Residence is not a guarantor or
otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
4.12 Insurance.
4.12.1 Buffalo Hills Residence, through KMGI,
maintains insurance policies (copies of which have been delivered to
or made reasonably available to Karrington) reasonable in scope
and amount in connection with the Assets and Services, and has
done so for the past four years.
4.12.2 Schedule 4.12 sets forth a true and accurate list
of all insurance policies carried on the Assets. The casualty
insurance covering the Property insures the full replacement value
thereof.
4.12.3 Buffalo Hills Residence has complied with all
notices or requests it has received from any insurance company
issuing any of the insurance policies required to be set forth on
Schedule 4.12.
4.13 Effect on Other Agreements.
Except as disclosed in Schedule 4.13, Buffalo Hills
Residence's execution and delivery of this Agreement and its
consummation of the Transaction will not breach, conflict with,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, mortgage, lease,
license, instrument, or other arrangement to which Buffalo Hills
Residence is a party or by which it is bound or to which any of its
assets is subject, or result in the imposition of any Security Interest
upon any of its assets to which Karrington may be subject after the
Closing.
4.14 No Notice or Consent.
Except as disclosed in Schedule 4.14, Buffalo Hills
Residence is not required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the parties to
consummate the Transaction.
4.15 Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
4.16 Property Matters.
4.16.1 Except as disclosed on Schedule 4.16, no notices
have been received by Buffalo Hills Residence from the holder of
any of the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
4.16.2 Except as disclosed on Schedule 4.16, the
Property and the present use of the Property does not violate any
provisions of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
4.16.3 Except as disclosed on Schedule 4.16, there are
no hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or of any roof or wall
leaks, or backed up sewer problems. All improvements on the Real
Estate were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, Buffalo Hills
Residence shall assign all of its interest in appliance and equipment
manufacturers' warranties, and all other warranties relating to the
construction of the improvements on the Real Estate, if any, to the
extent assignable.
4.16.4 Except as disclosed in Schedule 4.16, there are
no leases affecting the Real Estate except for the Resident
Agreements.
4.16.5 To the Knowledge of Jon D. Rappaport there is
no threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
4.16.6 To the Knowledge of Jon D. Rappaport, except
as disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
4.17 Legal Compliance.
4.17.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property
(which debt shall be paid and the security released at or prior to
Closing, as provided in Section 7.5) (the "Mortgage Debt"), the
Equipment Leases, Vehicle Leases, and the Vehicle Financing, and
as otherwise required to be disclosed in this Agreement, Buffalo
Hills Residence has not taken or failed to take any action with
respect to any legal matter which has resulted in, or may result in
(a) the imposition of any Security Interest on the Assets, or (b) any
Liability with respect to the Assets or Services to which Karrington
may be subject after Closing.
4.17.2 Buffalo Hills Residence has complied with all
laws (including any related rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges) of
federal, state, local and foreign governments (including any
governmental agencies) applicable to the Assets, Services, and
Assumed Liabilities the failure to comply with which would have a
Material Adverse Effect with respect to the Assets, Services or
Assumed Liabilities, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been
filed or commenced against Buffalo Hills Residence alleging any
failure to comply.
4.17.3 Buffalo Hills Residence has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform the
Services (the "Buffalo Hills Residence Permits") with respect to
which the failure to have would have a Material Adverse Effect
with respect to the Assets, Services or Assumed Liabilities. To
Buffalo Hills Residence's Knowledge, no violations have occurred
with respect to the Buffalo Hills Residence Permits, and no
proceeding is pending or threatened which might have the effect of
revoking or rescinding, or otherwise having a materially adverse
effect upon, any Buffalo Hills Residence Permit. Buffalo Hills
Residence has filed all reports, cost reports, registrations and
statements, together with any required amendments, that are or
were required to be filed with any governmental authorities (or with
any fiscal intermediaries) pursuant to the Buffalo Hills Residence
Permits or otherwise. As of their respective dates, all such reports,
cost reports, registrations and statements complied in all material
respects with the terms of the then-existing contracts between any
governmental authorities or fiscal intermediaries and Buffalo Hills
Residence, and with all statutes, rules and regulations enforced or
promulgated by the regulatory authority (or by any fiscal
intermediary) with which they were filed, and were true, correct
and complete as filed in all material respects.
4.17.4 Buffalo Hills Residence is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency that relates to the Assets or the Services.
4.17.5 The Kensington-Buffalo does not qualify for cost
reporting or reimbursement under any health care or similar
program administered by any governmental authority or agency.
4.18 Litigation.
4.18.1 Except as disclosed on Schedule 4.18, Buffalo
Hills Residence is not a party and, to the Knowledge of Jon D.
Rappaport, has not been threatened to be made a party, to any
action, suit, proceeding, hearing, or investigation of, in, or before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which in
any way pertains to the Assets, Services, or Assumed Liabilities.
4.18.2 Buffalo Hills Residence is not subject, and, to the
Knowledge of Jon D. Rappaport, has not been threatened to be
made subject, to any injunction, judgment, order, decree, ruling, or
charge pertaining to the Assets, Services, or Assumed Liabilities.
4.19 Tax Matters.
4.19.1 Buffalo Hills Residence has delivered to
Karrington true and complete copies of (a) the most recent real
estate tax and assessment bills for the Property, (b) all Tax Returns
that have been or are currently subject to audit, and (c) all
examination reports and statements of deficiencies assessed against
or agreed to by Buffalo Hills Residence.
4.19.2 Buffalo Hills Residence has not taken or failed to
take any action with respect to any tax matter which has resulted in,
or, to the Knowledge of Jon D. Rappaport, may result in (a) the
imposition of any Security Interest on the Assets, or (b) any
Liability with respect to which the Assets or Services or Karrington
may be subject after Closing.
4.19.3 Buffalo Hills Residence has filed all required Tax
Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 4.19, no filing date has been extended for any
Tax Return Buffalo Hills Residence is or has been required to file
which has not yet been filed. To Buffalo Hills Residence's
Knowledge, no taxing authority in a jurisdiction where Buffalo Hills
Residence does not file Tax Returns has ever asserted that Buffalo
Hills Residence is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the Assets that arose in
connection with any actual or alleged failure to pay any Tax.
4.19.4 Buffalo Hills Residence has withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
4.19.5 To the Knowledge of Jon D. Rappaport, no
taxing authority plans to assess any additional Taxes for any period
for which Tax Returns have been filed. To the Knowledge of Jon
D. Rappaport, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
4.19.6 Buffalo Hills Residence has not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
4.20 Intellectual Property.
Buffalo Hills Residence does not own, license, or otherwise
possess any rights in any Intellectual Property which pertain in any
way to the Assets or Services, and is not subject to any such rights
held by third parties, other than rights made available to it by
KMGI.
4.21 Other Agreements.
4.21.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which Buffalo Hills
Residence is a party which pertain to the Assets or Services,
including all maintenance contracts, concession agreements, or
other contracts affecting the Property (other than the Equipment
Leases, Software Licenses, and Vehicle Leases).
4.21.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 4.13 or 4.14, will continue to be legal, valid,
and binding, and in full force and effect on identical terms
immediately following the consummation of the Transaction
(Subject to Equitable Principles). Buffalo Hills Residence is not in
default in the performance of any such agreements and, to the
Knowledge of Jon D. Rappaport no parties thereto have any
defenses, set-offs or rebates relating to any such agreements.
Except as disclosed in Schedule 4.21: to the Knowledge of Jon D.
Rappaport no other party, is in breach or default of any such
agreement; to the Knowledge of Jon D. Rappaport no event has
occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification or
acceleration, under the agreement, and no party has repudiated any
provision of the agreement.
4.21.3 Buffalo Hills Residence has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
4.21.
4.21.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
4.22 Performance of Services.
Schedule 4.22 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Buffalo Hills Residence has been in conformity in all material
respects with all applicable contractual commitments and all express
and implied warranties.
4.23 Employees.
4.23.1 Except as provided in Subsection 10.1.9, to
Buffalo Hills Residence's Knowledge as of the date hereof, no
Service Employee employed in a management capacity has any
plans to terminate employment with Buffalo Hills Residence prior
to Closing or to refuse employment with Karrington following
Closing.
4.23.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, Buffalo Hills Residence shall have discharged all
obligations to the Service Employees with respect to compensation
or benefits of any kind under any type of Employee Benefit Plan,
and after Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
Buffalo Hills Residence.
4.23.3 Buffalo Hills Residence is not and never has been
a party to or bound by any collective bargaining agreement. To the
Knowledge of Jon D. Rappaport, there has never been and there is
not now any effort by any labor union to organize any employees of
Buffalo Hills Residence into one or more collective bargaining
units. Buffalo Hills Residence has not experienced any strikes,
grievances, claims of unfair labor practices, or other collective
bargaining disputes. Buffalo Hills Residence has not committed any
unfair labor practice or other violation of labor or employment law
relating to the Service Employees.
4.24 Employee Benefits.
4.24.1 Buffalo Hills Residence does not now maintain
and is not now required to contribute to, and has never maintained
or been required to contribute to, any Employee Pension Benefit
Plan.
4.24.2 Buffalo Hills Residence has not taken or failed to
take any action with respect to any Employee Benefit Plan which
has resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets or Services to which Karrington may be subject after
Closing.
4.24.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
4.24.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which Buffalo Hills
Residence maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required to
contribute; no Fiduciary has any Liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee
Benefit Plan; no action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of
any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to the Knowledge of Jon D. Rappaport,
threatened; and Buffalo Hills Residence has no Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
4.24.5 Buffalo Hills Residence does not contribute to,
never has contributed to, and never has been required to contribute
to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
4.25 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Buffalo Hills Residence which pertain to or could pertain
to the Assets or Services in any way.
4.26 Environment, Health and Safety.
4.26.1 To the Knowledge of Jon D. Rappaport, it has
no Liability for any illness of or personal injury to any employee or
other individual, for damage to any site, location, or body of water
(surface or subsurface), for any damages or claims under any past,
present, or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice, or for any other reason
under any Environmental, Health and Safety Law in any way
pertaining to or affecting the Assets or Services.
4.26.2 Except for the registration of an underground
storage tank, as more fully disclosed on Schedule 4.26.2, Buffalo
Hills Residence and its predecessors (i) have complied with all
Environmental, Health and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any failure to comply, and (ii) have obtained and been in
compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which
are required under, and have complied in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
4.26.3 Buffalo Hills Residence has not disposed of or
arranged for the disposal of any Hazardous Substance on the
Property and Buffalo Hills Residence has no Knowledge of the
disposal of any Hazardous Substance on the Property by any other
person or entity.
4.26.4 There have not been, and there currently are no
pending or, to the Knowledge of Jon D. Rappaport, threatened
claims against Buffalo Hills Residence alleging the violation of any
Environmental, Health and Safety Laws.
4.26.5 Except as disclosed in the Environmental Audit,
to the Knowledge of Jon D. Rappaport, the Property is free of
asbestos, PCB's, methylene chloride, trichloroethylene, dioxins,
dibenzofurans and Extremely Hazardous Substances.
4.27 Data Processing Matters.
4.27.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Buffalo Hills Residence owns, leases, or licenses
(the "Data Processing Systems"):
a. Buffalo Hills Residence, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
Buffalo Hills Residence has not sustained, and is not aware
of any information or circumstances indicating that it may
sustain, disruption of business or loss by reason of
unauthorized access, use, copying, modification, theft, or
destruction of any such programs and files by its employees
or any such other persons; and
b. Buffalo Hills Residence, through KMGI, has arranged
for back-up data processing services adequate to meet data
processing needs in the event that the Data Processing
Systems are rendered temporarily or permanently
inoperative as a result of a natural disaster or other cause.
4.27.2 Buffalo Hills Residence's data processing and
data storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
4.28 Books and Records.
4.28.1 Buffalo Hills Residence's books of account
pertaining to the Services reflect all material items of income and
expense and all material assets, liabilities and accruals, and are
prepared and maintained in form and substance adequate for
preparing financial statements and related information in
accordance with any accounting principles required by any
governmental agency with regulatory authority over Buffalo Hills
Residence's financial statements and otherwise in accordance with
the standards required by this Agreement.
4.28.2 Buffalo Hills Residence has devised and
maintained a system of internal accounting controls with respect to
the Services sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management
directives, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Subsection
4.28.1, (c) the recorded amounts are compared with the actual
levels at reasonable intervals and appropriate action is taken with
respect to any differences, and (d) access to information pertaining
to the preceding items (a) - (c) is permitted only in accordance with
management directives.
4.29 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreements, Buffalo Hills Residence does not hold, and
the Assets do not include, funds of any residents of The
Kensington-Buffalo in excess of two hundred dollars ($200.00) per
resident.
ARTICLE 5
NATURE OF DISCLOSURES
5.1 Disclosure by Buffalo Hills Residence and Jon D.
Rappaport.
Buffalo Hills Residence and Jon D. Rappaport each
separately represent and warrant to Karrington and Parent as
follows:
5.1.1 All items concerning Buffalo Hills Residence
which are required to be disclosed or identified on the Schedules to
this Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
5.1.2 No representation or warranty made by or about
Buffalo Hills Residence in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Buffalo Hills Residence which is required under this Agreement
contains any untrue statement of a material fact or omits any
material fact necessary to make the statements made not
misleading.
5.1.3 To the Knowledge of Jon D. Rappaport, there is
no fact which materially and adversely affects the Assets, Services,
or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials Buffalo Hills
Residence is required to furnish under this Agreement.
5.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties of Buffalo Hills
Residence that are not set forth in this Agreement or required to be
set forth in a schedule, list, certificate, document or other
instrument or exhibit required under this Agreement and that there
shall not be deemed to be any other express or implied
representations or warranties made by or on behalf of Buffalo Hills
Residence in connection with the Transaction.
5.2 Copies and Lists.
Unless a representation and warranty made by or about
Buffalo Hills Residence in this Agreement is solely with respect to
the existence or non-existence of a document or other item, the
mere listing or inclusion of a copy of the document or other item
shall not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington to
understand the exception or (b) an exception to a representation or
warranty which is not permitted.
5.3 Due Diligence.
The obligations of Buffalo Hills Residence to make
representations and warranties in accordance with the standards set
forth in this Agreement shall not be affected or deemed waived on
the grounds that Karrington, based upon its investigation and
review or otherwise, should have known that any such
representation or warranty is or might be inaccurate or incomplete.
ARTICLE 6
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
6.1 Title Commitment and Policy.
6.1.1 Buffalo Hills Residence, has furnished and
delivered to Karrington in form acceptable to Karrington, a current
Owner's Title Insurance Commitment (form ALTA 1966), together
with copies of all documents referred to therein (the "Title
Commitment").
6.1.2 Buffalo Hills Residence shall furnish and deliver to
Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
6.2 Title.
The Updated Title Commitment shall show in Buffalo Hills
Residence good and marketable title in fee simple to the Real
Estate, free and clear of all liens and encumbrances except those
listed in Section 6.3 (the "Permitted Encumbrances"), and the Title
Policy shall insure the same in Karrington.
6.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
6.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
6.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
6.3.3 Liens and encumbrances listed in Schedule 6.3.
6.4 Exceptions and Endorsements.
6.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
6.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
6.5 Survey and Legal Descriptions.
Buffalo Hills Residence has furnished to Karrington (a) plats
of survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of Minnesota who is
acceptable to Karrington (the "Surveys").
6.6 Occupancy Permits.
Buffalo Hills Residence has provided Karrington with true
and complete copies of the occupancy permits for the Real Estate.
6.7 Environmental Audit
Karrington has received from Buffalo Hills Residence a
Phase I Environmental Audit of the Real Property, in form and
content satisfactory to Karrington and performed by an
environmental engineer satisfactory to Karrington (the
"Environmental Audit").
ARTICLE 7
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
7.1 In General.
Buffalo Hills Residence and Karrington will each use its best
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate the Transaction.
7.2 Transfer of Licenses.
Buffalo Hills Residence and Karrington shall use their
mutual best efforts to arrange the transfer or re-issuance to
Karrington as of Closing of all necessary or appropriate licenses,
certificates, permits, or other authorizations to enable Karrington to
own the Assets and perform the Services after Closing.
7.3 Pre-Closing Audit.
Buffalo Hills Residence acknowledges that Ernst & Young
is conducting an audit of various entities who are parties to the
Acquisition Agreements (the "Audit"). To the extent the Audit may
involve a review of the Buffalo Hills Residence Financial
Statements, Buffalo Hills Residence shall fully cooperate with the
Audit and, along with Karrington, shall use best efforts to cause the
Audit to be completed by Ernst & Young on or before April 30,
1997.
7.4 Insurance.
Buffalo Hills Residence shall maintain the insurance
required to be set forth on Schedule 4.12 in full force and effect
through Closing.
7.5 Mortgage Debt.
Buffalo Hills Residence shall make all necessary
arrangements to pay the Mortgage Debt in full and release the
Assets from all Security Interests in connection therewith at
Closing. To the extent reasonably requested by Karrington, Buffalo
Hills Residence shall fully cooperate with any attempts by
Karrington to obtain new financing for the Property, provided that
such cooperation shall not require any payment of fees or
incurrence of out-of-pocket expenses by Buffalo Hills Residence
with respect to such financing, except as otherwise expressly
provided in this Agreement.
7.6 Operation of Business.
Buffalo Hills Residence will not engage in any practice, take
any action or enter into any transaction pertaining to the Services
which is outside the Ordinary Course of Business, including any
practice, action, or transaction of a type described in Section 4.10.
7.7 Preservation of Assets.
Buffalo Hills Residence will use commercially reasonable
efforts to keep the Assets and Services substantially intact,
including all present operations, physical facilities, working
conditions and relationships with lessors, licensors, suppliers,
lessees, residents, customers, and employees. Buffalo Hills
Residence shall maintain the Assets in their present condition and
repair (ordinary wear and tear excepted), shall not enter into any
material contract relating to the Assets or Services which extends
beyond the Closing Date without the consent of Karrington, and
shall continue the existing operation of the Property including
continuing its present advertising commitments and its usual
program of advertising. Buffalo Hills Residence shall not remove
from the Property any items of Personal Property between the date
hereof and the Closing, except as may be required for repair or
replacement; and any replacements shall be of equal or better
quality and quantity. Nothing herein shall require Buffalo Hills
Residence to repair or replace Property substantially damaged or
destroyed by fire or other casualty prior to Closing.
7.8 Access to Properties.
Buffalo Hills Residence will permit representatives of
Karrington full access during normal business hours to all of its
premises, properties, personnel, books, records, contracts,
documents and other materials as reasonably required by
Karrington.
7.9 Notice of Developments.
Karrington and Buffalo Hills Residence will give prompt
written notice to one another of any development of which it has
Knowledge which reasonably appears to cause any representations
and warranties by any party in this Agreement not to be true and
correct in all material respects as of Closing (except as provided
with respect to the dates of financial statements under Section 4.9
and except for the date limitation concerning certain employee
matters set forth in Subsection 4.23.1). Such written notice shall
describe the matter with reasonable particularity and shall set forth
the manner in which it would cause any such representation and
warranty (identified by specific reference to the applicable provision
of this Agreement) not to be true as of Closing. No notice under
this Section 7.9 shall be deemed to amend or supplement any
representation or warranty or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the
party giving notice; provided that in the event a party would have
the right not to proceed to Closing by reason of such breach, if the
nondefaulting party elects to close notwithstanding such breach,
such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
7.10 Updated Schedules.
Buffalo Hills Residence will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be deemed
to amend or supplement any representation or warranty or any
Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
7.11 Exclusivity.
So long as this Agreement has not been terminated, Buffalo
Hills Residence will not (a) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Buffalo Hills Residence will notify Karrington
immediately if any of the foregoing occur.
7.12 Confidentiality.
7.12.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
7.12.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 7.12
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
7.12.3 The provisions of this Section 7.12 shall not
supersede any confidentiality provisions contained in the letter of
intent between Karrington Operating Company, Inc., and KMGI
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 8
DAMAGE, EMINENT DOMAIN
8.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Buffalo Hills Residence until Closing. If the Property
is substantially damaged or destroyed by fire or other casualty prior
to the Closing of the transaction, Buffalo Hills Residence shall not
be obligated to repair or replace the damaged or destroyed
Property, but in that event Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such damage or destruction, be
entitled to all insurance money payable to Buffalo Hills Residence
under any and all policies of insurance covering the Property so
damaged or destroyed, or (b) elect to terminate this Agreement.
8.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Buffalo Hills Residence on account of such
taking, or (b) elect to terminate this Agreement.
ARTICLE 9
TERMINATION
9.1 Termination of Agreement.
9.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
9.1.2 Karrington may terminate this Agreement as
provided in Article 8.
9.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
9.2 Effect of Termination.
If the Agreement is terminated as provided in this Article 9,
all rights and obligations of the parties shall cease immediately upon
termination, except for any Liability of a party then in breach, and
except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 10
CONDITIONS TO OBLIGATION TO CLOSE
10.1 Conditions to Karrington's Obligation to Close.
The obligation of Karrington and Parent to consummate the
Transaction are subject to satisfaction in favor of Karrington and
Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
10.1.1 The representations and warranties by or about
Buffalo Hills Residence set forth in this Agreement shall be true and
correct in all material respects as of the Closing Date as though
made on such date, except as provided with respect to the dates of
financial statements under Section 4.9 and except for the date
limitation concerning certain employee matters set forth in
Subsection 4.23.1.
10.1.2 Buffalo Hills Residence shall have performed and
complied in all material respects with all of their covenants set forth
in this Agreement through the Closing.
10.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of Jon D. Rappaport, threatened before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator, to which
Buffalo Hills Residence or Jon D. Rappaport is a party or is
threatened or expected to be made a party, or which is otherwise
known to Jon D. Rappaport, in which an unfavorable outcome
would prevent the Closing, cause the Transaction to be rescinded in
whole or in part after Closing, or adversely effect Karrington's right
to own the Assets and perform the Services after Closing, and no
injunction, judgment, order, decree, ruling, charge or other holding
having such an effect shall be in force.
10.1.4 Buffalo Hills Residence and Jon D. Rappaport
shall have delivered to Karrington certificates in the form set forth
on Exhibit 10.1.4 certifying that each of the conditions specified
above in Sections 10.1.1 through 10.1.3 is satisfied as of the
Closing Date.
10.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 7.5.
10.1.6 Karrington shall have received the Updated Title
Commitment.
10.1.7 Buffalo Hills Residence shall have executed and
delivered to Karrington and the title insurance company an affidavit
certifying that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in the Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
10.1.8 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Buffalo Hills Residence.
10.1.9 Buffalo Hills Residence shall have terminated all
of the Service Employees effective as of Closing.
10.1.10 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
10.1.11 If the Audit includes a review of the Buffalo
Hills Financial Statements, it shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Buffalo Hills Residence's financial statements for the fiscal
years ended December 31, 1994, 1995, and 1996, and the results of
the Audit shall not require any material adjustments, either
individually or in the aggregate, to the Buffalo Hills Residence
Financial Statements.
10.1.12 Karrington shall have received a written opinion
from Buffalo Hills Residence's legal counsel in form and substance
as set forth on Exhibit 10.1.12, dated as of the Closing Date.
10.1.13 Buffalo Hills Residence shall have taken all
actions required of them in connection with the Transaction, and all
certificates, opinions, instruments and other documents required for
the Transaction will be reasonably satisfactory in form and
substance to Karrington and its legal counsel.
10.2 Conditions to Obligation of Buffalo Hills Residence.
The obligation of Buffalo Hills Residence to consummate
the Transaction is subject to satisfaction in favor of Buffalo Hills
Residence or waiver by Buffalo Hills Residence of the following
conditions as of Closing:
10.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
10.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
10.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be rescinded
in whole or in part after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
10.2.4 Karrington shall have delivered to Buffalo Hills
Residence a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 10.2.4 certifying
that each of the conditions specified above in Sections 10.2.1
through 10.2.3 is satisfied in all respects.
10.2.5 The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Buffalo Hills Residence.
10.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of Buffalo Hills
Residence upon terms satisfactory to Karrington.
10.2.7 Buffalo Hills Residence shall have received from
Karrington's legal counsel a written opinion in form and substance
as set forth on Exhibit 10.2.7, dated as of the Closing Date.
10.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Buffalo Hills Residence and its legal counsel.
ARTICLE 11
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
11.1 Taxes and Assessments.
At or prior to Closing, Buffalo Hills Residence shall (a) pay
all delinquent real estate taxes, including penalties and interest, (b)
pay or credit on the purchase price all special assessments due and
payable at or prior to Closing, and all agricultural use tax
recoupment for years through the year of Closing, if any, and (c)
pay or credit on the purchase price, all real estate taxes for years
prior to the Closing, and a portion of such taxes due and payable
(or prorated according to local commercial custom) for the year of
Closing, prorated through the Closing Date.
11.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
11.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and Buffalo Hills Residence on the basis of a 365-day
year as of the Closing Date.
11.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by Buffalo Hills Residence to the Closing Date.
11.5 Transfer Taxes and Fees.
Buffalo Hills Residence and Karrington shall share equally
the cost of all local or state transfer taxes and fees required for the
transfer of the Property by Buffalo Hills Residence to Karrington.
ARTICLE 12
CLOSING
12.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 10 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
12.2 Deliveries by the Parties at Closing.
12.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to Buffalo Hills Residence
and Karrington, and shall pay the cash purchase price in accordance
with Article 2, (b) Buffalo Hills Residence shall deliver to
Karrington all bills of sale, assignments, consents, and other
documentation required to transfer the Assets to Karrington as
provided in this Agreement, and (c) each party shall deliver to each
other the various documents, instruments, certificates, and opinions
required to be delivered at Closing under Article 10.
12.2.2 Deliveries by Buffalo Hills Residence shall
include the following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that Buffalo Hills Residence
generally will be required to provide a deed to each parcel
of Real Estate which sets forth the same warranties as those
set forth in the deed by which Buffalo Hills Residence
originally took title), signed by all Persons necessary or
required by the Title Commitment or Karrington's attorneys,
conveying title to the Real Estate to Karrington as required
by this Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by Buffalo Hills
Residence;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by Buffalo Hills Residence from any contractors,
materialmen, suppliers or manufacturers with respect to any
work or installations on or with respect to the Property to
the extent assignable;
l. All security deposits held by Buffalo Hills Residence
which have been paid by third parties under the Contracts,
Equipment Leases and Motor Vehicle Leases, or any other
leases included in the Assets; and
m. Such other documents as are otherwise required of
Buffalo Hills Residence by this Agreement.
12.2.3 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
12.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 13
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
13.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
13.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Buffalo Hills
Residence, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 14.
13.3 Transition.
Buffalo Hills Residence shall take no action intended to
discourage any lessor, licensor, lessee, resident, customer, supplier
or other business associate of Buffalo Hills Residence relating to
the Services from maintaining the same business relationships with
Karrington after the Closing as it maintained with Buffalo Hills
Residence prior to the Closing.
13.4 Non-Compete.
13.4.1 For a period of five (5) years from and after
Closing, Buffalo Hills Residence shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of North Dakota;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
13.4.2 Notwithstanding the provisions in this Section
13.4, nothing herein shall restrict Buffalo Hills Residence from
competing with the Services or undertaking any activity otherwise
restricted by this Section 13.4 if and when Jon D. Rappaport is not
subject to a covenant not to compete under his employment
agreement with Karrington.
13.4.3 This Section 13.4 shall survive Closing.
ARTICLE 14
INDEMNIFICATION
14.1 Meaning of Certain Terms.
14.1.1 In this Article, Buffalo Hills Residence and Jon
D. Rappaport are collectively referred to as the "Kensington
Entities," and Karrington and Parent are collectively referred to as
the "Karrington Entities."
14.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
14.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
14.2 Survival of Representations and Warranties.
14.2.1 Except as provided in Section 14.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
14.2.2 "Survival Period" means the eighteen (18) month
period set forth in Subsection 14.2.1 or the period described in
Section 14.7, whichever applies.
14.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
14.3 Indemnification Obligations of the Kensington
Entities.
14.3.1 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections 14.5
and 14.6.
14.3.2 In addition, Buffalo Hills Residence and Jon D.
Rappaport shall jointly and severally indemnify and hold harmless
the Karrington Entities from and against all Adverse Consequences
related to (a) any Liability for the unpaid Taxes of (i) Buffalo Hills
Residence or (ii) any other Person (as a transferee or successor, by
contract, or otherwise) as a result of any action taken or not taken
by Buffalo Hills Residence, or (b) any matter which is the subject of
actual or threatened litigation, judicial order, administrative action,
or any similar matter concerning Buffalo Hills Residence (other
than related to the enforcement of this Article), whether or not
disclosed or required to be disclosed on any Schedule to this
Agreement.
14.4 Indemnification Obligations of Karrington and
Parent.
14.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Section 14.5
and 14.6.
14.4.2 The Karrington Entities shall indemnify and hold
harmless the Kensington Entities from and against all Adverse
Consequences arising from or in connection with ownership of the
Assets, the Services, or the Assumed Liabilities after the Closing
Date, except to the extent the Kensington Entities are required to
indemnify the Karrington Entities in respect thereof under this
Article.
14.5 Basket Amount.
14.5.1 Except as provided in Section 14.7, the
Kensington Entities shall have no obligation to indemnify the
Karrington Entities under this Article unless and until the
Karrington Entities have suffered Adverse Consequences giving rise
to a right of indemnification under this Article of at least Forty-Nine
Thousand Dollars ($49,000.00) in the aggregate (the "Basket
Amount"), and then only as to the amount by which aggregate
claims by the Karrington Entities exceed the Basket Amount.
14.5.2 Except as provided in Section 14.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington Entities under this Article unless and until the
Kensington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article in the aggregate
of at least the Basket Amount; and then only as to the amount by
which aggregate claims by the Kensington Entities exceed the
Basket Amount.
14.6 Limitation on Recovery.
14.6.1 Except as provided in Section 14.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington Entities under this Article shall be limited to Four
Hundred Ninety Thousand Dollars ($490,000.00) (the "Indemnity
Cap").
14.6.2 Except as provided in Section 14.7, the
aggregate obligation of the Kensington Entities to indemnify the
Karrington Entities under this Article shall be limited to the
Indemnity Cap.
14.7 Liability for Certain Claims.
The limitations set forth in Sections 14.5 and 14.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation by the Indemnifying Party rise to the claim for
indemnification by the Indemnified Party, (b) by the Karrington
Entities under Subsection 14.3.2, or (c) by the Kensington Entities
under Subsection 14.4.2. The aggregate obligation of the
Karrington Entities to indemnify the Kensington Entities for all such
indemnity claims shall be limited to the purchase price, and the
Kensington Entities' aggregate obligation to indemnify the
Karrington Entities for all such indemnity claims shall be limited to
the purchase price. The Survival Period for any such indemnity
claim shall be the greater of the eighteen (18) month period set
forth in Section 14.2.1 or the period set forth in the statute of
limitations under applicable law.
14.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
14.9 Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
14.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 15.14 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 13.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
8.1 and 8.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
14.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
14.12 Matters Involving Third Parties.
14.12.1 If any Person other than a party to this
Agreement (a Third Party) asserts a right or claim which may
give rise to a claim for indemnification under this Article (a Third
Party Claim), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
14.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 14.12.2 shall be
reasonably satisfactory to the Indemnified Party.
14.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
14.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
14.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 14.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 14.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Expenses.
Buffalo Hills Residence and Karrington shall share equally
all expenses (including the costs of the Audit and the opinion of
Ernst & Young with respect to such Audit, the Surveys, the Title
Commitment, updated Title Commitment and Title Policy, the
Environmental Audit and all pre-payment penalties and other
expenses with respect to Mortgage Debt, but excluding any
financing costs of Karrington) incurred in connection with this
Agreement and the Transaction, except as provided in Article 14 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear it own attorneys'
fees.
15.2 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
15.3 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
15.4 Entire Agreement.
Except as provided in Section 7.12.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI).
15.5 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
15.6 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
Buffalo Hills Residence's consent.
15.7 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
15.8 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Buffalo Hills Residence or Jon D. Rappaport:
Mr. Jon D. Rappaport
Buffalo Hills Residence
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
Copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 15.8 by giving the other parties written notice in the
manner set forth in this section.
15.9 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
15.10 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
15.11 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
15.12 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
15.13 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
15.14 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
15.15 Forum.
Except as provided in Section 15.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
15.16 Tax Free Exchange
Buffalo Hills Residence may wish to dispose of the Real
Property by means of an exchange for like-kind property qualifying
for tax-free treatment pursuant to Section 1031 of the Code.
Karrington agrees to cooperate with Buffalo Hills Residence in
effecting a qualifying like-kind exchange through a trust or other
means determined by Buffalo Hills Residence. Buffalo Hills
Residence shall bear the additional transaction costs, if any,
attributable to the consummation of a qualifying exchange. Buffalo
Hills Residence shall hold Karrington harmless from any risk or
liability that Karrington might incur in cooperating with Buffalo
Hills Residence. In such an exchange, Karrington shall not be
required to take title to any property other than the Real Property.
Any such exchange shall not affect the time for Closing set forth in
this Agreement.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
BUFFALO HILLS
RESIDENCE
By:
Jon D. Rappaport
Its: General partner
Jon D. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
7.3
Basket Amount
14.5
Bill of Sale
12.2.2
Buffalo Hills Residence
Preamble
Buffalo Hills Residence Financial
Statements
4.9
Buffalo Hills Residence Permits
4.17.3
Closing
12.1
Closing Date
12.1
Contracts
2.1.3
Data Processing Systems
4.27
Deeds
12.2.2
Employee Accruals
2.3.1
Environmental Audit
6.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
14.6.1
Karrington
Preamble
Karrington Entities
14.1
The Kensington-Buffalo
Recitals
KMGI
1.3
Land
2.1.1
Material Adverse Effect
4.10
Mortgage Debt
4.17.1
Most Recent Financial Statements
4.9
Most Recent Fiscal Month End
4.9
Most Recent Fiscal Year End
4.9
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
6.3
Personal Property
2.1.2
Property
2.1.2
Real Estate
2.1.1
Resident
10.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
6.5
Title Commitment
6.1.1
Title Insurance Affidavit
10.1.7
Title Policy
6.1.2
Transaction
Recitals
Updated Title Commitment
6.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
Knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual Knowledge or Knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
CENTEX-KENSINGTON (MANKATO I) PARTNERSHIP,
CENTEX SENIOR SERVICES CORPORATION,
CENTEX LIFE SOLUTIONS, INC.,
KENSINGTON COTTAGES CORPORATION OF MANKATO,
AND
JON D. RAPPAPORT
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among Centex-
Kensington (Mankato I) Partnership, a Minnesota general
partnership ("CKMI Partnership"), Centex Senior Services
Corporation, a Nevada corporation, Centex Life Solutions, Inc., a
Nevada corporation (Centex Senior Services Corporation and
Centex Life Solutions, Inc. are collectively referred to as "Centex"),
Kensington Cottages Corporation of Mankato, a Minnesota
corporation ("Kensington-Mankato"), Jon D. Rappaport,
Kensington Cottages Corporation of America, a Minnesota
corporation (Kensington Cottages Corporation of America is a
wholly-owned subsidiary of Karrington Operating Company, Inc.,
an Ohio corporation, and is referred to as "Karrington"), and
Karrington Health, Inc., an Ohio corporation ("Parent").
RECITALS
CKMI Partnership owns and operates a dementia-specific
assisted living facility with one (1) adult foster care license and
three (3) housing with services registrations for 20 beds in
Mankato, Minnesota, known as Kensington Cottages-Mankato.
Karrington desires to acquire Kensington Cottages-
Mankato and certain assets related to CKMI Partnership's
operations, as more specifically described below, and CKMI
Partnership wishes to sell them to Karrington upon the terms set
forth in this Agreement (the "Transaction").
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
1.2.1 The word "including" shall mean "including
without limitation." Except where expressly provided to the
contrary, "discretion" means "sole and absolute discretion."
References to any agreements or other documents include groups
of related agreements or other documents.
1.2.2 Covenants of CKMI Partnership shall be deemed
to have been made separately by each of its general partners.
Statements made to the Knowledge of CKMI Partnership are made
to Knowledge of each of its general partners, except for the
covenants in Section 15.4.1.
1.2.3 References to statements made to the Knowledge
of Kensington-Mankato include the Knowledge of any director or
officer of Kensington-Mankato and Jon D. Rappaport.
1.3 Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence, and Jon D.
Rappaport;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota; and
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from CKMI
Partnership (and Parent agrees to cause Karrington to purchase),
and CKMI Partnership shall sell to Karrington, all of CKMI
Partnership's right, title, and interest in and to the assets pertaining
to the operation of Kensington Cottages-Mankato (the Assets),
including the following:
2.1.1 The real property owned in fee simple by CKMI
Partnership as more particularly described in Schedule 2.1.1 (the
"Land"), together with all buildings, improvements, and fixtures
located thereon (the "Improvements") and all rights, privileges,
servitudes, and appurtenances thereunto belonging or appertaining,
including all right, title and interest of CKMI Partnership in and to
the streets, alleys, and rights-of-way adjacent to the Land, if any
(the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of
Kensington Cottages-Mankato (the "Services"), including any
residential leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that CKMI Partnership shall continue to have reasonable
access to such books and records to the extent necessary to enable
CKMI Partnership to comply with applicable financial or legal
reporting requirements, and CKMI Partnership shall have the right
to copy such materials as it desires, at is own expense, for that
purpose; and
2.1.8 All other assets of CKMI Partnership, including
any Intellectual Property and any other rights, claims, or interests,
which are reasonably necessary to enable Karrington to perform the
Services (including the performance of all Contracts) after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by CKMI Partnership;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of CKMI Partnership under any claims,
prepayments, refund, causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment (including such
items relating to the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 10.1 and 10.2,
CKMI Partnership's rights under any policies of insurance
purchased by CKMI Partnership, or any benefits payable or paid
thereunder;
2.2.7 The taxpayer and other identification numbers,
general ledgers, tax returns, seals, minute books and similar
documents relating to the organization, maintenance and existence
of CKMI Partnership, provided, however, that Karrington shall
have reasonable access to such books and records to the extent
reasonably necessary for the operation of its Business and to
comply with applicable financial and legal reporting requirements,
and Karrington shall have the right to copy such materials as it
desires, at its own expense, for that purpose;
2.2.8 Any of the rights of CKMI Partnership under this
Agreement or any other agreement between CKMI Partnership and
Karrington entered into on or after the date of this Agreement; and
2.2.9 Other tangible or intangible assets of CKMI
Partnership which are not specifically included in the definition of
Assets, including without limitation the rights of Centex under that
certain Licensing Agreement dated March 30, 1995 by and among
Centex, Jon D. Rappaport and KMGI (the "Licensing Agreement").
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of CKMI Partnership which
are associated with the Contracts, Equipment Leases,
Vehicle Leases, and Software Licenses, including CKMI
Partnership's obligations with respect to the security
deposits included in the Assets as more fully described on
Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify CKMI Partnership with
respect to all losses, costs, damages, and expenses arising out of
any act or omission relating to the Assumed Liabilities occurring
after Closing, and Kensington-Mankato shall indemnify Karrington
with respect to any such loss, cost, damage or expense arising out
of any act or omission relating to the Assumed Liabilities occurring
prior to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
CKMI Partnership a purchase price equal to One Million Three
Hundred Twenty Thousand Dollars ($1,320,000.00) as follows:
a. An amount equal to the total amount of the Employee
Accruals shall be deemed paid by Karrington's assumption
thereof at Closing; and
b. The balance shall be paid at Closing by wire transfer
or other form of immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to CKMI Partnership, Kensington-Mankato, and Jon D.
Rappaport as follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of Minnesota,
neither Karrington nor Parent is required to give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
CONCERNING CKMI PARTNERSHIP
CKMI Partnership, Kensington-Mankato, and Jon D.
Rappaport each separately represents and warrants to Karrington
and Parent as follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 General Partners.
The general partners of CKMI Partnership are Kensington-
Mankato and Centex. There are no other partners.
4.3 Organization, Qualification.
CKMI Partnership is a general partnership duly organized,
validly existing, and in good standing under the laws of the State of
Minnesota. It has full power and authority to carry on its business
and to own and use its property. Neither CKMI Partnership nor any
of its partners has filed for relief as a debtor under any state
receivership laws or federal bankruptcy laws.
4.4 Governing Documents.
CKMI Partnership has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.5 Authorization of Transaction.
CKMI Partnership has full power and authority to execute,
deliver, and perform this Agreement. This Agreement constitutes
CKMI Partnership's valid and legally binding obligation,
enforceable in accordance with its terms and conditions (Subject to
Equitable Principles).
4.6 Effect on Other Governing Documents.
CKMI Partnership's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which CKMI
Partnership is subject or any provision of its Governing Documents.
4.7 Finder's Fees.
To The Knowledge of CKMI Partnership, no person or
entity is entitled to any brokerage commission, finder's fee, or
similar compensation in connection with CKMI Partnership's
execution, delivery, or performance of this Agreement.
4.8 Subsidiaries.
CKMI Partnership does not own any equity securities of any
other person or entity.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
CONCERNING KENSINGTON-MANKATO
Kensington-Mankato and Jon D. Rappaport each separately
represents and warrants to Karrington and Parent as follows:
5.1 Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2 Organization, Qualification.
Kensington-Mankato is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. It is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required. It has full corporate
power and corporate authority to carry on its business and to own
and use its property. It has not filed for relief as a debtor under any
state receivership laws or federal bankruptcy laws.
5.3 Governing Documents.
Kensington-Mankato has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
5.4 Authorization of Transaction.
Kensington-Mankato has full power and authority to
execute, deliver, and perform this Agreement. This Agreement
constitutes Kensington-Mankato's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
5.5 Effect on Other Governing Documents.
Kensington-Mankato's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Kensington-
Mankato is subject or any provision of its Governing Documents.
5.6 Finder's Fees.
To Kensington-Mankato's Knowledge, no person or entity
is entitled to any brokerage commission, finder's fee, or similar
compensation in connection with the execution, delivery, or
performance of this Agreement.
5.7 Stock Ownership.
Jon D. Rappaport, Michael Demmer, and Leonard
Hirschhorn are the only shareholders of Kensington-Mankato.
5.8 Subsidiaries.
Kensington-Mankato has no Subsidiaries. Kensington-
Mankato does not own any equity securities of any other person or
entity.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-MANKATO AND JON D. RAPPAPORT
Kensington-Mankato and Jon D. Rappaport each separately
represents and warrants to Karrington and Parent as follows:
6.1 Date of Representations and Warranties.
The representations and warranties in this Article 6 are true
and correct as of the effective date of this Agreement.
6.2 Financial Statements.
Attached as Schedule 6.2 are the following financial
statements of CKMI Partnership (the "CKMI Partnership Financial
Statements"): unaudited balance sheets and statements of income
for the fiscal years ended on December 31st of each of the years
1994, 1995, and 1996, and for the one month period ended on
January 31, 1997, all of which are consistent with CKMI
Partnership's books and records (which are maintained as provided
in Section 6.21) and fairly present CKMI Partnership's results of
operations for the periods indicated. The January 31, 1997 financial
statements are the "Most Recent Financial Statements" and January
31, 1997 is the "Most Recent Fiscal Month End." December 31,
1996 is the "Most Recent Fiscal Year End." "Most Recent Balance
Sheet" means the balance sheet contained within the Most Recent
Financial Statements.
6.3 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in CKMI Partnership's Business, financial condition,
operations, or results of operations which have a material adverse
effect on the Assets, Services, or Assumed Liabilities either
separately or in the aggregate (a "Material Adverse Effect").
Without limiting the generality of the preceding sentence, since that
date, CKMI Partnership has not:
6.3.1 imposed any Security Interest of any kind upon
any of the Assets;
6.3.2 granted any license or sublicense pertaining to the
Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
6.3.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
6.3.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
6.3.5 defaulted on or postponed payment of the
Assumed Liabilities;
6.3.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
6.3.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which CKMI Partnership is a party or by
which it is bound which pertains in any way to the Assets or the
Services; or
6.3.8 committed to any of the foregoing.
6.4 Undisclosed Liabilities.
6.4.1 CKMI Partnership has no Liability and, to the
Knowledge of Jon D. Rappaport, there is no Basis for any Liability
which would have a Material Adverse Effect except for (a)
Liabilities set forth on the Most Recent Balance Sheet or which
would not be required to be disclosed on a balance sheet prepared
in accordance with GAAP, and (b) Liabilities which have arisen
after the Most Recent Fiscal Month End in the Ordinary Course of
Business, none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, or similar cause.
6.4.2 CKMI Partnership is not a guarantor or otherwise
liable for any Liability or obligation (including indebtedness) of any
other Person.
6.5 Insurance.
6.5.1 CKMI Partnership, through KMGI, maintains
insurance policies (copies of which have been delivered to or made
reasonably available to Karrington) reasonable in scope and amount
in connection with the Assets and Services, and has done so for the
past four years.
6.5.2 Schedule 6.5 sets forth a true and accurate list of
all insurance policies carried on the Assets. The casualty insurance
covering the Property insures the full replacement value thereof.
6.5.3 CKMI Partnership has complied with all notices or
requests it has received from any insurance company issuing any of
the insurance policies required to be set forth on Schedule 6.5.
6.6 Effect on Other Agreements.
Except as disclosed in Schedule 6.6, CKMI Partnership's
execution and delivery of this Agreement and its consummation of
the Transaction will not breach, conflict with, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, mortgage, lease, license, instrument, or
other arrangement to which CKMI Partnership is a party or by
which it is bound or to which any of its assets is subject, or result in
the imposition of any Security Interest upon any of its assets to
which Karrington may be subject after the Closing.
6.7 No Notice or Consent.
Except as disclosed in Schedule 6.7, CKMI Partnership is
not required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the
Transaction.
6.8 Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
6.9 Property Matters.
6.9.1 Except as disclosed on Schedule 6.9, no notices
have been received by CKMI Partnership from the holder of any of
the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
6.9.2 Except as disclosed on Schedule 6.9, the Property
and the present use of the Property does not violate any provisions
of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
6.9.3 Except as disclosed on Schedule 6.9, there are no
hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or of any roof or wall
leaks, or backed up sewer problems. All improvements on the Real
Estate were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, CKMI Partnership
shall assign all of its interest in appliance and equipment
manufacturers' warranties, and all other warranties relating to the
construction of the improvements on the Real Estate, if any, to the
extent assignable.
6.9.4 Except as disclosed in Schedule 2.1.2, there are no
leases affecting the Real Estate except for the Resident
Agreements.
6.9.5 To the Knowledge of Jon D. Rappaport there is
no threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
6.9.6 To the Knowledge of Jon D. Rappaport, except as
disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
6.10 Legal Compliance.
6.10.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property
(which debt shall be paid and the security released at or prior to
Closing, as provided in Section 9.5) (the "Mortgage Debt"), the
Equipment Leases, Vehicle Leases, and the Vehicle Financing, and
as otherwise required to be disclosed in this Agreement, CKMI
Partnership has not taken or failed to take any action with respect
to any legal matter which has resulted in, or may result in (a) the
imposition of any Security Interest on the Assets, or (b) any
Liability with respect to the Assets or Services to which Karrington
may be subject after Closing.
6.10.2 CKMI Partnership has complied with all laws
(including any related rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges) of federal, state,
local and foreign governments (including any governmental
agencies) applicable to the Assets, Services, and Assumed
Liabilities the failure to comply with which would have a Material
Adverse Effect with respect to the Assets, Services or Assumed
Liabilities, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or
commenced against CKMI Partnership alleging any failure to
comply.
6.10.3 CKMI Partnership has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform the
Services (the "CKMI Partnership Permits") with respect to which
the failure to have would have a Material Adverse Effect with
respect to the Assets, Services or Assumed Liabilities. To the
Knowledge of Jon D. Rappaport, no violations have occurred with
respect to the CKMI Partnership Permits, and no proceeding is
pending or threatened which might have the effect of revoking or
rescinding, or otherwise having a materially adverse effect upon,
any CKMI Partnership Permit. CKMI Partnership has filed all
reports, cost reports, registrations and statements, together with
any required amendments, that are or were required to be filed with
any governmental authorities (or with any fiscal intermediaries)
pursuant to the CKMI Partnership Permits or otherwise. As of their
respective dates, all such reports, cost reports, registrations and
statements complied in all material respects with the terms of the
then-existing contracts between any governmental authorities or
fiscal intermediaries and CKMI Partnership, and with all statutes,
rules and regulations enforced or promulgated by the regulatory
authority (or by any fiscal intermediary) with which they were filed,
and were true, correct and complete as filed in all material respects.
6.10.4 CKMI Partnership is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency that relates to the Assets or the Services.
6.10.5 CKMI Partnership does not qualify for cost
reporting or reimbursement under any health care or similar
program administered by any governmental authority or agency.
6.11 Litigation.
6.11.1 Except as disclosed on Schedule 6.11, CKMI
Partnership is not a party and, to the Knowledge of Jon D.
Rappaport, has not been threatened to be made a party, to any
action, suit, proceeding, hearing, or investigation of, in, or before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which in
any way pertains to the Assets, Services, or Assumed Liabilities.
6.11.2 CKMI Partnership is not subject, and, to the
Knowledge of Jon D. Rappaport, has not been threatened to be
made subject, to any injunction, judgment, order, decree, ruling, or
charge pertaining to the Assets, Services, or Assumed Liabilities.
6.12 Tax Matters.
6.12.1 Kensington-Mankato has delivered to Karrington
true and complete copies of (a) the most recent real estate tax and
assessment bills for the Property, (b) all Tax Returns with respect
to CKMI Partnership and Kensington-Mankato's involvement with
CKMI Partnership that have been or are currently subject to audit,
and (c) all examination reports and statements of deficiencies
assessed against or agreed to by CKMI Partnership.
6.12.2 CKMI Partnership and Kensington-Mankato
have not taken or failed to take any action with respect to any tax
matter which has resulted in, or, to the Knowledge of Jon D.
Rappaport, may result in (a) the imposition of any Security Interest
on the Assets, or (b) any Liability with respect to which the Assets
or Services or Karrington may be subject after Closing.
6.12.3 CKMI Partnership and Kensington-Mankato
have filed all required Tax Returns with respect to CKMI
Partnership and Kensington-Mankato's involvement with CKMI
Partnership, all of which were correct and complete in all material
respects when filed, and have fully paid all Taxes to which they are
or have been subject, whether or not shown on any Tax Return.
Except as set forth on Schedule 6.12, no filing date has been
extended for any Tax Return CKMI Partnership or Kensington-
Mankato is or has been required to file which has not yet been filed
with respect to CKMI Partnership and Kensington-Mankato's
involvement with CKMI Partnership. To the Knowledge of Jon D.
Rappaport, no taxing authority in a jurisdiction where CKMI
Partnership does not file Tax Returns has ever asserted that CKMI
Partnership or any of its partners by reason of being a partner of
CKMI Partnership is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the Assets
that arose in connection with any actual or alleged failure to pay
any Tax.
6.12.4 CKMI Partnership has withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, or other third party.
6.12.5 To the Knowledge of Jon D. Rappaport, no
taxing authority plans to assess any additional Taxes for any period
for which Tax Returns have been filed. To the Knowledge of Jon
D. Rappaport, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
6.12.6 CKMI Partnership has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
6.13 Intellectual Property.
CKMI Partnership does not own, license, or otherwise
possess any rights in any Intellectual Property which pertain in any
way to the Assets or Services, and is not subject to any such rights
held by third parties, other than rights made available to it by
KMGI.
6.14 Other Agreements.
6.14.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which CKMI Partnership is a
party which pertain to the Assets or Services, including all
maintenance contracts, concession agreements, or other contracts
affecting the Property (other than the Equipment Leases, Software
Licenses, and Vehicle Leases).
6.14.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 6.6 or 6.7, will continue to be legal, valid, and
binding, and in full force and effect on identical terms immediately
following the consummation of the Transaction (Subject to
Equitable Principles). CKMI Partnership is not in default in the
performance of any such agreements and, to the Knowledge of Jon
D. Rappaport no parties thereto have any defenses, set-offs or
rebates relating to any such agreements. Except as disclosed in
Schedule 6.14, to the Knowledge of Jon D. Rappaport, no other
party, is in breach or default of any such agreement; to the
Knowledge of Jon D. Rappaport no event has occurred which with
notice or lapse of time would constitute a breach or default, or
permit termination, modification or acceleration, under the
agreement, and no party has repudiated any provision of the
agreement.
6.14.3 CKMI Partnership has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
6.14.
6.14.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
6.15 Performance of Services.
Schedule 6.15 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
CKMI Partnership has been in conformity in all material respects
with all applicable contractual commitments and all express and
implied warranties.
6.16 Employees.
6.16.1 Except as provided in Subsection 12.1.10, to
CKMI Partnership's knowledge as of the date hereof, no Service
Employee employed in a management capacity has any plans to
terminate employment with CKMI Partnership prior to Closing or
to refuse employment with Karrington following Closing.
6.16.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, CKMI Partnership shall have discharged all obligations to
the Service Employees with respect to compensation or benefits of
any kind under any type of Employee Benefit Plan, and after
Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
CKMI Partnership.
6.16.3 CKMI Partnership is not and never has been a
party to or bound by any collective bargaining agreement. To the
Knowledge of Jon D. Rappaport, there has never been and there is
not now any effort by any labor union to organize any employees of
CKMI Partnership into one or more collective bargaining units.
CKMI Partnership has not experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining
disputes. CKMI Partnership has not committed any unfair labor
practice or other violation of labor or employment law relating to
the Service Employees.
6.17 Employee Benefits.
6.17.1 CKMI Partnership does not now maintain and is
not now required to contribute to, and has never maintained or
been required to contribute to, any Employee Pension Benefit Plan.
6.17.2 CKMI Partnership has not taken or failed to take
any action with respect to any Employee Benefit Plan which has
resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets or Services to which Karrington may be subject after
Closing.
6.17.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
6.17.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which CKMI Partnership
maintains or ever has maintained or to which it contributes, ever
has contributed, or ever has been required to contribute; no
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan; no
action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of Jon D. Rappaport, threatened; and Jon D.
Rappaport has no Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
6.17.5 CKMI Partnership does not contribute to, never
has contributed to, and never has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
6.18 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of CKMI Partnership which pertain to or could pertain to the
Assets or Services in any way.
6.19 Environment, Health and Safety.
6.19.1 To the Knowledge of Jon D. Rappaport, CKMI
Partnership has no Liability for any illness of or personal injury to
any employee or other individual, for damage to any site, location,
or body of water (surface or subsurface), for any damages or claims
under any past, present, or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice, or for
any other reason under any Environmental, Health and Safety Law
in any way pertaining to or affecting the Assets or Services.
6.19.2 CKMI Partnership and its predecessors (i) have
complied with all Environmental, Health and Safety Laws, and no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any
of them alleging any failure to comply, and (ii) have obtained and
been in compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which
are required under, and have complied in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
6.19.3 CKMI Partnership has not disposed of or
arranged for the disposal of any Hazardous Substance on the
Property and Jon D. Rappaport has no Knowledge of the disposal
of any Hazardous Substance on the Property by any other person or
entity.
6.19.4 There have not been, and there currently are no
pending or, to the Knowledge of Jon D. Rappaport, threatened
claims against CKMI Partnership alleging the violation of any
Environmental, Health and Safety Laws.
6.19.5 Except as disclosed in the Environmental Audit,
to the Knowledge of Jon D. Rappaport, the Property is free of
asbestos, PCB's, methylene chloride, trichloroethylene, dioxins,
dibenzofurans and Extremely Hazardous Substances.
6.20 Data Processing Matters.
6.20.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which CKMI Partnership owns, leases, or licenses (the
"Data Processing Systems"):
a. CKMI Partnership, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
CKMI Partnership has not sustained, and Jon D. Rappaport
is not aware of any information or circumstances indicating
that it may sustain, disruption of business or loss by reason
of unauthorized access, use, copying, modification, theft, or
destruction of any such programs and files by its employees
or any such other persons; and
b. CKMI Partnership, through KMGI, has arranged for
back-up data processing services adequate to meet data
processing needs in the event that the Data Processing
Systems are rendered temporarily or permanently
inoperative as a result of a natural disaster or other cause.
6.20.2 CKMI Partnership's data processing and data
storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
6.21 Books and Records.
6.21.1 CKMI Partnership's books of account pertaining
to the Services reflect all material items of income and expense and
all material assets, liabilities and accruals, and are prepared and
maintained in form and substance adequate for preparing financial
statements and related information in accordance with any
accounting principles required by any governmental agency with
regulatory authority over CKMI Partnership's financial statements
and otherwise in accordance with the standards required by this
Agreement.
6.21.2 CKMI Partnership has devised and maintained a
system of internal accounting controls with respect to the Services
sufficient to provide reasonable assurances that (a) transactions are
executed in accordance with management directives, (b)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with Subsection 6.21.1, (c) the
recorded amounts are compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any
differences, and (d) access to information pertaining to the
preceding items (a) - (c) is permitted only in accordance with
management directives.
6.22 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreement, CKMI Partnership does not hold, and the
Assets do not include, funds of any residents of Kensington
Cottages-Mankato in excess of two hundred dollars ($200.00) per
resident.
ARTICLE 7
NATURE OF DISCLOSURES
7.1 Disclosure by Kensington-Mankato and Jon D.
Rappaport.
Kensington-Mankato and Jon D. Rappaport each separately
represent and warrant to Karrington and Parent as follows:
7.1.1 All items concerning CKMI Partnership which are
required to be disclosed or identified on the Schedules to this
Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
7.1.2 No representation or warranty made by or about
CKMI Partnership, Kensington-Mankato, or Jon D. Rappaport in
this Agreement, and no schedule, list, certificate, document, or
other instrument or exhibit concerning any of them which is
required under this Agreement contains any untrue statement of a
material fact or omits any material fact necessary to make the
statements made not misleading.
7.1.3 To the Knowledge of Kensington-Mankato, there
is no fact which materially and adversely affects the Assets,
Services, or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials CKMI
Partnership, Kensington-Mankato, or Jon D. Rappaport is required
to furnish under this Agreement.
7.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties of CKMI
Partnership, Kensington-Mankato, and Jon D. Rappaport that are
not set forth in this Agreement or required to be set forth in a
schedule, list, certificate, document or other instrument or exhibit
required under this Agreement and that there shall not be deemed
to be any other express or implied representations or warranties
made by or on behalf of CKMI Partnership, Kensington-Mankato,
or Jon D. Rappaport in connection with the Transaction.
Karrington and Parent further acknowledge and agree that Centex,
as a general partner of CKMI Partnership, is making only the
representations and warranties set forth in Article 4, and Karrington
and Parent shall not have any claims against Centex, either directly
or indirectly, by reason of any representations or warranties in this
Agreement other than those set forth in Article 4.
7.2 Copies and Lists.
Unless a representation and warranty made by or about
CKMI Partnership, Kensington-Mankato, or Jon D. Rappaport in
this Agreement is solely with respect to the existence or non-
existence of a document or other item, the mere listing or inclusion
of a copy of the document or other item shall not be adequate to
disclose (a) a permitted exception to a representation or warranty if
an additional description of facts and circumstances is reasonably
necessary to enable Karrington and Parent to understand the
exception or (b) an exception to a representation or warranty which
is not permitted.
7.3 Due Diligence.
The obligations of CKMI Partnership, Kensington-
Mankato, and Jon D. Rappaport to make representations and
warranties in accordance with the standards set forth in this
Agreement shall not be affected or deemed waived on the grounds
that Karrington or Parent, based upon its investigation and review
or otherwise, should have known that any such representation or
warranty is or might be inaccurate or incomplete.
ARTICLE 8
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
8.1 Title Commitment and Policy.
8.1.1 CKMI Partnership has furnished and delivered to
Karrington in form acceptable to Karrington, a current Owner's
Title Insurance Commitment (form ALTA 1966), together with
copies of all documents referred to therein (the "Title
Commitment").
8.1.2 CKMI Partnership shall furnish and deliver to
Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
8.2 Title.
The Updated Title Commitment shall show in CKMI
Partnership good and marketable title in fee simple to the Real
Estate, free and clear of all liens and encumbrances except those
listed in Section 8.3 (the "Permitted Encumbrances"), and the Title
Policy shall insure the same in Karrington.
8.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
8.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
8.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
8.3.3 Liens and encumbrances listed in Schedule 8.3.
8.4 Exceptions and Endorsements.
8.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
8.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, upon review of the
title commitment and surveys, each of which shall be satisfactory to
Karrington in its discretion.
8.5 Survey and Legal Descriptions.
CKMI Partnership has furnished to Karrington (a) plats of
survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of Minnesota who is
acceptable to Karrington (the "Surveys").
8.6 Occupancy Permits.
CKMI Partnership has provided Karrington with true and
complete copies of the occupancy permits for the Real Estate.
8.7 Environmental Audit
Karrington has received from CKMI Partnership a Phase I
Environmental Audit of the Real Property, in form and content
satisfactory to Karrington and performed by an environmental
engineer satisfactory to Karrington (the "Environmental Audit").
ARTICLE 9
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
9.1 In General.
CKMI Partnership and Karrington will each use its best
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate the Transaction.
9.2 Transfer of Licenses.
CKMI Partnership and Karrington shall use their mutual
best efforts to arrange the transfer or re-issuance to Karrington as
of Closing of all necessary or appropriate licenses, certificates,
permits, or other authorizations to enable Karrington to own the
Assets and perform the Services after Closing.
9.3 Pre-Closing Audit.
CKMI Partnership shall fully cooperate with Ernst & Young
in connection with the completion of their audit, prior to Closing,
of CKMI Partnership's financial statements for the fiscal years
ending December 31, 1994, 1995, and 1996 (the "Audit).
Karrington shall use its best efforts to cause the Audit to be
completed by Ernst & Young on or before April 30, 1997.
9.4 Insurance.
CKMI Partnership shall maintain the insurance required to
be set forth on Schedule 6.5 in full force and effect through
Closing.
9.5 Mortgage Debt.
CKMI Partnership shall make all necessary arrangements to
pay the Mortgage Debt in full and release the Assets from all
Security Interests in connection therewith at Closing. To the extent
reasonably requested by Karrington, CKMI Partnership shall fully
cooperate with any attempts by Karrington to obtain new financing
for the Property, provided that such cooperation shall not require
any payment of fees or incurrence of out-of-pocket expenses by
CKMI Partnership with respect to such financing, except as
otherwise expressly provided in this Agreement.
9.6 Operation of Business.
CKMI Partnership will not engage in any practice, take any
action or enter into any transaction pertaining to the Services which
is outside the Ordinary Course of Business, including any practice,
action, or transaction of a type described in Section 6.3.
9.7 Preservation of Assets.
CKMI Partnership will use commercially reasonable efforts
to keep the Assets and Services substantially intact, including all
present operations, physical facilities, working conditions and
relationships with lessors, licensors, suppliers, lessees, residents,
customers, and employees. CKMI Partnership shall maintain the
Assets in their present condition and repair (ordinary wear and tear
excepted), shall not enter into any material contract relating to the
Assets or Services which extends beyond the Closing Date without
the consent of Karrington, and shall continue the existing operation
of the Property including continuing its present advertising
commitments and its usual program of advertising. CKMI
Partnership shall not remove from the Property any items of
Personal Property between the date hereof and the Closing, except
as may be required for repair or replacement; and any replacements
shall be of equal or better quality and quantity. Nothing herein shall
require CKMI Partnership to repair or replace Property
substantially damaged or destroyed by fire or other casualty prior to
Closing.
9.8 Access to Properties.
CKMI Partnership will permit representatives of Karrington
full access during normal business hours to all of its premises,
properties, personnel, books, records, contracts, documents and
other materials as reasonably required by Karrington.
9.9 Notice of Developments.
Karrington and Kensington-Mankato will give prompt
written notice to one another of any development of which it has
Knowledge which reasonably appears to cause any representations
and warranties by any party in this Agreement not to be true and
correct in all material respects as of Closing (except as provided
with respect to the dates of financial statements under Section 6.2
and except for the date limitation concerning certain employee
matters set forth in Subsection 6.16.1). Such written notice shall
describe the matter with reasonable particularity and shall set forth
the manner in which it would cause any such representation and
warranty (identified by specific reference to the applicable provision
of this Agreement) not to be true as of Closing. No notice under
this Section 9.9 shall be deemed to amend or supplement any
representation or warranty or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the
party giving notice; provided that in the event a party would have
the right not to proceed to Closing by reason of such breach, if the
nondefaulting party elects to close notwithstanding such breach,
such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
9.10 Updated Schedules.
Kensington-Mankato will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be deemed
to amend or supplement any representation or warranty or any
Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
9.11 Exclusivity.
So long as this Agreement has not been terminated, CKMI
Partnership will not (a) solicit, initiate, or encourage the submission
of any proposal or offer from any Person relating to the acquisition
of any substantial portion of its assets (including any acquisition
structured as a merger, consolidation or share exchange) or (b)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or otherwise
facilitate any of the foregoing except as required by this Agreement.
CKMI Partnership will notify Karrington immediately if any of the
foregoing occur.
9.12 Confidentiality.
9.12.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
9.12.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 9.12
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
9.12.3 The provisions of this Section 9.12 shall not
supersede any confidentiality provisions contained in the letter of
intent between Karrington Operating Company, Inc. and KMGI
dated November 12, 1996, which shall remain in full force and
effect; provided that, the provisions of this Agreement shall control
in the event of any conflict.
ARTICLE 10
DAMAGE, EMINENT DOMAIN
10.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by CKMI Partnership until Closing. If the Property is
substantially damaged or destroyed by fire or other casualty prior to
the Closing of the transaction, CKMI Partnership shall not be
obligated to repair or replace the damaged or destroyed Property,
but in that event Karrington may (a) elect to proceed with the
Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such damage or destruction, be
entitled to all insurance money payable to CKMI Partnership under
any and all policies of insurance covering the Property so damaged
or destroyed, or (b) elect to terminate this Agreement.
10.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to CKMI Partnership on account of such taking,
or (b) elect to terminate this Agreement.
ARTICLE 11
TERMINATION
11.1 Termination of Agreement.
11.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
11.1.2 Karrington may terminate this Agreement as
provided in Article 10.
11.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
11.2 Effect of Termination.
If the Agreement is terminated as provided in this Article
11, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 12
CONDITIONS TO OBLIGATION TO CLOSE
12.1 Conditions to Karrington's Obligation to Close.
The obligations of Karrington and Parent to consummate
the Transaction are subject to satisfaction in favor of Karrington
and Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
12.1.1 The representations and warranties by or about
CKMI Partnership, Kensington-Mankato, and Jon D. Rappaport set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except as provided with respect to the dates of financial statements
under Section 6.2 and except for the date limitation concerning
certain employee matters set forth in Subsection 6.16.1.
12.1.2 CKMI Partnership, Kensington-Mankato, and
Jon D. Rappaport shall have performed and complied in all material
respects with all of their covenants set forth in this Agreement
through the Closing.
12.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of Kensington-Mankato, threatened before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator, to which
CKMI Partnership, Kensington-Mankato, or Jon D. Rappaport is a
party or is threatened or expected to be made a party, or which is
otherwise known to any of them, in which an unfavorable outcome
would prevent the Closing, cause the Transaction to be rescinded in
whole or in part after Closing, or adversely effect Karrington's right
to own the Assets and perform the Services after Closing, and no
injunction, judgment, order, decree, ruling, charge or other holding
having such an effect shall be in force.
12.1.4 Kensington-Mankato and Jon D. Rappaport shall
have delivered to Karrington certificates in the form set forth on
Exhibit 12.1.4 certifying that each of the conditions specified above
in Sections 12.1.1 through 12.1.3 is satisfied as of the Closing Date;
12.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 9.5.
12.1.6 Karrington shall have received the Updated Title
Commitment.
12.1.7 CKMI Partnership shall have executed and
delivered to Karrington and the title insurance company an affidavit
certifying that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in the Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
12.1.8 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-Mankato.
12.1.9 The Licensing Agreement shall have been
modified and the interests of Jon D. Rappaport and KMGI therein
shall have been assigned to Karrington, by means of a First
Amendment to Licensing Agreement substantially as set forth on
Exhibit 12.1.9.
12.1.10 CKMI Partnership shall have terminated all of
the Service Employees effective as of Closing.
12.1.11 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
12.1.12 The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with CKMI Partnership's financial statements for the fiscal years
ended December 31, 1994, 1995, and 1996, and the results of the
Audit shall not require any material adverse adjustments, either
individually or in the aggregate, to the CKMI Financial Statements.
12.1.13 Karrington shall have received a written opinion
from Kensington-Mankato's legal counsel in form and substance as
set forth on Exhibit 12.1.13, dated as of the Closing Date.
12.1.14 CKMI Partnership, Kensington-Mankato, and
Jon D. Rappaport shall have taken all actions required of them in
connection with the Transaction, and all certificates, opinions,
instruments and other documents required for the Transaction will
be reasonably satisfactory in form and substance to Karrington and
its legal counsel.
12.2 Conditions to Obligation of CKMI Partnership.
The obligation of CKMI Partnership to consummate the
Transaction is subject to satisfaction in favor of CKMI Partnership
or waiver by CKMI Partnership of the following conditions as of
Closing:
12.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
12.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
12.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be
rescinded in whole or in part after Closing, and no injunction,
judgment, order, decree, ruling, charge or other holding having
such an effect shall be in force.
12.2.4 Karrington shall have delivered to CKMI
Partnership a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 12.2.4 certifying
that each of the conditions specified above in Sections 12.2.1
through 12.2.3 is satisfied in all respects.
12.2.5 The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by the Parent, Karrington,
and Kensington-Mankato.
12.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of CKMI Partnership
upon terms satisfactory to Karrington.
12.2.7 CKMI Partnership shall have received from
Karrington's legal counsel a written opinion in form and substance
as set forth on Exhibit 12.2.7, dated as of the Closing Date.
12.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to CKMI Partnership and its legal counsel.
ARTICLE 13
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
13.1 Taxes and Assessments.
At or prior to Closing, CKMI Partnership shall (a) pay all
delinquent real estate taxes, including penalties and interest, (b) pay
or credit on the purchase price all special assessments due and
payable at or prior to Closing, and all agricultural use tax
recoupment for years through the year of Closing, if any, and (c)
pay or credit on the purchase price, all real estate taxes for years
prior to the Closing, and a portion of such taxes due and payable
(or prorated according to local commercial custom) for the year of
Closing, prorated through the Closing Date.
13.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
13.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and CKMI Partnership on the basis of a 365-day year as
of the Closing Date.
13.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by CKMI Partnership to the Closing Date.
13.5 Transfer Taxes and Fees.
CKMI Partnership and Karrington shall share equally the
cost of all local or state transfer taxes and fees required for the
transfer of the Property by CKMI Partnership to Karrington.
ARTICLE 14
CLOSING
14.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 12 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
14.2 Deliveries by the Parties at Closing.
14.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to CKMI Partnership and
Karrington, and shall pay the cash purchase price in accordance
with Section 2.4, (b) CKMI Partnership shall deliver to Karrington
all bills of sale, assignments, consents, and other documentation
required to transfer the Assets to Karrington as provided in this
Agreement, and (c) each party shall deliver to each other the
various documents, instruments, certificates, and opinions required
to be delivered at Closing under Article 12.
14.2.2 Deliveries by CKMI Partnership shall include the
following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that CKMI Partnership
generally will be required to provide a deed to each parcel
of Real Estate which sets forth the same warranties as those
set forth in the deed by which CKMI Partnership originally
took title), signed by all Persons necessary or required by
the Title Commitment or Karrington's attorneys, conveying
title to the Real Estate to Karrington as required by this
Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by CKMI
Partnership;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by CKMI Partnership from any contractors,
materialmen, suppliers or manufacturers with respect to any
work or installations on or with respect to the Property to
the extent assignable;
l. All security deposits held by CKMI Partnership which
have been paid by third parties under the Contracts,
Equipment Leases and Motor Vehicle Leases, or any other
leases included in the Assets;
m. Such other documents as are otherwise required of
CKMI Partnership by this Agreement.
14.2.3 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
14.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 15
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
15.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
15.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving CKMI
Partnership, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 16.
15.3 Transition.
CKMI Partnership shall take no action intended to
discourage any lessor, licensor, lessee, resident, customer, supplier
or other business associate of CKMI Partnership relating to the
Services from maintaining the same business relationships with
Karrington after the Closing as it maintained with CKMI
Partnership prior to the Closing.
15.4 Non-Compete.
15.4.1 For a period of five (5) years from and after
Closing, Kensington-Mankato and, at any time Kensington-
Mankato, Jon D. Rappaport, or an entity of which Jon D.
Rappaport is an owner, partner, director, officer, or other
participant is a partner of CKMI Partnership, CKMI Partnership
(which shall not include Centex) shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of Minnesota;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
15.4.2 For a period of five (5) years from and after
Closing, Centex shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors.
15.4.3 Notwithstanding the provisions in this Section
15.4, nothing herein shall restrict Jon D. Rappaport from competing
with the Services or undertaking any activity otherwise restricted by
this Section 15.4 if and when he is not subject to a covenant not to
compete under his employment agreement with Karrington.
15.4.4 This Section 15.4 shall survive Closing.
ARTICLE 16
INDEMNIFICATION
16.1 Meaning of Certain Terms.
16.1.1 In this Article, Kensington-Mankato and Jon D.
Rappaport are collectively referred to as the "Kensington Entities,"
and Karrington and Parent are collectively referred to as the
"Karrington Entities."
16.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
16.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty made by it in this Agreement is untrue or otherwise does
not conform to the standards for representations and warranties set
forth in this Agreement.
16.1.4 For purposes of this Article, all covenants,
representations, and warranties made by CKMI Partnership or
Kensington-Mankato in this Agreement shall be deemed to have
been also made by Kensington-Mankato and Jon D. Rappaport, and
Kensington-Mankato and Jon D. Rappaport shall be jointly and
severally liable for indemnity claims related thereto.
16.1.5 Notwithstanding any other provision of this
Article, Karrington acknowledges and agrees that Centex is making
only representations and warranties in Article 4, and its
indemnification obligations under this Article shall pertain only to
the representations and warranties set forth therein.
16.2 Survival of Representations and Warranties.
16.2.1 Except as provided in Section 16.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
16.2.2 "Survival Period" means the eighteen (18) month
period set forth in Subsection 16.2.1 or the period described in
Section 16.7, whichever applies.
16.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
16.3 Indemnification Obligations of the Kensington
Entities.
16.3.1 If CKMI Partnership makes any
misrepresentation in this Agreement, CKMI Partnership shall
indemnify and hold harmless the Karrington Entities from and
against all related Adverse Consequences, subject to the limitations
set forth in Section 16.1.5, 16.5 and 16.6.
16.3.2 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Section 16.5
and 16.6.
16.3.3 In addition, Kensington-Mankato and Jon D.
Rappaport shall jointly and severally indemnify and hold harmless
the Karrington Entities from and against all Adverse Consequences
related to (a) any Liability for the unpaid Taxes of (i) CKMI
Partnership or (ii) any other Person (as a transferee or successor, by
contract, or otherwise) as a result of any action taken or not taken
by CKMI Partnership, or (b) any matter which is the subject of
actual or threatened litigation, judicial order, administrative action,
or any similar matter concerning CKMI Partnership (other than
related to the enforcement of this Article), whether or not disclosed
or required to be disclosed on any Schedule to this Agreement.
16.4 Indemnification Obligations of Karrington and
Parent.
16.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless
CKMI Partnership and the Kensington Entities from and against all
related Adverse Consequences, subject to the limitations set forth in
Section 16.5 and 16.6.
16.4.2 The Karrington Entities shall indemnify and hold
harmless CKMI Partnership and the Kensington Entities from and
against all Adverse Consequences arising from or in connection
with ownership of the Assets, the Services, or the Assumed
Liabilities after the Closing Date, except to the extent the CKMI
Partnership and Kensington Entities are required to indemnify the
Karrington Entities in respect thereof under this Article.
16.5 Basket Amount.
16.5.1 Except as provided in Section 16.7, CKMI
Partnership or the Kensington Entities shall have no obligation to
indemnify the Karrington Entities under this Article unless and until
the Karrington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article of at least
Twelve Thousand Eight Hundred Dollars ($12,800.00) in the
aggregate (the "Basket Amount"), and then only as to the amount
by which aggregate claims by the Karrington Entities exceed the
Basket Amount.
16.5.2 Except as provided in Section 16.7, the
Karrington Entities shall have no obligation to indemnify CKMI
Partnership or the Kensington Entities under this Article unless and
until CKMI Partnership and the Kensington Entities have suffered
Adverse Consequences giving rise to a right of indemnification
under this Article in the aggregate of at least the Basket Amount;
and then only as to the amount by which aggregate claims by CKMI
Partnership or the Kensington Entities exceed the Basket Amount.
16.6 Limitation on Recovery.
16.6.1 Except as provided in Section 16.7, the
aggregate obligation of the Karrington Entities to indemnify CKMI
Partnership and the Kensington Entities under this Article shall be
limited to One Hundred Thirty-Four Thousand Dollars
($134,000.00) (the "Indemnity Cap").
16.6.2 Except as provided in Section 16.7, the
aggregate obligation of CKMI Partnership and the Kensington
Entities to indemnify the Karrington Entities under this Article shall
be limited to the Indemnity Cap.
16.7 Liability for Certain Claims.
The limitations set forth in Sections 16.5 and 16.6 shall not
apply to any claim (a) if the Indemnifying Party had actual
conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
16.3.3, or (c) by CKMI Partnership or the Kensington Entities
under Subsection 16.4.2. The aggregate obligation of the
Karrington Entities to indemnify CKMI Partnership and the
Kensington Entities for all such claims shall be limited to the
purchase price, and CKMI Partnership and the Kensington Entities'
aggregate obligation to indemnify the Karrington Entities for
indemnity shall be limited to the purchase price. The Survival
Period for any such indemnity claim shall be the greater of the
eighteen (18) month period set forth in Section 16.2.1 or the period
set forth in the statute of limitations under applicable law.
16.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
16.9 Right of Set-Off.
If the Karrington Entities suffers Adverse Consequences as
a result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
16.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 17.14 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 15.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
10.1 and 10.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
16.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
16.12 Matters Involving Third Parties.
16.12.1 If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
16.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 16.12.2 shall be
reasonably satisfactory to the Indemnified Party.
16.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
16.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
16.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 16.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 16.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 Expenses.
CKMI Partnership and Karrington shall share equally all
expenses (including the cost of the Audit and the opinion of Ernst
& Young with respect to such Audit, the Surveys, the Title
Commitment, Updated Title Commitment and Title Policy, the
Environmental Audit and all pre-payment penalties and other
expenses with respect to Mortgage Debt, but excluding any
financing costs of Karrington) incurred in connection with this
Agreement and the Transaction, except as provided in Article 16 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear its own attorneys
fees.
17.2 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
17.3 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
17.4 Entire Agreement.
Except as provided in Section 9.12.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI).
17.5 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
17.6 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
CKMI Partnership's consent.
17.7 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
17.8 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington-Mankato or Jon D. Rappaport:
Mr. Jon D. Rappaport
President
Kensington Cottages Corporation of Mankato
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
Copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Centex:
Mr. Laurence E. Hirsch
President
Centex Senior Services Corporation
P.O. Box 199000
2728 North Harwood
Dallas, TX 75219-9000
Copy to:
Lila Marsh, Esq.
Centex Senior Services Corporation
P.O. Box 199000
2728 North Harwood
Dallas, TX 75219-9000
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 17.8 by giving the other parties written notice in the
manner set forth in this section.
17.9 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
17.10 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
17.11 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
17.12 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
17.13 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
17.14 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
17.15 Forum.
Except as provided in Section 17.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
17.16 Termination of Licensing Agreement.
Centex and Kensington-Mankato agree that, effective upon
Closing, CKMI Partnership relinquishes all rights under that certain
license agreement by and between KMGI and CKMI Partnership, as
referenced in the partnership agreement of CKMI Partnership.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
CENTEX-KENSINGTON
(MANKATO I)
PARTNERSHIP
By: Kensington Cottages
Corporation of Mankato
Its: General Partner
By:
Jon D. Rappaport
Its: President
KENSINGTON
COTTAGES
CORPORATION OF
MANKATO
By:
Jon D. Rappaport
Its: President
CENTEX SENIOR
SERVICES
CORPORATION
By:
Laurence E. Hirsch
Its: President
CENTEX LIFE
SOLUTIONS, INC.
By:
_____________________
____________
Its:
_____________________
____________
Jon D. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
9.3
Basket Amount
16.5
Bill of Sale
14.2.2
Centex
Preamble
CKMI Partnership
Preamble
CKMI Partnership Financial Statements
7.2
CKMI Partnership Permits
6.10.3
Closing
14.1
Closing Date
14.1
Contracts
2.1.3
Data Processing Systems
6.20
Deeds
14.2.2
Employee Accruals
2.3.1
Environmental Audit
8.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
16.6
Karrington
Preamble
Karrington Entities
16.1
Kensington Cottages-Mankato
Recitals
Kensington-Mankato
Preamble
Kensington-Mankato Shareholders
Preamble
KMGI
1.3
Knowledge of Kensington-Mankato
1.2
Land
2.1.1
Material Adverse Effect
6.3
Mortgage Debt
6.10.1
Most Recent Financial Statements
6.2
Most Recent Fiscal Month End
6.2
Most Recent Fiscal Year End
6.2
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
8.3
Personal Property
2.1.2
Property
2.1.2
Real Estate
2.1.1
Resident
12.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
8.5
Title Commitment
8.1.1
Title Insurance Affidavit
12.1.7
Title Policy
8.1.2
Transaction
Recitals
Updated Title Commitment
8.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual knowledge or knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
KENSINGTON COTTAGES CORPORATION OF NORTH DAKOTA,
AND
THE INDIVIDUAL SHAREHOLDERS OF
KENSINGTON COTTAGES CORPORATION OF NORTH DAKOTA
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among
Kensington Cottages Corporation of North Dakota, a Minnesota
corporation ("Kensington-North Dakota"), Jon D. Rappaport and
Robert L. Rappaport, the individual shareholders of Kensington-
North Dakota (the "Kensington-North Dakota Shareholders"),
Kensington Cottages Corporation of America, a Minnesota
corporation (Kensington Cottages Corporation of America is a
wholly-owned subsidiary of Karrington Operating Company, Inc.,
an Ohio corporation, and is referred to as Karrington), and
Karrington Health, Inc., an Ohio corporation ("Parent").
RECITALS
Kensington-North Dakota owns and operates a dementia-
specific assisted living facility licensed as "Basic Care" for up to 24-
beds in Bismarck, North Dakota, known as Kensington Cottages of
Bismarck.
Karrington desires to acquire Kensington Cottages of
Bismarck and certain assets related to Kensington-North Dakota's
operations, as more specifically described below, and Kensington-
North Dakota wishes to sell them to Karrington upon the terms set
forth in this Agreement (the Transaction).
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
The word "including" shall mean including without
limitation. Except where expressly provided to the contrary,
"discretion" means "sole and absolute discretion." Except as
provided in Section 5.2, references to statements made to the
Knowledge of Kensington-North Dakota include the Knowledge of
the Kensington-North Dakota Shareholders and any director or
officer of Kensington-North Dakota. References to any agreements
or other documents include groups of related agreements or other
documents.
1.3 Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence, and Jon D.
Rappaport;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota; and
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from Kensington-
North Dakota (and Parent agrees to cause Karrington to purchase),
and Kensington-North Dakota shall sell to Karrington, all of
Kensington-North Dakota's right, title, and interest in and to the
assets pertaining to the operation of Kensington Cottages of
Bismarck (the "Assets"), including the following:
2.1.1 The real property owned in fee simple by
Kensington-North Dakota as more particularly described in
Schedule 2.1.1 (the "Land"), together with all buildings,
improvements, and fixtures located thereon (the "Improvements")
and all rights, privileges, servitudes, and appurtenances thereunto
belonging or appertaining, including all right, title and interest of
Kensington-North Dakota in and to the streets, alleys, and rights-
of-way adjacent to the Land, if any (the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of
Kensington Cottages of Bismarck (the "Services"), including any
residential leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that Kensington-North Dakota shall continue to have
reasonable access to such books and records to the extent necessary
to enable Kensington-North Dakota to comply with applicable
financial or legal reporting requirements, and Kensington-North
Dakota shall have the right to copy such materials as it desires, at is
own expense, for that purpose; and
2.1.8 All other assets of Kensington-North Dakota,
including any Intellectual Property and any other rights, claims, or
interests, which are reasonably necessary to enable Karrington to
perform the Services (including the performance of all Contracts)
after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by Kensington-North Dakota;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of Kensington-North Dakota under any
claims, prepayments, refund, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment
(including such items relating to the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 9.1 and 9.2,
Kensington-North Dakota's rights under any policies of insurance
purchased by Kensington-North Dakota, or any benefits payable or
paid thereunder;
2.2.7 The corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other
identification numbers, general ledgers, tax returns, seals, minute
books, stock transfer books and similar documents relating to the
organization, maintenance and existence of Kensington-North
Dakota as a corporation, provided, however, that Karrington shall
have reasonable access to such books and records to the extent
reasonably necessary for the operation of its Business and to
comply with applicable financial and legal reporting requirements,
and Karrington shall have the right to copy such materials as it
desires, at its own expense, for that purpose;
2.2.8 Any of the rights of Kensington-North Dakota
under this Agreement or any other agreement between Kensington-
North Dakota and Karrington entered into on or after the date of
this Agreement; and
2.2.9 Other tangible or intangible assets of Kensington-
North Dakota which are not specifically included in the definition of
Assets.
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of Kensington-North
Dakota which are associated with the Contracts, Equipment
Leases, Vehicle Leases, and Software Licenses, including
Kensington-North Dakota's obligations with respect to the
security deposits included in the Assets as more fully
described on Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify Kensington-North
Dakota with respect to all losses, costs, damages, and expenses
arising out of any act or omission relating to the Assumed
Liabilities occurring after Closing, and Kensington-North Dakota
shall indemnify Karrington with respect to any such loss, cost,
damage or expense arising out of any act or omission relating to the
Assumed Liabilities occurring prior to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
Kensington-North Dakota a purchase price equal to One Million
Four Hundred Sixty Thousand Dollars ($1,460,000.00) (the
"Purchase Price") as follows:
a. An amount equal to the total amount of Employee
Accruals shall be deemed paid by Karrington's assumption
thereof at Closing; and
b. The balance of the Purchase Price shall be paid at
Closing by wire transfer or other form of immediately
available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to Kensington-North Dakota and the Kensington-North
Dakota Shareholders as follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of North
Dakota, neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-NORTH DAKOTA AND ITS
SHAREHOLDERS
Kensington-North Dakota and each of the Kensington-
North Dakota Shareholders separately represents and warrants to
Karrington and Parent as follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 Organization, Qualification.
Kensington-North Dakota is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. It is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required. It has full corporate
power and corporate authority to carry on its business and to own
and use its property. It has not filed for relief as a debtor under any
state receivership laws or federal bankruptcy laws.
4.3 Governing Documents.
Kensington-North Dakota has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.4 Authorization of Transaction.
Kensington-North Dakota has full power and authority to
execute, deliver, and perform this Agreement. This Agreement
constitutes Kensington-North Dakota's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
4.5 Effect on Other Governing Documents.
Kensington-North Dakota's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Kensington-
North Dakota is subject or any provision of its Governing
Documents.
4.6 Finder's Fees.
To Kensington-North Dakota's Knowledge, no person or
entity is entitled to any brokerage commission, finder's fee, or
similar compensation in connection with the execution, delivery, or
performance of this Agreement.
4.7 Stock Ownership.
The Kensington-North Dakota Shareholders are the only
shareholders of Kensington-North Dakota.
4.8 Subsidiaries.
Kensington-North Dakota has no Subsidiaries. Kensington-
North Dakota owns no equity securities of any other person or
entity.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-NORTH DAKOTA AND JON D.
RAPPAPORT
Kensington-North Dakota and Jon D. Rappaport each
separately represents and warrants to Karrington and Parent as
follows:
5.1 Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2 Knowledge.
References in this Article to statements made to the
Knowledge of Kensington-North Dakota are made to the
Knowledge of Jon D. Rappaport.
5.3 Financial Statements.
Attached as Schedule 5.3 are the following financial
statements of Kensington-North Dakota (the "Kensington-North
Dakota Financial Statements"): unaudited balance sheets and
statements of income for the fiscal years ended on December 31st
of each of the years 1994, 1995, and 1996, and for the one month
period ended on January 31, 1997, all of which are consistent with
Kensington-North Dakota's books and records (which are
maintained as provided in Section 5.22) and fairly present
Kensington-North Dakota's results of operations for the periods
indicated. The January 31, 1997 financial statements are the "Most
Recent Financial Statements" and January 31, 1997 is the "Most
Recent Fiscal Month End." December 31, 1996 is the "Most
Recent Fiscal Year End." "Most Recent Balance Sheet" means the
balance sheet contained within the Most Recent Financial
Statements.
5.4 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Kensington-North Dakota's Business, financial
condition, operations, or results of operations which have a material
adverse effect on the Assets, Services, or Assumed Liabilities either
separately or in the aggregate (a "Material Adverse Effect").
Without limiting the generality of the preceding sentence, since that
date, Kensington-North Dakota has not:
5.4.1 imposed any Security Interest of any kind upon
any of the Assets;
5.4.2 granted any license or sublicense pertaining to the
Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
5.4.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
5.4.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
5.4.5 defaulted on or postponed payment of the
Assumed Liabilities;
5.4.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
5.4.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Kensington-North Dakota is a party
or by which it is bound which pertains in any way to the Assets or
the Services; or
5.4.8 committed to any of the foregoing.
5.5 Undisclosed Liabilities.
5.5.1 Kensington-North Dakota has no Liability and, to
the Knowledge of Kensington-North Dakota, there is no Basis for
any Liability which would have a Material Adverse Effect except
for (a) Liabilities set forth on the Most Recent Balance Sheet or
which would not be required to be set forth on a balance sheet
prepared in accordance with GAAP, and (b) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary
Course of Business, none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, violation of law, or
similar cause.
5.5.2 Kensington-North Dakota is not a guarantor or
otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
5.6 Insurance.
5.6.1 Kensington-North Dakota, through KMGI,
maintains insurance policies (copies of which have been delivered to
or made reasonably available to Karrington) reasonable in scope
and amount in connection with the Assets and Services, and has
done so for the past four years.
5.6.2 Schedule 5.6 sets forth a true and accurate list of
all insurance policies carried on the Assets. The casualty insurance
covering the Property insures the full replacement value thereof.
5.6.3 Kensington-North Dakota has complied with all
notices or requests it has received from any insurance company
issuing any of the insurance policies required to be set forth on
Schedule 5.6.
5.7 Effect on Other Agreements.
Except as disclosed in Schedule 5.7, Kensington-North
Dakota's execution and delivery of this Agreement and its
consummation of the Transaction will not breach, conflict with,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, mortgage, lease,
license, instrument, or other arrangement to which Kensington-
North Dakota is a party or by which it is bound or to which any of
its assets is subject, or result in the imposition of any Security
Interest upon any of its assets to which Karrington may be subject
after the Closing.
5.8 No Notice or Consent.
Except as disclosed in Schedule 5.8, Kensington-North
Dakota is not required to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any
government or governmental agency in order for the parties to
consummate the Transaction.
5.9 Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
5.10 Property Matters.
5.10.1 Except as disclosed on Schedule 5.10, no notices
have been received by Kensington-North Dakota from the holder of
any of the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
5.10.2 Except as disclosed on Schedule 5.10, the
Property and the present use of the Property does not violate any
provisions of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
5.10.3 Except as disclosed on Schedule 5.10, there are
no hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or any roof or wall leaks,
or backed up sewer problems. All improvements on the Real Estate
were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, Kensington-North
Dakota shall assign all of its interest in appliance and equipment
manufacturers' warranties, and all other warranties relating to the
construction of the improvements on the Real Estate, if any, to the
extent assignable.
5.10.4 Except as disclosed in Schedule 2.1.2, there are
no leases affecting the Real Estate except for the Resident
Agreements.
5.10.5 To the Knowledge of Kensington-North Dakota
there is no threatened taking by any governmental authority which
would affect, involve or be adverse to the Property.
5.10.6 To the Knowledge of Kensington-North Dakota,
except as disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
5.11 Legal Compliance.
5.11.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property
(which debt shall be paid and the security released at or prior to
Closing, as provided in Section 8.6) (the "Mortgage Debt"), the
Equipment Leases, Vehicle Leases, and the Vehicle Financing, and
as otherwise required to be disclosed in this Agreement,
Kensington-North Dakota has not taken or failed to take any action
with respect to any legal matter which has resulted in, or may result
in (a) the imposition of any Security Interest on the Assets, or (b)
any Liability with respect to the Assets or Services to which
Karrington may be subject after Closing.
5.11.2 Kensington-North Dakota has complied with all
laws (including any related rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges) of
federal, state, local and foreign governments (including any
governmental agencies) applicable to the Assets, Services, and
Assumed Liabilities the failure to comply with which would have a
Material Adverse Effect with respect to the Assets, Services or
Assumed Liabilities, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been
filed or commenced against Kensington-North Dakota alleging any
failure to comply.
5.11.3 Kensington-North Dakota has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform the
Services (the "Kensington-North Dakota Permits") with respect to
which the failure to have would have a Material Adverse Effect
with respect to the Assets, Services or Assumed Liabilities. To
Kensington-North Dakota's Knowledge, no violations have
occurred with respect to the Kensington-North Dakota Permits,
and no proceeding is pending or threatened which might have the
effect of revoking or rescinding, or otherwise having a materially
adverse effect upon, any Kensington-North Dakota Permit.
Kensington-North Dakota has filed all reports, cost reports,
registrations and statements, together with any required
amendments, that are or were required to be filed with any
governmental authorities (or with any fiscal intermediaries)
pursuant to the Kensington-North Dakota Permits or otherwise. As
of their respective dates, all such reports, cost reports, registrations
and statements complied in all material respects with the terms of
the then-existing contracts between any governmental authorities or
fiscal intermediaries and Kensington-North Dakota, and with all
statutes, rules and regulations enforced or promulgated by the
regulatory authority (or by any fiscal intermediary) with which they
were filed, and were true, correct and complete as filed in all
material respects.
5.11.4 Kensington-North Dakota is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency that relates to the Assets or the Services.
5.11.5 Kensington-North Dakota does not qualify for
cost reporting or cost reimbursement under any health care or
similar program administered by any governmental authority or
agency.
5.12 Litigation.
5.12.1 Except as disclosed on Schedule 5.12,
Kensington-North Dakota is not a party and, to the Knowledge of
Kensington-North Dakota, has not been threatened to be made a
party, to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator which in any way pertains to the Assets, Services, or
Assumed Liabilities.
5.12.2 Kensington-North Dakota is not subject, and, to
the Knowledge of Kensington-North Dakota, has not been
threatened to be made subject, to any injunction, judgment, order,
decree, ruling, or charge pertaining to the Assets, Services, or
Assumed Liabilities.
5.13 Tax Matters.
5.13.1 Kensington-North Dakota has delivered to
Karrington true and complete copies of (a) the most recent real
estate tax and assessment bills for the Property, (b) all Tax Returns
that have been or are currently subject to audit, and (c) all
examination reports and statements of deficiencies assessed against
or agreed to by Kensington-North Dakota.
5.13.2 Kensington-North Dakota has not taken or failed
to take any action with respect to any tax matter which has resulted
in, or, to the Knowledge of Kensington-North Dakota, may result
in (a) the imposition of any Security Interest on the Assets, or (b)
any Liability with respect to which the Assets or Services or
Karrington may be subject after Closing.
5.13.3 Kensington-North Dakota has filed all required
Tax Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 5.13, no filing date has been extended for any
Tax Return Kensington-North Dakota is or has been required to file
which has not yet been filed. To Kensington-North Dakota's
Knowledge, no taxing authority in a jurisdiction where Kensington-
North Dakota does not file Tax Returns has ever asserted that
Kensington-North Dakota is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the Assets
that arose in connection with any actual or alleged failure to pay
any Tax.
5.13.4 Kensington-North Dakota has withheld and paid
all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
5.13.5 To the Knowledge of Kensington-North Dakota,
no taxing authority plans to assess any additional Taxes for any
period for which Tax Returns have been filed. To the Knowledge of
Kensington-North Dakota, there is no dispute or claim concerning
any Tax Liability claimed or raised by any taxing authority.
5.13.6 Kensington-North Dakota has not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
5.14 Intellectual Property.
Kensington-North Dakota does not own, license, or
otherwise possess any rights in any Intellectual Property which
pertain in any way to the Assets or Services, and is not subject to
any such rights held by third parties, other than rights made
available to it by KMGI.
5.15 Other Agreements.
5.15.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which Kensington-North
Dakota is a party which pertain to the Assets or Services, including
all maintenance contracts, concession agreements, or other
contracts affecting the Property (other than the Equipment Leases,
Software Licenses, and Vehicle Leases).
5.15.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 5.7 or 5.8, will continue to be legal, valid, and
binding, and in full force and effect on identical terms immediately
following the consummation of the Transaction (Subject to
Equitable Principles). Kensington-North Dakota is not in default in
the performance of any such agreements and, to the Knowledge of
Kensington-North Dakota no parties thereto have any defenses, set-
offs or rebates relating to any such agreements. Except as disclosed
in Schedule 5.15: to the Knowledge of Kensington-North Dakota,
no other party is in breach or default of any such agreement; to the
Knowledge of Kensington-North Dakota no event has occurred
which with notice or lapse of time would constitute a breach or
default, or permit termination, modification or acceleration, under
the agreement, and no party has repudiated any provision of the
agreement.
5.15.3 Kensington-North Dakota has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
5.15.
5.15.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
5.16 Performance of Services.
Schedule 5.16 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Kensington-North Dakota has been in conformity in all material
respects with all applicable contractual commitments and all express
and implied warranties.
5.17 Employees.
5.17.1 Except as provided in Subsection 11.1.10, to
Kensington-North Dakota's Knowledge as of the date hereof, no
Service Employee employed in a management capacity has any
plans to terminate employment with Kensington-North Dakota
prior to Closing or to refuse employment with Karrington following
Closing.
5.17.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, Kensington-North Dakota shall have discharged all
obligations to the Service Employees with respect to compensation
or benefits of any kind under any type of Employee Benefit Plan,
and after Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
Kensington-North Dakota.
5.17.3 Kensington-North Dakota is not and never has
been a party to or bound by any collective bargaining agreement.
To the Knowledge of Kensington-North Dakota, there has never
been and there is not now any effort by any labor union to organize
any employees of Kensington-North Dakota into one or more
collective bargaining units. Kensington-North Dakota has not
experienced any strikes, grievances, claims of unfair labor practices,
or other collective bargaining disputes. Kensington-North Dakota
has not committed any unfair labor practice or other violation of
labor or employment law relating to the Service Employees.
5.18 Employee Benefits.
5.18.1 Kensington-North Dakota does not now maintain
and is not now required to contribute to, and has never maintained
or been required to contribute to, any Employee Pension Benefit
Plan.
5.18.2 Kensington-North Dakota has not taken or failed
to take any action with respect to any Employee Benefit Plan which
has resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets or Services to which Karrington may be subject after
Closing.
5.18.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
5.18.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which Kensington-North
Dakota maintains or ever has maintained or to which it contributes,
ever has contributed, or ever has been required to contribute; no
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan; no
action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of Kensington-North Dakota, threatened; and
Kensington-North Dakota has no Knowledge of any Basis for any
such action, suit, proceeding, hearing, or investigation.
5.18.5 Kensington-North Dakota does not contribute
to, never has contributed to, and never has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
5.19 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Kensington-North Dakota which pertain to or could
pertain to the Assets or Services in any way.
5.20 Environment, Health and Safety.
5.20.1 To the Knowledge of Kensington-North Dakota,
it has no Liability for any illness of or personal injury to any
employee or other individual, for damage to any site, location, or
body of water (surface or subsurface), for any damages or claims
under any past, present, or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice, or for
any other reason under any Environmental, Health and Safety Law
in any way pertaining to or affecting the Assets or Services.
5.20.2 Kensington-North Dakota and its predecessors
(i) have complied with all Environmental, Health and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply, and (ii) have
obtained and been in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other
authorizations which are required under, and have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health and
Safety Laws.
5.20.3 Kensington-North Dakota has not disposed of or
arranged for the disposal of any Hazardous Substance on the
Property and Kensington-North Dakota has no Knowledge of the
disposal of any Hazardous Substance on the Property by any other
person or entity.
5.20.4 There have not been, and there currently are no
pending or, to the Knowledge of Kensington-North Dakota,
threatened claims against Kensington-North Dakota alleging the
violation of any Environmental, Health and Safety Laws.
5.20.5 Except as disclosed in the Environmental Audit,
to the Knowledge of Kensington-North Dakota the Property is free
of asbestos, PCB's, methylene chloride, trichloroethylene, dioxins,
dibenzofurans and Extremely Hazardous Substances.
5.21 Data Processing Matters.
5.21.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Kensington-North Dakota owns, leases, or
licenses (the "Data Processing Systems"):
a. Kensington-North Dakota, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
Kensington-North Dakota has not sustained, and Jon D.
Rappaport is not aware of any information or circumstances
indicating that it may sustain, disruption of business or loss
by reason of unauthorized access, use, copying,
modification, theft, or destruction of any such programs and
files by its employees or any such other persons; and
b. Kensington-North Dakota, through KMGI, has
arranged for back-up data processing services adequate to
meet data processing needs in the event that the Data
Processing Systems are rendered temporarily or
permanently inoperative as a result of a natural disaster or
other cause.
5.21.2 Kensington-North Dakota's data processing and
data storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
5.22 Books and Records.
5.22.1 Kensington-North Dakota's books of account
pertaining to the Services reflect all material items of income and
expense and all material assets, liabilities and accruals, and are
prepared and maintained in form and substance adequate for
preparing financial statements and related information in
accordance with any accounting principles required by any
governmental agency with regulatory authority over Kensington-
North Dakota's financial statements and otherwise in accordance
with the standards required by this Agreement.
5.22.2 Kensington-North Dakota has devised and
maintained a system of internal accounting controls with respect to
the Services sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management
directives, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Subsection
5.22.1, (c) the recorded amounts are compared with the actual
levels at reasonable intervals and appropriate action is taken with
respect to any differences, and (d) access to information pertaining
to the preceding items (a) - (c) is permitted only in accordance with
management directives.
5.23 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreements, Kensington-North Dakota does not hold, and
the Assets do not include, funds of any residents of Kensington
Cottages of Bismarck in excess of two hundred dollars ($200.00)
per resident.
ARTICLE 6
NATURE OF DISCLOSURES
6.1 Disclosure by Kensington-North Dakota and Jon D.
Rappaport.
Kensington-North Dakota and Jon D. Rappaport each
separately represent and warrant to Karrington and Parent as
follows:
6.1.1 All items concerning Kensington-North Dakota
which are required to be disclosed or identified on the Schedules to
this Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
6.1.2 No representation or warranty made by or about
Kensington-North Dakota in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Kensington-North Dakota which is required under this Agreement
contains any untrue statement of a material fact or omits any
material fact necessary to make the statements made not
misleading.
6.1.3 To the Knowledge of Kensington-North Dakota,
there is no fact which materially and adversely affects the Assets,
Services, or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials Kensington-
North Dakota is required to furnish under this Agreement.
6.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties of Kensington-
North Dakota and the Kensington-North Dakota Shareholders that
are not set forth in this Agreement or required to be set forth in a
schedule, list, certificate, document or other instrument or exhibit
required under this Agreement and that there shall not be deemed
to be any other express or implied representations or warranties
made by or on behalf of Kensington-North Dakota or the
Kensington-North Dakota Shareholders in connection with the
Transaction.
6.2 Copies and Lists.
Unless a representation and warranty made by or about
Kensington-North Dakota in this Agreement is solely with respect
to the existence or non-existence of a document or other item, the
mere listing or inclusion of a copy of the document or other item
shall not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington and
Parent to understand the exception or (b) an exception to a
representation or warranty which is not permitted.
6.3 Due Diligence.
The obligations of Kensington-North Dakota and the
Kensington-North Dakota Shareholders to make representations
and warranties in accordance with the standards set forth in this
Agreement shall not be affected or deemed waived on the grounds
that Karrington or Parent, based upon its investigation and review
or otherwise, should have known that any such representation or
warranty is or might be inaccurate or incomplete.
ARTICLE 7
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
7.1 Title Commitment and Policy.
7.1.1 Kensington-North Dakota has furnished and
delivered to Karrington in form acceptable to Karrington, a current
Owner's Title Insurance Commitment (form ALTA 1966), together
with copies of all documents referred to therein (the "Title
Commitment").
7.1.2 Kensington-North Dakota shall furnish and deliver
to Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
7.2 Title.
The Updated Title Commitment shall show in Kensington-
North Dakota good and marketable title in fee simple to the Real
Estate, free and clear of all liens and encumbrances except those
listed in Section 7.3 (the "Permitted Encumbrances"), and the Title
Policy shall insure the same in Karrington.
7.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
7.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
7.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
7.3.3 Liens and encumbrances listed in Schedule 7.3.
7.4 Exceptions and Endorsements.
7.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
7.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
7.5 Survey and Legal Descriptions.
Kensington-North Dakota, has furnished to Karrington (a)
plats of survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of North Dakota who is
acceptable to Karrington (the "Surveys").
7.6 Occupancy Permits.
Kensington-North Dakota has provided Karrington with
true and complete copies of the occupancy permits for the Real
Estate.
7.7 Environmental Audit
Karrington has received from Kensington-North Dakota a
Phase I Environmental Audit of the Real Property, in form and
content satisfactory to Karrington and performed by an
environmental engineer satisfactory to Karrington (the
"Environmental Audit").
ARTICLE 8
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
8.1 In General.
Kensington-North Dakota and Karrington will each use its
best efforts to take all action and to do all things necessary, proper
or advisable in order to consummate the Transaction.
8.2 Transfer of Licenses.
Kensington-North Dakota and Karrington shall use their
mutual best efforts to arrange the transfer or re-issuance to
Karrington as of Closing of all necessary or appropriate licenses,
certificates, permits, or other authorizations to enable Karrington to
own the Assets and perform the Services after Closing.
8.3 Rappaport Letter of Understanding.
Jon D. Rappaport and Robert L. Rappaport shall terminate
the letter of understanding by and between the two of them dated
May 16, 1994, as amended, in which they make certain agreements
regarding the development and ownership of Kensington Cottages
projects and related matters (the "Rappaport Letter of
Understanding").
8.4 Pre-Closing Audit.
Kensington-North Dakota shall fully cooperate with Ernst
& Young in connection with the completion of their audit, prior to
Closing, of Kensington-North Dakota's financial statements for the
fiscal years ending December 31, 1994, 1995, and 1996 (the
"Audit"). Karrington and Kensington-North Dakota shall use their
best efforts to cause the Audit to be completed by Ernst & Young
on or before April 30, 1997.
8.5 Insurance.
Kensington-North Dakota shall maintain the insurance
required to be set forth on Schedule 5.6 in full force and effect
through Closing.
8.6 Mortgage Debt.
Kensington-North Dakota shall make all necessary
arrangements to pay the Mortgage Debt in full and release the
Assets from all Security Interests in connection therewith at
Closing. To the extent reasonably requested by Karrington,
Kensington-North Dakota shall fully cooperate with any attempts
by Karrington to obtain new financing for the Property, provided
that such cooperation shall not require any payment of fees or
incurrence of out-of-pocket expenses by Kensington-North Dakota
with respect to such financing, except as otherwise expressly
provided in this Agreement.
8.7 Operation of Business.
Kensington-North Dakota will not engage in any practice,
take any action or enter into any transaction pertaining to the
Services which is outside the Ordinary Course of Business,
including any practice, action, or transaction of a type described in
Section 5.4.
8.8 Preservation of Assets.
Kensington-North Dakota will use commercially reasonable
efforts to keep the Assets and Services substantially intact,
including all present operations, physical facilities, working
conditions and relationships with lessors, licensors, suppliers,
lessees, residents, customers, and employees. Kensington-North
Dakota shall maintain the Assets in their present condition and
repair (ordinary wear and tear excepted), shall not enter into any
material contract relating to the Assets or Services which extends
beyond the Closing Date without the consent of Karrington, and
shall continue the existing operation of the Property including
continuing its present advertising commitments and its usual
program of advertising. Kensington-North Dakota shall not remove
from the Property any items of Personal Property between the date
hereof and the Closing, except as may be required for repair or
replacement; and any replacements shall be of equal or better
quality and quantity. Nothing herein shall require Kensington-
North Dakota to repair or replace Property substantially damaged
or destroyed by fire or other casualty prior to Closing.
8.9 Access to Properties.
Kensington-North Dakota will permit representatives of
Karrington full access during normal business hours to all of its
premises, properties, personnel, books, records, contracts,
documents and other materials as reasonably required by
Karrington.
8.10 Notice of Developments.
Karrington and Kensington North Dakota each will give
prompt written notice to one another of any development of which
it has Knowledge which reasonably appears to cause any
representations and warranties by any party in this Agreement not
to be true and correct in all material respects as of Closing (except
as provided with respect to the dates of financial statements under
Section 5.3 and except for the date limitation concerning certain
employee matters set forth in Subsection 5.17.1). Such written
notice shall describe the matter with reasonable particularity and
shall set forth the manner in which it would cause any such
representation and warranty (identified by specific reference to the
applicable provision of this Agreement) not to be true as of Closing.
No notice under this Section 8.10 shall be deemed to amend or
supplement any representation or warranty or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant
by the party giving notice; provided that in the event a party would
have the right not to proceed to Closing by reason of such breach,
if the nondefaulting party elects to close notwithstanding such
breach, such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
8.11 Updated Schedules.
Kensington-North Dakota will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be
deemed to amend or supplement any representation or warranty or
any Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
8.12 Exclusivity.
So long as this Agreement has not been terminated,
Kensington-North Dakota will not (a) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to
the acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Kensington-North Dakota will notify Karrington
immediately if any of the foregoing occur.
8.13 Confidentiality.
8.13.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
8.13.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 8.13
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
8.13.3 The provisions of this Section 8.13 shall not
supersede any confidentiality provisions contained in the letter of
intent between KMGI and Karrington Operating Company, Inc.,
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 9
DAMAGE, EMINENT DOMAIN
9.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Kensington-North Dakota until Closing. If the
Property is substantially damaged or destroyed by fire or other
casualty prior to the Closing of the transaction, Kensington-North
Dakota shall not be obligated to repair or replace the damaged or
destroyed Property, but in that event Karrington may (a) elect to
proceed with the Transaction, in which event Karrington shall, as
its exclusive recourse under this Agreement for such damage or
destruction, be entitled to all insurance money payable to
Kensington-North Dakota under any and all policies of insurance
covering the Property so damaged or destroyed, or (b) elect to
terminate this Agreement.
9.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Kensington-North Dakota on account of such
taking, or (b) elect to terminate this Agreement.
ARTICLE 10
TERMINATION
10.1 Termination of Agreement.
10.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
10.1.2 Karrington may terminate this Agreement as
provided in Article 9.
10.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
10.2 Effect of Termination.
If the Agreement is terminated as provided in this Article
10, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 11
CONDITIONS TO OBLIGATION TO CLOSE
11.1 Conditions to Karrington's Obligation to Close.
The obligations of Karrington and Parent to consummate
the Transaction are subject to satisfaction in favor of Karrington
and Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
11.1.1 The representations and warranties by or about
Kensington-North Dakota set forth in this Agreement shall be true
and correct in all material respects as of the Closing Date as though
made on such date, except as provided with respect to the dates of
financial statements under Section 5.3 and except for the date
limitation concerning certain employee matters set forth in
Subsection 5.17.1.
11.1.2 Kensington-North Dakota and the Kensington-
North Dakota Shareholders shall have performed and complied in
all material respects with all of their covenants set forth in this
Agreement through the Closing.
11.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of Kensington North-Dakota, threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator,
to which Kensington-North Dakota or any Kensington-North
Dakota Shareholder is a party or is threatened or expected to be
made a party, or which is otherwise known to Kensington-North
Dakota, in which an unfavorable outcome would prevent the
Closing, cause the Transaction to be rescinded in whole or in part
after Closing, or adversely effect Karrington's right to own the
Assets and perform the Services after Closing, and no injunction,
judgment, order, decree, ruling, charge or other holding having
such an effect shall be in force.
11.1.4 Kensington-North Dakota and Jon D. Rappaport
shall have delivered to Karrington certificates in the form set forth
on Exhibit 11.1.4A certifying that each of the conditions specified
above in Sections 11.1.1 through 11.1.3 is satisfied as of the
Closing Date, and Robert L. Rappaport shall have delivered to
Karrington a certificate in the form set forth on Exhibit 11.1.4B
specifying that the representations and warranties made by him are
true and correct in all material respects as of the Closing Date.
11.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 8.6.
11.1.6 Karrington shall have received the Updated Title
Commitment.
11.1.7 Kensington-North Dakota shall have executed
and delivered to Karrington and the title insurance company an
affidavit certifying that: (a) there are no mortgages, judgment liens
or other encumbrances of any nature whatsoever affecting the
Property except as set forth in the Updated Title Commitment; (b)
there are no rights of possession, use or otherwise, outstanding in
third persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
11.1.8 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-North Dakota;
11.1.9 The Rappaport Letter of Understanding shall
have been terminated.
11.1.10 Kensington-North Dakota shall have terminated
all of the Service Employees effective as of Closing.
11.1.11 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
11.1.12 The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Kensington-North Dakota's financial statements for the fiscal
years ended December 31, 1994, 1995 and 1996, and the results of
the Audit shall not require any material adverse adjustments, either
individually or in the aggregate, to the Kensington-North Dakota
Financial Statements.
11.1.13 Karrington shall have received a written opinion
from Kensington-North Dakota's legal counsel in form and
substance as set forth on Exhibit 11.1.13, dated as of the Closing
Date.
11.1.14 Kensington-North Dakota and the Kensington-
North Dakota Shareholders shall have taken all actions required of
them in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction will be reasonably satisfactory in form and substance to
Karrington and its legal counsel.
11.2 Conditions to Obligation of Kensington-North Dakota.
The obligation of Kensington-North Dakota to consummate
the Transaction is subject to satisfaction in favor of Kensington-
North Dakota or waiver by Kensington-North Dakota of the
following conditions as of Closing:
11.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
11.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
11.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be rescinded
in whole or in part after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
11.2.4 Karrington shall have delivered to Kensington-
North Dakota a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 11.2.4 certifying
that each of the conditions specified above in Sections 11.2.1
through 11.2.3 is satisfied in all respects.
11.2.5 The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-North Dakota.
11.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of Kensington-North
Dakota upon terms satisfactory to Karrington.
11.2.7 Kensington-North Dakota shall have received
from Karrington's legal counsel a written opinion in form and
substance as set forth on Exhibit 11.2.7, dated as of the Closing
Date.
11.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Kensington-North Dakota and its legal counsel.
ARTICLE 12
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
12.1 Taxes and Assessments.
At or prior to Closing, Kensington-North Dakota shall (a)
pay all delinquent real estate taxes, including penalties and interest,
(b) pay or credit on the purchase price all special assessments due
and payable at or prior to Closing, and all agricultural use tax
recoupment for years through the year of Closing, if any, and (c)
pay or credit on the purchase price, all real estate taxes for years
prior to the Closing, and a portion of such taxes due and payable
(or prorated according to local commercial custom) for the year of
Closing, prorated through the Closing Date.
12.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
12.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and Kensington-North Dakota on the basis of a 365-day
year as of the Closing Date.
12.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by Kensington-North Dakota to the Closing Date.
12.5 Transfer Taxes and Fees.
Kensington-North Dakota and Karrington shall share
equally the cost of all local or state transfer taxes and fees required
for the transfer of the Property by Kensington-North Dakota to
Karrington.
ARTICLE 13
CLOSING
13.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 11 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
13.2 Deliveries by the Parties at Closing.
13.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to Kensington-North
Dakota and Karrington, and shall pay the cash purchase price in
accordance with the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington Cottages
Corporation of Minnesota; and
a. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
13.2.2 Article 2, (b) Kensington-North Dakota shall
deliver to Karrington all bills of sale, assignments, consents, and
other documentation required to transfer the Assets to Karrington
as provided in this Agreement, and (c) each party shall deliver to
each other the various documents, instruments, certificates, and
opinions required to be delivered at Closing under Article 11.
13.2.3 Deliveries by Kensington-North Dakota shall
include the following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that Kensington-North
Dakota generally will be required to provide a deed to each
parcel of Real Estate which sets forth the same warranties
as those set forth in the deed by which Kensington-North
Dakota originally took title), signed by all Persons necessary
or required by the Title Commitment or Karrington's
attorneys, conveying title to the Real Estate to Karrington
as required by this Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by Kensington-
North Dakota;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by Kensington-North Dakota from any contractors,
materialmen, suppliers or manufacturers with respect to any
work or installations on or with respect to the Property to
the extent assignable;
l. All security deposits held by Kensington-North
Dakota which have been paid by third parties under the
Contracts, Equipment Leases and Motor Vehicle Leases, or
any other leases included in the Assets; and
m. Such other documents as are otherwise required of
Kensington-North Dakota by this Agreement.
13.2.4 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
13.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 14
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
14.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
14.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Kensington-
North Dakota, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 15.
14.3 Transition.
Kensington-North Dakota shall take no action intended to
discourage any lessor, licensor, lessee, resident, customer, supplier
or other business associate of Kensington-North Dakota relating to
the Services from maintaining the same business relationships with
Karrington after the Closing as it maintained with Kensington-
North Dakota prior to the Closing.
14.4 Non-Compete.
14.4.1 For a period of five (5) years from and after
Closing, Kensington-North Dakota and the Kensington-North
Dakota Shareholders shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of North Dakota;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
14.4.2 Notwithstanding the provisions in this Section
14.4, nothing herein shall restrict the Kensington-North Dakota
Shareholders from competing with the Services or undertaking any
activity otherwise restricted by this Section 14.4 if and when Jon D.
Rappaport is not subject to a covenant not to compete under his
employment agreement with Karrington.
14.4.3 This Section 14.4 shall survive Closing.
ARTICLE 15
INDEMNIFICATION
15.1 Meaning of Certain Terms.
15.1.1 In this Article, Kensington-North Dakota and the
Kensington-North Dakota Shareholders are collectively referred to
as the "Kensington Entities," and Karrington and Parent are
collectively referred to as the "Karrington Entities."
15.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
15.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
15.1.4 For purposes of this Article, all covenants,
representations, and warranties made by Kensington-North Dakota
in this Agreement shall be deemed to also have been made by Jon
D. Rappaport, and Kensington-North Dakota and Jon D.
Rappaport shall be jointly and severally liable for indemnity claims
related thereto.
15.1.5 Notwithstanding any other provision of this
Article, Karrington acknowledges and agrees that Robert L.
Rappaport is making only those representations and warranties set
forth in Article 4, and is personally obligated to perform only those
covenants expressly made by him individually or in his capacity as a
Kensington-North Dakota Shareholder in Sections 8.3, 11.1.4, and
14.4. Accordingly, Robert L. Rappaport's indemnification
obligations under this Article shall pertain only to the provisions of
Article 4 and, only as they pertain to and bind him personally, the
covenants and agreements contained in Sections 8.3, 11.1.4, and
14.4.
15.2 Survival of Representations and Warranties.
15.2.1 Except as provided in Section 15.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
15.2.2 "Survival Period" means the eighteen (18) month
period set forth in Subsection 15.2.1 or the period described in
Section 15.7, whichever applies.
15.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
15.3 Indemnification Obligations of the Kensington
Entities.
15.3.1 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections
15.1.5, 15.5 and 15.6.
15.3.2 In addition, Kensington-North Dakota and Jon
D. Rappaport shall jointly and severally indemnify and hold
harmless the Karrington Entities from and against all Adverse
Consequences related to (a) any Liability for the unpaid Taxes of (i)
Kensington-North Dakota or (ii) any other Person (as a transferee
or successor, by contract, or otherwise) as a result of any action
taken or not taken by Kensington-North Dakota, or (b) any matter
which is the subject of actual or threatened litigation, judicial order,
administrative action, or any similar matter concerning Kensington-
North Dakota (other than related to the enforcement of this
Article), whether or not disclosed or required to be disclosed on
any Schedule to this Agreement.
15.4 Indemnification Obligations of Karrington and
Parent.
15.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Section 15.5
and 15.6.
15.4.2 The Karrington Entities shall indemnify and hold
harmless the Kensington Entities from and against all Adverse
Consequences arising from or in connection with ownership of the
Assets, the Services, or the Assumed Liabilities after the Closing
Date, except to the extent the Kensington Entities are required to
indemnify the Karrington Entities in respect thereof under this
Article.
15.5 Basket Amount.
15.5.1 Except as provided in Section 15.7, the
Kensington Entities shall have no obligation to indemnify the
Karrington Entities under this Article unless and until the
Karrington Entities have suffered Adverse Consequences giving rise
to a right of indemnification under this Article of at least Fifteen
Thousand Dollars ($15,000.00) in the aggregate (the "Basket
Amount"), and then only as to the amount by which aggregate
claims by the Karrington Entities exceed the Basket Amount.
15.5.2 Except as provided in Section 15.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington Entities under this Article unless and until the
Kensington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article in the aggregate
of at least the Basket Amount; and then only as to the amount by
which aggregate claims by the Kensington Entities exceed the
Basket Amount.
15.6 Limitation on Recovery.
15.6.1 Except as provided in Section 15.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington Entities under this Article shall be limited to One
Hundred Fifty Thousand Dollars ($150,000.00) (the "Indemnity
Cap").
15.6.2 Except as provided in Section 15.7, the
aggregate obligation of the Kensington Entities to indemnify the
Karrington Entities under this Article shall be limited to the
Indemnity Cap.
15.7 Liability for Certain Claims.
The limitations set forth in Sections 15.5 and 15.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
15.3.2, or (c) by the Kensington Entities under Subsection 15.4.2.
The aggregate obligation of the Karrington Entities to indemnify
the Kensington Entities for all such indemnity claims shall be limited
to the purchase price, and the Kensington Entities' aggregate
obligation to indemnify the Karrington Entities for all such
indemnity claims shall be limited to the purchase price. The Survival
Period for any such indemnity claim shall be the greater of the
eighteen (18) month period set forth in Section 15.2.1 or the period
set forth in the statute of limitations under applicable law.
15.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
15.9 Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
15.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 16.14 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 14.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
9.1 and 9.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
15.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
15.12 Matters Involving Third Parties.
15.12.1 If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
15.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 15.12.2 shall be
reasonably satisfactory to the Indemnified Party.
15.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
15.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
15.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 15.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 15.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 Expenses.
Kensington-North Dakota and Karrington share equally all
expenses (including the costs of the Audit and the opinion of Ernst
& Young with respect to such Audit, the Surveys, the Title
Commitment, Updated Title Commitment and Title Policy, the
Environmental Audit and all pre-payment penalties and other
expenses with respect to Mortgage Debt, but excluding any
financing costs of Karrington) incurred in connection with this
Agreement and the Transaction, except as provided in Article 15 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear its own attorneys'
fees.
16.2 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
16.3 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
16.4 Entire Agreement.
Except as provided in Section 8.13.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI).
16.5 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
16.6 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
Kensington-North Dakota's consent.
16.7 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
16.8 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington-North Dakota:
Mr. Jon D. Rappaport
President
Kensington Cottages Corporation of North Dakota
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Jon D. Rappaport:
Mr. Jon D. Rappaport
Kensington Cottages Corporation of North Dakota
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Kensington-North Dakota, Jon D. Rappaport, or
Robert L. Rappaport, copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Robert L. Rappaport:
Mr. Robert L. Rappaport
11111 Excelsior Blvd.
Hopkins, MN 55343
Steven D. DeRuyter, Esq.
Leonard, Street and Deinard, P.A.
150 South Fifth Street
Suite 2300
Minneapolis, MN 55402
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 16.8 by giving the other parties written notice in the
manner set forth in this section.
16.9 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
16.10 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
16.11 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
16.12 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
16.13 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
16.14 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
16.15 Forum.
Except as provided in Section 16.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
16.16 Tax Free Exchange
Kensington-North Dakota may wish to dispose of the Real
Property by means of an exchange for like-kind property qualifying
for tax-free treatment pursuant to Section 1031 of the Code.
Karrington agrees to cooperate with Kensington-North Dakota in
effecting a qualifying like-kind exchange through a trust or other
means determined by Kensington-North Dakota. Kensington-
North Dakota shall bear the additional transaction costs, if any,
attributable to the consummation of a qualifying exchange.
Kensington-North Dakota shall hold Karrington harmless from any
risk or liability that Karrington might incur in cooperating with
Kensington-North Dakota. In such an exchange, Karrington shall
not be required to take title to any property other than the Real
Property. Any such exchange shall not affect the time for Closing
set forth in this Agreement.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
KENSINGTON
COTTAGES
CORPORATION OF
NORTH DAKOTA
By:
Jon D. Rappaport
Its: President
KENSINGTON-NORTH
DAKOTA
SHAREHOLDERS
Jon D. Rappaport
Robert L. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
8.4
Basket Amount
15.5
Bill of Sale
13.2.3
Closing
13.1
Closing Date
13.1
Contracts
2.1.3
Data Processing Systems
5.21
Deeds
13.2.3
Employee Accruals
2.3.1
Environmental Audit
7.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
15.6
Karrington
Preamble
Karrington Entities
15.1
Kensington Cottages of Bismarck
Recitals
Kensington-North Dakota
Preamble
Kensington-North Dakota Financial
Statements
5.3
Kensington-North Dakota Permits
5.11.3
Kensington-North Dakota Shareholders
Preamble
KMGI
1.3
Knowledge of Kensington-North Dakota
1.2
Land
2.1.1
Material Adverse Effect
5.4
Mortgage Debt
5.11.1
Most Recent Financial Statements
5.3
Most Recent Fiscal Month End
5.3
Most Recent Fiscal Year End
5.3
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
7.3
Personal Property
2.1.2
Property
2.1.2
Purchase Price
2.4
Rappaport Letter of Understanding
8.3
Real Estate
2.1.1
Resident
11.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
7.5
Title Commitment
7.1.1
Title Insurance Affidavit
11.1.7
Title Policy
7.1.2
Transaction
Recitals
Updated Title Commitment
7.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual knowledge or knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
KENSINGTON COTTAGES CORPORATION OF ROCHESTER,
AND
JON D. RAPPAPORT
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among
Kensington Cottages Corporation of Rochester, a Minnesota
corporation ("Kensington-Rochester"), Jon D. Rappaport (the sole
shareholder of Kensington-Rochester), Kensington Cottages
Corporation of America, a Minnesota corporation (Kensington
Cottages Corporation of America is a wholly-owned subsidiary of
Karrington Operating Company, Inc., an Ohio corporation, and is
referred to as "Karrington"), and Kensington Health, Inc., an Ohio
corporation ("Parent").
RECITALS
Kensington-Rochester owns and operates a dementia-
specific assisted living facility licensed as adult foster care and
board and lodging apartments, with three operating cottages of 70
beds, a fourth cottage and an administrative building currently
under construction, and the balance of the land with subdivided lots
for five additional cottages, in Rochester, Minnesota, known as
Kensington Cottages of Rochester.
Karrington desires to acquire Kensington Cottages of
Rochester and certain assets related to Kensington-Rochester's
operations, as more specifically described below, and Kensington-
Rochester wishes to sell them to Karrington upon the terms set
forth in this Agreement (the "Transaction").
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
The word "including" shall mean "including without
limitation." Except where expressly provided to the contrary,
"discretion" means "sole and absolute discretion." References to
any agreements or other documents include groups of related
agreements or other documents.
1.3 Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence, and Jon D.
Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota; and
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from Kensington-
Rochester (and Parent agrees to cause Karrington to purchase), and
Kensington-Rochester shall sell to Karrington, all of Kensington-
Rochester's right, title, and interest in and to the assets pertaining
to the operation of Kensington Cottages of Rochester (the
"Assets"), including the following:
2.1.1 The real property owned in fee simple by
Kensington-Rochester as more particularly described in Schedule
2.1.1 (the "Land"), together with all buildings, improvements, and
fixtures located thereon (the "Improvements") and all rights,
privileges, servitudes, and appurtenances thereunto belonging or
appertaining, including all right, title and interest of Kensington-
Rochester in and to the streets, alleys, and rights-of-way adjacent to
the Land, if any (the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of
Kensington Cottages of Rochester (the "Services"), including any
residential leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that Kensington-Rochester shall continue to have
reasonable access to such books and records to the extent necessary
to enable Kensington-Rochester to comply with applicable financial
or legal reporting requirements, and Kensington-Rochester shall
have the right to copy such materials as it desires, at its own
expense, for that purpose; and
2.1.8 All other assets of Kensington-Rochester,
including any Intellectual Property and any other rights, claims, or
interests, which are reasonably necessary to enable Karrington to
perform the Services (including the performance of all Contracts)
after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by Kensington-Rochester;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of Kensington-Rochester under any
claims, prepayments, refund, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment
(including such items relating to the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 8.1 and 8.2,
Kensington-Rochester's rights under any policies of insurance
purchased by Kensington-Rochester, or any benefits payable or paid
thereunder;
2.2.7 The corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other
identification numbers, general ledgers, tax returns, seals, minute
books, stock transfer books and similar documents relating to the
organization, maintenance and existence of Kensington-Rochester
as a corporation, provided, however, that Karrington shall have
reasonable access to such books and records to the extent
reasonably necessary for the operation of its Business and to
comply with applicable financial and legal reporting requirements,
and Karrington shall have the right to copy such materials as it
desires, at its own expense, for that purpose;
2.2.8 Any of the rights of Kensington-Rochester under
this Agreement or any other agreement between Kensington-
Rochester and Karrington entered into on or after the date of this
Agreement; and
2.2.9 Other tangible or intangible assets of Kensington-
Rochester which are not specifically included in the definition of
Assets.
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of Kensington-Rochester
which are associated with the Contracts, Equipment Leases,
Vehicle Leases, and Software Licenses, including
Kensington-Rochester's obligations with respect to the
security deposits included in the Assets, as more fully
described on Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify Kensington-Rochester
with respect to all losses, costs, damages, and expenses arising out
of any act or omission relating to the Assumed Liabilities occurring
after Closing, and Kensington-Rochester shall indemnify Karrington
with respect to any such loss, cost, damage or expense arising out
of any act or omission relating to the Assumed Liabilities occurring
prior to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
Kensington-Rochester a purchase price equal to Nine Million Eight
Hundred Thousand Dollars ($9,800,000.00) plus the amount of
Kensington-Rochester's investment as of Closing in the
construction of the fourth cottage and an administrative building of
Kensington Cottages of Rochester, which amount as of the
effective date of this Agreement is set forth on Schedule 2.4 and
shall be updated as of Closing, but which in no event shall exceed
Five Hundred Twenty-Eight Thousand Dollars ($528,000), payable
as follows:
a. An amount equal to the total amount of Employee
Accruals shall be deemed paid by Karrington's assumption
thereof at Closing; and
b. The balance of the purchase price shall be paid at
Closing by wire transfer or other form of immediately
available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to Kensington-Rochester and Jon D. Rappaport as
follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of North
Dakota, neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-ROCHESTER AND JON D.
RAPPAPORT
Kensington-Rochester and Jon D. Rappaport each
separately represents and warrants to Karrington and Parent as
follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 Organization, Qualification.
Kensington-Rochester is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. It is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required. It has full corporate
power and corporate authority to carry on its business and to own
and use its property. It has not filed for relief as a debtor under any
state receivership laws or federal bankruptcy laws.
4.3 Governing Documents.
Kensington-Rochester has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.4 Authorization of Transaction.
Kensington-Rochester has full power and authority to
execute, deliver, and perform this Agreement. This Agreement
constitutes Kensington-Rochester's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
4.5 Effect on Other Governing Documents.
Kensington-Rochester's execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Kensington-
Rochester is subject or any provision of its Governing Documents.
4.6 Finder's Fees.
To Kensington-Rochester's Knowledge, no person or entity
is entitled to any brokerage commission, finder's fee, or similar
compensation in connection with the execution, delivery, or
performance of this Agreement.
4.7 Stock Ownership.
Jon D. Rappaport is the sole shareholder of Kensington-
Rochester.
4.8 Subsidiaries.
Kensington-Rochester has no Subsidiaries. Kensington-
Rochester owns no equity securities of any other person or entity.
4.9 Financial Statements.
Attached as Schedule 4.9 are the following financial
statements of Kensington-Rochester (the "Kensington-Rochester
Financial Statements"): unaudited balance sheets and statements of
income for the fiscal years ended on December 31st of each of the
years 1995 and 1996, and for the one month period ended on
January 31, 1997, all of which are consistent with Kensington-
Rochester's books and records (which are maintained as provided in
Section 4.28) and fairly present Kensington-Rochester's results of
operations for the periods indicated. The January 31, 1997 financial
statements are the "Most Recent Financial Statements" and January
31, 1997 is the "Most Recent Fiscal Month End." December 31,
1996 is the "Most Recent Fiscal Year End." "Most Recent Balance
Sheet" means the balance sheet contained within the Most Recent
Financial Statements.
4.10 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Kensington-Rochester's Business, financial condition,
operations, or results of operations which have a material adverse
effect on the Assets, Services, or Assumed Liabilities either
separately or in the aggregate (a "Material Adverse Effect").
Without limiting the generality of the preceding sentence, since that
date, Kensington-Rochester has not:
4.10.1 except in connection with construction loans
with Princeton Bank, imposed any Security Interest of any kind
upon any of the Assets;
4.10.2 granted any license or sublicense pertaining to
the Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
4.10.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
4.10.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
4.10.5 defaulted on or postponed payment of the
Assumed Liabilities;
4.10.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
4.10.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Kensington-Rochester is a party or
by which it is bound which pertains in any way to the Assets or the
Services; or
4.10.8 committed to any of the foregoing.
4.11 Undisclosed Liabilities.
4.11.1 Kensington-Rochester has no Liability and, to the
Knowledge of Jon D. Rappaport, there is no Basis for any Liability
which would have a Material Adverse Effect except for (a)
Liabilities set forth on the Most Recent Balance Sheet or which
would not be required to be set forth on a balance sheet prepared in
accordance with GAAP, and (b) Liabilities which have arisen after
the Most Recent Fiscal Month End in the Ordinary Course of
Business, none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, or similar cause.
4.11.2 Kensington-Rochester is not a guarantor or
otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
4.12 Insurance.
4.12.1 Kensington-Rochester, through KMGI, maintains
insurance policies (copies of which have been delivered to or made
reasonably available to Karrington) reasonable in scope and amount
in connection with the Assets and Services, and has done so for the
past two years.
4.12.2 Schedule 4.12 sets forth a true and accurate list
of all insurance policies carried on the Assets. The casualty
insurance covering the Property insures the full replacement value
thereof.
4.12.3 Kensington-Rochester has complied with all
notices or requests it has received from any insurance company
issuing any of the insurance policies required to be set forth on
Schedule 4.12.
4.13 Effect on Other Agreements.
Except as disclosed in Schedule 4.13, Kensington-
Rochester's execution and delivery of this Agreement and its
consummation of the Transaction will not breach, conflict with,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, mortgage, lease,
license, instrument, or other arrangement to which Kensington-
Rochester is a party or by which it is bound or to which any of its
assets is subject, or result in the imposition of any Security Interest
upon any of its assets to which Karrington may be subject after the
Closing.
4.14 No Notice or Consent.
Except as disclosed in Schedule 4.14, Kensington-Rochester
is not required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the
Transaction.
4.15 Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
4.16 Property Matters.
4.16.1 Except as disclosed on Schedule 4.16, no notices
have been received by Kensington-Rochester from the holder of any
of the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
4.16.2 Except as disclosed on Schedule 4.16, the
Property and the present use of the Property does not violate any
provisions of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
4.16.3 Except as disclosed on Schedule 4.16, there are
no hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or of any roof or wall
leaks, or backed up sewer problems. All improvements on the Real
Estate were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, Kensington-
Rochester shall assign all of its interest in appliance and equipment
manufacturers' warranties, and all other warranties relating to the
construction of the improvements on the Real Estate, if any, to the
extent assignable.
4.16.4 Except as disclosed in Schedule 2.1.2, there are
no leases affecting the Real Estate except for the Resident
Agreements.
4.16.5 To the Knowledge of Jon D. Rappaport there is
no threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
4.16.6 To the Knowledge of Jon D. Rappaport, except
as disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
4.17 Legal Compliance.
4.17.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property
(which debt shall be paid and the security released at or prior to
Closing, as provided in Section 7.5) (the "Mortgage Debt"), the
Equipment Leases, Vehicle Leases, and the Vehicle Financing, and
as otherwise required to be disclosed in this Agreement,
Kensington-Rochester has not taken or failed to take any action
with respect to any legal matter which has resulted in, or may result
in (a) the imposition of any Security Interest on the Assets, or (b)
any Liability with respect to the Assets or Services to which
Karrington may be subject after Closing.
4.17.2 Kensington-Rochester has complied with all laws
(including any related rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges) of federal, state,
local and foreign governments (including any governmental
agencies) applicable to the Assets, Services, and Assumed
Liabilities the failure to comply with which would have a Material
Adverse Effect with respect to the Assets, Services or Assumed
Liabilities, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or
commenced against Kensington-Rochester alleging any failure to
comply.
4.17.3 Kensington-Rochester has all necessary or
appropriate governmental licenses, certificates, permits and
authorizations to own or lease the Assets and to perform the
Services (the "Kensington-Rochester Permits") with respect to
which the failure to have would have a Material Adverse Effect
with respect to the Assets, Services or Assumed Liabilities. To
Kensington-Rochester's Knowledge, no violations have occurred
with respect to the Kensington-Rochester Permits, and no
proceeding is pending or threatened which might have the effect of
revoking or rescinding, or otherwise having a materially adverse
effect upon, any Kensington-Rochester Permit. Kensington-
Rochester has filed all reports, cost reports, registrations and
statements, together with any required amendments, that are or
were required to be filed with any governmental authorities (or with
any fiscal intermediaries) pursuant to the Kensington-Rochester
Permits or otherwise. As of their respective dates, all such reports,
cost reports, registrations and statements complied in all material
respects with the terms of the then-existing contracts between any
governmental authorities or fiscal intermediaries and Kensington-
Rochester, and with all statutes, rules and regulations enforced or
promulgated by the regulatory authority (or by any fiscal
intermediary) with which they were filed, and were true, correct
and complete as filed in all material respects.
4.17.4 Kensington-Rochester is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency that relates to the Assets or the Services.
4.17.5 Kensington Cottages of Rochester does not
qualify for cost reporting or cost reimbursement under any health
care or similar program administered by any governmental authority
or agency.
4.18 Litigation.
4.18.1 Except as disclosed on Schedule 4.18,
Kensington-Rochester is not a party and, to the Knowledge of Jon
D. Rappaport, has not been threatened to be made a party, to any
action, suit, proceeding, hearing, or investigation of, in, or before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which in
any way pertains to the Assets, Services, or Assumed Liabilities.
4.18.2 Kensington-Rochester is not subject, and, to the
Knowledge of Jon D. Rappaport, has not been threatened to be
made subject, to any injunction, judgment, order, decree, ruling, or
charge pertaining to the Assets, Services, or Assumed Liabilities.
4.19 Tax Matters.
4.19.1 Kensington-Rochester has delivered to
Karrington true and complete copies of (a) the most recent real
estate tax and assessment bills for the Property, (b) all Tax Returns
that have been or are currently subject to audit, and (c) all
examination reports and statements of deficiencies assessed against
or agreed to by Kensington-Rochester.
4.19.2 Kensington-Rochester has not taken or failed to
take any action with respect to any tax matter which has resulted in,
or, to the Knowledge of Jon D. Rappaport, may result in (a) the
imposition of any Security Interest on the Assets, or (b) any
Liability with respect to which the Assets or Services or Karrington
may be subject after Closing.
4.19.3 Kensington-Rochester has filed all required Tax
Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 4.19, no filing date has been extended for any
Tax Return Kensington-Rochester is or has been required to file
which has not yet been filed. To Kensington-Rochester's
Knowledge, no taxing authority in a jurisdiction where Kensington-
Rochester does not file Tax Returns has ever asserted that
Kensington-Rochester is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the Assets
that arose in connection with any actual or alleged failure to pay
any Tax.
4.19.4 Kensington-Rochester has withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
4.19.5 To the Knowledge of Jon D. Rappaport, no
taxing authority plans to assess any additional Taxes for any period
for which Tax Returns have been filed. To the Knowledge of Jon
D. Rappaport, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
4.19.6 Kensington-Rochester has not waived any statute
of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
4.20 Intellectual Property.
Kensington-Rochester does not own, license, or otherwise
possess any rights in any Intellectual Property which pertain in any
way to the Assets or Services, and is not subject to any such rights
held by third parties, other than rights made available to it by
KMGI.
4.21 Other Agreements.
4.21.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which Kensington-Rochester
is a party which pertain to the Assets or Services, including all
maintenance contracts, concession agreements, or other contracts
affecting the Property (other than the Equipment Leases, Software
Licenses, and Vehicle Leases).
4.21.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 4.13 or 4.14, will continue to be legal, valid,
and binding, and in full force and effect on identical terms
immediately following the consummation of the Transaction
(Subject to Equitable Principles). Kensington-Rochester is not in
default in the performance of any such agreements and, to the
Knowledge of Jon D. Rappaport no parties thereto have any
defenses, set-offs or rebates relating to any such agreements.
Except as disclosed in Schedule 4.21: to the Knowledge of Jon D.
Rappaport, no other party is in breach or default of any such
agreement; to the Knowledge of Jon D. Rappaport no event has
occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification or
acceleration, under the agreement, and no party has repudiated any
provision of the agreement.
4.21.3 Kensington-Rochester has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
4.21.
4.21.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
4.22 Performance of Services.
Schedule 4.22 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Kensington-Rochester has been in conformity in all material
respects with all applicable contractual commitments and all express
and implied warranties.
4.23 Employees.
4.23.1 Except as provided in Subsection 10.1.9, to
Kensington-Rochester's Knowledge as of the date hereof, no
Service Employee employed in a management capacity has any
plans to terminate employment with Kensington-Rochester prior to
Closing or to refuse employment with Karrington following
Closing.
4.23.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, Kensington-Rochester shall have discharged all obligations
to the Service Employees with respect to compensation or benefits
of any kind under any type of Employee Benefit Plan, and after
Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
Kensington-Rochester.
4.23.3 Kensington-Rochester is not and never has been
a party to or bound by any collective bargaining agreement. To the
Knowledge of Jon D. Rappaport, there has never been and there is
not now any effort by any labor union to organize any employees of
Kensington-Rochester into one or more collective bargaining units.
Kensington-Rochester has not experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining
disputes. Kensington-Rochester has not committed any unfair labor
practice or other violation of labor or employment law relating to
the Service Employees.
4.24 Employee Benefits.
4.24.1 Kensington-Rochester does not now maintain
and is not now required to contribute to, and has never maintained
or been required to contribute to, any Employee Pension Benefit
Plan.
4.24.2 Kensington-Rochester has not taken or failed to
take any action with respect to any Employee Benefit Plan which
has resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets or Services to which Karrington may be subject after
Closing.
4.24.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
4.24.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which Kensington-Rochester
maintains or ever has maintained or to which it contributes, ever
has contributed, or ever has been required to contribute; no
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan; no
action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of Jon D. Rappaport, threatened; and
Kensington-Rochester has no Knowledge of any Basis for any such
action, suit, proceeding, hearing, or investigation.
4.24.5 Kensington-Rochester does not contribute to,
never has contributed to, and never has been required to contribute
to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
4.25 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Kensington-Rochester which pertain to or could pertain to
the Assets or Services in any way.
4.26 Environment, Health and Safety.
4.26.1 To the Knowledge of Jon D. Rappaport, it has
no Liability for any illness of or personal injury to any employee or
other individual, for damage to any site, location, or body of water
(surface or subsurface), for any damages or claims under any past,
present, or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice, or for any other reason
under any Environmental, Health and Safety Law in any way
pertaining to or affecting the Assets or Services.
4.26.2 Kensington-Rochester and its predecessors (i)
have complied with all Environmental, Health and Safety Laws, and
no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply, and (ii) have
obtained and been in compliance in all material respects with all of
the terms and conditions of all permits, licenses, and other
authorizations which are required under, and have complied in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health and
Safety Laws.
4.26.3 Kensington-Rochester has not disposed of or
arranged for the disposal of any Hazardous Substance on the
Property and Kensington-Rochester has no Knowledge of the
disposal of any Hazardous Substance on the Property by any other
person or entity.
4.26.4 There have not been, and there currently are no
pending or, to the Knowledge of Jon D. Rappaport, threatened
claims against Kensington-Rochester alleging the violation of any
Environmental, Health and Safety Laws.
4.26.5 Except as disclosed in the Environmental Audit,
the Property is free of asbestos, PCB's, methylene chloride,
trichloroethylene, dioxins, dibenzofurans and Extremely Hazardous
Substances.
4.27 Data Processing Matters.
4.27.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Kensington-Rochester owns, leases, or licenses
(the "Data Processing Systems"):
a. Kensington-Rochester, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
Kensington-Rochester has not sustained, and is not aware of
any information or circumstances indicating that it may
sustain, disruption of business or loss by reason of
unauthorized access, use, copying, modification, theft, or
destruction of any such programs and files by its employees
or any such other persons; and
b. Kensington-Rochester, through KMGI, has arranged
for back-up data processing services adequate to meet data
processing needs in the event that the Data Processing
Systems are rendered temporarily or permanently
inoperative as a result of a natural disaster or other cause.
4.27.2 Kensington-Rochester's data processing and data
storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
4.28 Books and Records.
4.28.1 Kensington-Rochester's books of account
pertaining to the Services reflect all material items of income and
expense and all material assets, liabilities and accruals, and are
prepared and maintained in form and substance adequate for
preparing financial statements and related information in
accordance with any accounting principles required by any
governmental agency with regulatory authority over Kensington-
Rochester's financial statements and otherwise in accordance with
the standards required by this Agreement.
4.28.2 Kensington-Rochester has devised and
maintained a system of internal accounting controls with respect to
the Services sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management
directives, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Subsection
4.28.1, (c) the recorded amounts are compared with the actual
levels at reasonable intervals and appropriate action is taken with
respect to any differences, and (d) access to information pertaining
to the preceding items (a) - (c) is permitted only in accordance with
management directives.
4.29 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreements, Kensington-Rochester does not hold, and the
Assets do not include, funds of any residents of Kensington
Cottages of Rochester in excess of two hundred dollars ($200.00)
per resident.
ARTICLE 5
NATURE OF DISCLOSURES
5.1 Disclosure by Kensington-Rochester and Jon D.
Rappaport.
Kensington-Rochester and Jon D. Rappaport each
separately represent and warrant to Karrington and Parent as
follows:
5.1.1 All items concerning Kensington-Rochester which
are required to be disclosed or identified on the Schedules to this
Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
5.1.2 No representation or warranty made by or about
Kensington-Rochester in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Kensington-Rochester which is required under this Agreement
contains any untrue statement of a material fact or omits any
material fact necessary to make the statements made not
misleading.
5.1.3 To the Knowledge of Jon D. Rappaport, there is
no fact which materially and adversely affects the Assets, Services,
or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials Kensington-
Rochester is required to furnish under this Agreement.
5.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties of Kensington-
Rochester and Jon D. Rappaport that are not set forth in this
Agreement or required to be set forth in a schedule, list, certificate,
document or other instrument or exhibit required under this
Agreement and that there shall not be deemed to be any other
express or implied representations or warranties made by or on
behalf of Kensington-Rochester or Jon D. Rappaport in connection
with the Transaction.
5.2 Copies and Lists.
Unless a representation and warranty made by or about
Kensington-Rochester in this Agreement is solely with respect to
the existence or non-existence of a document or other item, the
mere listing or inclusion of a copy of the document or other item
shall not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington to
understand the exception or (b) an exception to a representation or
warranty which is not permitted.
5.3 Due Diligence.
The obligations of Kensington-Rochester and Jon D.
Rappaport to make representations and warranties in accordance
with the standards set forth in this Agreement shall not be affected
or deemed waived on the grounds that Karrington, based upon its
investigation and review or otherwise, should have known that any
such representation or warranty is or might be inaccurate or
incomplete.
ARTICLE 6
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
6.1 Title Commitment and Policy.
6.1.1 Kensington-Rochester has furnished and delivered
to Karrington in form acceptable to Karrington, a current Owner's
Title Insurance Commitment (form ALTA 1966), together with
copies of all documents referred to therein (the "Title
Commitment").
6.1.2 Kensington-Rochester shall furnish and deliver to
Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
6.2 Title.
The Updated Title Commitment shall show in Kensington-
Rochester good and marketable title in fee simple to the Real
Estate, free and clear of all liens and encumbrances except those
listed in Section 6.3 (the "Permitted Encumbrances"), and the Title
Policy shall insure the same in Karrington.
6.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
6.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
6.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
6.3.3 Liens and encumbrances listed in Schedule 6.3.
6.4 Exceptions and Endorsements.
6.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
6.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
6.5 Survey and Legal Descriptions.
Kensington-Rochester, has furnished to Karrington (a) plats
of survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of Minnesota who is
acceptable to Karrington (the "Surveys").
6.6 Occupancy Permits.
Kensington-Rochester has provided Karrington with true
and complete copies of the occupancy permits for the Real Estate.
6.7 Environmental Audit
Karrington has received from Kensington-Rochester a
Phase I Environmental Audit of the Real Property, in form and
content satisfactory to Karrington and performed by an
environmental engineer satisfactory to Karrington (the
"Environmental Audit").
ARTICLE 7
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
7.1 In General.
Kensington-Rochester and Karrington will each use its best
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate the Transaction.
7.2 Transfer of Licenses.
Kensington-Rochester and Karrington shall use their mutual
best efforts to arrange the transfer or re-issuance to Karrington as
of Closing of all necessary or appropriate licenses, certificates,
permits, or other authorizations to enable Karrington to own the
Assets and perform the Services after Closing.
7.3 Pre-Closing Audit.
Kensington-Rochester shall fully cooperate with Ernst &
Young in connection with the completion of their audit, prior to
Closing, of Kensington-Rochester's financial statements for the
fiscal years ending on December 31, 1995 and 1996 (the "Audit").
Karrington and Kensington-Rochester shall use their best efforts to
cause the Audit to be completed by Ernst & Young on or before
April 30, 1997.
7.4 Insurance.
Kensington-Rochester shall maintain the insurance required
to be set forth on Schedule 4.12 in full force and effect through
Closing.
7.5 Mortgage Debt.
Kensington-Rochester shall make all necessary
arrangements to pay the Mortgage Debt in full and release the
Assets from all Security Interests in connection therewith at
Closing. To the extent reasonably requested by Karrington,
Kensington-Rochester shall fully cooperate with any attempts by
Karrington to obtain new financing for the Property, provided that
such cooperation shall not require any payment of fees or
incurrence of out-of-pocket expenses by Kensington-Rochester
with respect to such financing, except as otherwise expressly
provided in this Agreement.
7.6 Operation of Business.
Kensington-Rochester will not engage in any practice, take
any action or enter into any transaction pertaining to the Services
which is outside the Ordinary Course of Business, including any
practice, action, or transaction of a type described in Section 4.10.
7.7 Preservation of Assets.
Kensington-Rochester will use commercially reasonable
efforts to keep the Assets and Services substantially intact,
including all present operations, physical facilities, working
conditions and relationships with lessors, licensors, suppliers,
lessees, residents, customers, and employees. Kensington-
Rochester shall maintain the Assets in their present condition and
repair (ordinary wear and tear excepted), shall not enter into any
material contract relating to the Assets or Services which extends
beyond the Closing Date without the consent of Karrington, and
shall continue the existing operation of the Property including
continuing its present advertising commitments and its usual
program of advertising. Kensington-Rochester shall not remove
from the Property any items of Personal Property between the date
hereof and the Closing, except as may be required for repair or
replacement; and any replacements shall be of equal or better
quality and quantity. Nothing herein shall require Kensington-
Rochester to repair or replace Property substantially damaged or
destroyed by fire or other casualty prior to Closing.
7.8 Access to Properties.
Kensington-Rochester will permit representatives of
Karrington full access during normal business hours to all of its
premises, properties, personnel, books, records, contracts,
documents and other materials as reasonably required by
Karrington.
7.9 Notice of Developments.
Karrington and Kensington-Rochester will give prompt
written notice to one another of any development of which it has
Knowledge which reasonably appears to cause any representations
and warranties by any party in this Agreement not to be true and
correct in all material respects as of Closing (except as provided
with respect to the dates of financial statements under Section 4.9
and except for the date limitation concerning certain employee
matters set forth in Subsection 4.23.1). Such written notice shall
describe the matter with reasonable particularity and shall set forth
the manner in which it would cause any such representation and
warranty (identified by specific reference to the applicable provision
of this Agreement) not to be true as of Closing. No notice under
this Section 7.9 shall be deemed to amend or supplement any
representation or warranty or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the
party giving notice; provided that in the event a party would have
the right not to proceed to Closing by reason of such breach, if the
nondefaulting party elects to close notwithstanding such breach,
such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
7.10 Updated Schedules.
Kensington-Rochester will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be deemed
to amend or supplement any representation or warranty or any
Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
7.11 Exclusivity.
So long as this Agreement has not been terminated,
Kensington-Rochester will not (a) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Kensington-Rochester will notify Karrington
immediately if any of the foregoing occur.
7.12 Confidentiality.
7.12.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
7.12.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 7.12
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
7.12.3 The provisions of this Section 7.12 shall not
supersede any confidentiality provisions contained in the letter of
intent between KMGI and Karrington Operating Company, Inc.,
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 8
DAMAGE, EMINENT DOMAIN
8.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Kensington-Rochester until Closing. If the Property is
substantially damaged or destroyed by fire or other casualty prior to
the Closing of the transaction, Kensington-Rochester shall not be
obligated to repair or replace the damaged or destroyed Property,
but in that event Karrington may (a) elect to proceed with the
Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such damage or destruction, be
entitled to all insurance money payable to Kensington-Rochester
under any and all policies of insurance covering the Property so
damaged or destroyed, or (b) elect to terminate this Agreement.
8.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Kensington-Rochester on account of such
taking, or (b) elect to terminate this Agreement.
ARTICLE 9
TERMINATION
9.1 Termination of Agreement.
9.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
9.1.2 Karrington may terminate this Agreement as
provided in Article 8.
9.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
9.2 Effect of Termination.
If the Agreement is terminated as provided in this Article 9,
all rights and obligations of the parties shall cease immediately upon
termination, except for any Liability of a party then in breach, and
except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 10
CONDITIONS TO OBLIGATION TO CLOSE
10.1 Conditions to Karrington's Obligation to Close.
The obligations of Karrington and Parent to consummate
the Transaction are subject to satisfaction in favor of Karrington
and Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
10.1.1 The representations and warranties by or about
Kensington-Rochester set forth in this Agreement shall be true and
correct in all material respects as of the Closing Date as though
made on such date, except as provided with respect to the dates of
financial statements under Section 4.9 and except for the date
limitation concerning certain employee matters set forth in
Subsection 4.23.1.
10.1.2 Kensington-Rochester and Jon D. Rappaport
shall have performed and complied in all material respects with all
of their covenants set forth in this Agreement through the Closing.
10.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of Jon D. Rappaport, threatened before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator, to which
Kensington-Rochester or Jon D. Rappaport is a party or is
threatened or expected to be made a party, or which is otherwise
known to Kensington-Rochester, in which an unfavorable outcome
would prevent the Closing, cause the Transaction to be rescinded in
whole or in part after Closing, or adversely effect Karrington's right
to own the Assets and perform the Services after Closing, and no
injunction, judgment, order, decree, ruling, charge or other holding
having such an effect shall be in force.
10.1.4 Kensington-Rochester and Jon D. Rappaport
shall have delivered to Karrington certificates in the form set forth
on Exhibit 10.1.4 certifying that each of the conditions specified
above in Sections 10.1.1 through 10.1.3 is satisfied as of the
Closing Date.
10.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 7.5.
10.1.6 Karrington shall have received the Updated Title
Commitment.
10.1.7 Kensington-Rochester shall have executed and
delivered to Karrington and the title insurance company an affidavit
certifying that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in the Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
10.1.8 The closings under each of the Acquisition
Agreements shall occur simultaneously with the Closing under this
Agreement or in a sequence reasonably agreed upon by Parent,
Karrington, and Kensington-Rochester.
10.1.9 Kensington-Rochester shall have terminated all
of the Service Employees effective as of Closing.
10.1.10 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the$Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
10.1.11 The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Kensington-Rochester's financial statements for the fiscal years
ended December 31, 1995, and 1996, and the results of the Audit
shall not require any material adverse adjustments, individually or in
the aggregate, to the Kensington-Rochester Financial Statements.
10.1.12 Karrington shall have received a written opinion
from Kensington-Rochester's legal counsel in form and substance as
set forth on Exhibit 10.1.12, dated as of the Closing Date.
10.1.13 Kensington-Rochester and Jon D. Rappaport
shall have taken all actions required of them in connection with the
Transaction, and all certificates, opinions, instruments and other
documents required for the Transaction will be reasonably
satisfactory in form and substance to Karrington and its legal
counsel.
10.2 Conditions to Obligation of Kensington-Rochester.
The obligation of Kensington-Rochester to consummate the
Transaction is subject to satisfaction in favor of Kensington-
Rochester or waiver by Kensington-Rochester of the following
conditions as of Closing:
10.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
10.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
10.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be rescinded
in whole or in part after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
10.2.4 Karrington shall have delivered to Kensington-
Rochester a certificate of its Chief Operating Officer and Chief
Financial Officer in the form set forth on Exhibit 10.2.4 certifying
that each of the conditions specified above in Sections 10.2.1
through 10.2.3 is satisfied in all respects.
10.2.5 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-Rochester.
10.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of Kensington-Rochester
upon terms satisfactory to Karrington.
10.2.7 Kensington-Rochester shall have received from
Karrington's legal counsel a written opinion in form and substance
as set forth on Exhibit 10.2.7, dated as of the Closing Date.
10.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Kensington-Rochester and its legal counsel.
ARTICLE 11
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
11.1 Taxes and Assessments.
At or prior to Closing, Kensington-Rochester shall (a) pay
all delinquent real estate taxes, including penalties and interest, (b)
pay or credit on the purchase price all special assessments due and
payable at or prior to Closing, and all agricultural use tax
recoupment for years through the year of Closing, if any, and (c)
pay or credit on the purchase price, all real estate taxes for years
prior to the Closing, and a portion of such taxes due and payable
(or prorated according to local commercial custom) for the year of
Closing, prorated through the Closing Date.
11.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
11.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and Kensington-Rochester on the basis of a 365-day
year as of the Closing Date.
11.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by Kensington-Rochester to the Closing Date.
11.5 Transfer Taxes and Fees.
Kensington-Rochester and Karrington shall share equally
the cost of all local or state transfer taxes and fees required for the
transfer of the Property by Kensington-Rochester to Karrington.
ARTICLE 12
CLOSING
12.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 10 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
12.2 Deliveries by the Parties at Closing.
12.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to Kensington-Rochester
and Karrington, and shall pay the cash purchase price in accordance
with Article 2 (b) Kensington-Rochester shall deliver to Karrington
all bills of sale, assignments, consents, and other documentation
required to transfer the Assets to Karrington as provided in this
Agreement, and (c) each party shall deliver to each other the
various documents, instruments, certificates, and opinions required
to be delivered at Closing under Article 10.
12.2.2 Deliveries by Kensington-Rochester shall include
the following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that Kensington-Rochester
generally will be required to provide a deed to each parcel
of Real Estate which sets forth the same warranties as those
set forth in the deed by which Kensington-Rochester
originally took title), signed by all Persons necessary or
required by the Title Commitment or Karrington's attorneys,
conveying title to the Real Estate to Karrington as required
by this Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by Kensington-
Rochester;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by Kensington-Rochester from any contractors,
materialmen, suppliers or manufacturers with respect to any
work or installations on or with respect to the Property to
the extent assignable;
l. All security deposits held by Kensington-Rochester
which have been paid by third parties under the Contracts,
Equipment Leases and Motor Vehicle Leases, or any other
leases included in the Assets; and
m. Such other documents as are otherwise required of
Kensington-Rochester by this Agreement.
12.2.3 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
12.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 13
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
13.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
13.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Kensington-
Rochester, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 14.
13.3 Transition.
Kensington-Rochester shall take no action intended to
discourage any lessor, licensor, lessee, resident, customer, supplier
or other business associate of Kensington-Rochester relating to the
Services from maintaining the same business relationships with
Karrington after the Closing as it maintained with Kensington-
Rochester prior to the Closing.
13.4 Non-Compete.
13.4.1 For a period of five (5) years from and after
Closing, Kensington-Rochester shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of Minnesota;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
13.4.2 Notwithstanding the provisions in this Section
13.4, nothing herein shall restrict Jon D. Rappaport from competing
with the Services or undertaking any activity otherwise restricted by
this Section 13.4 if and when he is not subject to a covenant not to
compete under his employment agreement with Karrington.
13.4.3 This Section 13.4 shall survive Closing.
ARTICLE 14
INDEMNIFICATION
14.1 Meaning of Certain Terms.
14.1.1 In this Article, Kensington-Rochester and Jon D.
Rappaport are collectively referred to as the "Kensington Entities,"
and Karrington and Parent are collectively referred to as the
"Karrington Entities."
14.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
14.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
14.1.4 For purposes of this Article, all covenants,
representations, and warranties made by Kensington-Rochester in
this Agreement shall be deemed to also have been made by Jon D.
Rappaport, and Kensington-Rochester and Jon D. Rappaport shall
be jointly and severally liable for indemnity claims related thereto.
14.2 Survival of Representations and Warranties.
14.2.1 Except as provided in Section 14.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
14.2.2 "Survival Period" means the eighteen (18) month
period set forth in Subsection 14.2.1 or the period described in
Section 14.7, whichever applies.
14.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
14.3 Indemnification Obligations of the Kensington
Entities.
14.3.1 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections 14.5
and 14.6.
14.3.2 In addition, Kensington-Rochester and Jon D.
Rappaport shall jointly and severally indemnify and hold harmless
the Karrington Entities from and against all Adverse Consequences
related to (a) any Liability for the unpaid Taxes of (i) Kensington-
Rochester or (ii) any other Person (as a transferee or successor, by
contract, or otherwise) as a result of any action taken or not taken
by Kensington-Rochester, or (b) any matter which is the subject of
actual or threatened litigation, judicial order, administrative action,
or any similar matter concerning Kensington-Rochester (other than
related to the enforcement of this Article), whether or not disclosed
or required to be disclosed on any Schedule to this Agreement.
14.4 Indemnification Obligations of Karrington and
Parent.
14.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections 14.5
and 14.6.
14.4.2 The Karrington Entities shall indemnify and hold
harmless the Kensington Entities from and against all Adverse
Consequences arising from or in connection with ownership of the
Assets, the Services, or the Assumed Liabilities after the Closing
Date, except to the extent the Kensington Entities are required to
indemnify the Karrington Entities in respect thereof under this
Article.
14.5 Basket Amount.
14.5.1 Except as provided in Section 14.7, the
Kensington Entities shall have no obligation to indemnify the
Karrington Entities under this Article unless and until the
Karrington Entities have suffered Adverse Consequences giving rise
to a right of indemnification under this Article of at least one
percent (1%) of the purchase price payable under Section 2.4 in the
aggregate (the "Basket Amount"), and then only as to the amount
by which aggregate claims by the Karrington Entities exceed the
Basket Amount.
14.5.2 Except as provided in Section 14.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington Entities under this Article unless and until the
Kensington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article in the aggregate
of at least the Basket Amount; and then only as to the amount by
which aggregate claims by the Kensington Entities exceed the
Basket Amount.
14.6 Limitation on Recovery.
14.6.1 Except as provided in Section 14.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington Entities under this Article shall be limited to ten percent
(10%) of the purchase price payable under Section 2.4 (the
"Indemnity Cap").
14.6.2 Except as provided in Section 14.7, the
aggregate obligation of the Kensington Entities to indemnify the
Karrington Entities under this Article shall be limited to the
Indemnity Cap.
14.7 Liability for Certain Claims.
The limitations set forth in Sections 14.5 and 14.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
14.3.2, or (c) by the Kensington Entities under Subsection 14.4.2.
The aggregate obligation of the Karrington Entities to indemnify
the Kensington Entities for all such indemnity claims shall be limited
to the purchase price, and the Kensington Entities' aggregate
obligation to indemnify the Karrington Entities for all such
indemnity claims shall be limited to the purchase price. The Survival
Period for any such indemnity claim shall be the greater of the
eighteen (18) month period set forth in Section 14.2.1 or the period
set forth in the statute of limitations under applicable law.
14.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
14.9 Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
14.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 15.14 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 13.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
8.1 and 8.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
14.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
14.12 Matters Involving Third Parties.
14.12.1 If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
14.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 14.12.2 shall be
reasonably satisfactory to the Indemnified Party.
14.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
14.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
14.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 14.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 14.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 Expenses.
Kensington-Rochester and Karrington shall share equally all
expenses (including the costs of the Audit and the opinion of Ernst
& Young with respect to such Audit, the Surveys, the Title
Commitment, Updated Title Commitment and Title Policy, the
Environmental Audit and all pre-payment penalties and other
expenses with respect to Mortgage Debt but excluding any
financing costs of Karrington) incurred in connection with this
Agreement and the Transaction, except as provided in Article 14 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear its own attorneys
fees.
15.2 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
15.3 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
15.4 Entire Agreement.
Except as provided in Section 7.12.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI.
15.5 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
15.6 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
Kensington-Rochester's consent.
15.7 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
15.8 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington-Rochester:
Mr. Jon D. Rappaport
President
Kensington Cottages Corporation of Rochester
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Jon D. Rappaport:
Mr. Jon D. Rappaport
Kensington Cottages Corporation of Rochester
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Kensington-Rochester or Jon D. Rappaport, copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 15.8 by giving the other parties written notice in the
manner set forth in this section.
15.9 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
15.10 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
15.11 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
15.12 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
15.13 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
15.14 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
15.15 Forum.
Except as provided in Section 15.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
15.16 Tax Free Exchange
Kensington-Rochester may wish to dispose of the Real
Property by means of an exchange for like-kind property qualifying
for tax-free treatment pursuant to Section 1031 of the Code.
Karrington agrees to cooperate with Kensington-Rochester in
effecting a qualifying like-kind exchange through a trust or other
means determined by Kensington-Rochester. Kensington-
Rochester shall bear the additional transaction costs, if any,
attributable to the consummation of a qualifying exchange.
Kensington-Rochester shall hold Karrington harmless from any risk
or liability that Karrington might incur in cooperating with
Kensington-Rochester. In such an exchange, Karrington shall not
be required to take title to any property other than the Real
Property. Any such exchange shall not affect the time for Closing
set forth in this Agreement.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
KENSINGTON
COTTAGES
CORPORATION OF
ROCHESTER
By:
Jon D. Rappaport
Its: President
Jon D. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
7.3
Basket Amount
14.5
Bill of Sale
12.2.2
Closing
12.1
Closing Date
12.1
Contracts
2.1.3
Data Processing Systems
4.27
Deeds
12.2.2
Employee Accruals
2.3.1
Environmental Audit
6.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
14.6
Karrington
Preamble
Karrington Entities
14.1
Kensington Cottages of Rochester
Recitals
Kensington-Rochester
Preamble
Kensington-Rochester Financial
Statements
4.9
Kensington-Rochester Permits
4.17.3
KMGI
1.3
Knowledge of Jon D. Rappaport
1.2
Land
2.1.1
Material Adverse Effect
4.10
Mortgage Debt
4.17.1
Most Recent Financial Statements
4.9
Most Recent Fiscal Month End
4.9
Most Recent Fiscal Year End
4.9
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
6.3
Personal Property
2.1.2
Property
2.1.2
Real Estate
2.1.1
Resident
10.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
6.5
Title Commitment
6.1.1
Title Insurance Affidavit
10.1.7
Title Policy
6.1.2
Transaction
Recitals
Updated Title Commitment
6.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
Knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual Knowledge or Knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.,
KENSINGTON COTTAGES CORPORATION OF IOWA,
AND
THE INDIVIDUAL SHAREHOLDERS OF
KENSINGTON COTTAGES CORPORATION OF IOWA
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among
Kensington Cottages Corporation of Iowa, an Minnesota
corporation ("Kensington-Iowa"), Jon D. Rappaport and Robert L.
Rappaport, the individual shareholders of Kensington-Iowa (the
"Kensington-Iowa Shareholders"), and Kensington Cottages
Corporation of America, a Minnesota corporation (Kensington
Cottages Corporation of America is a wholly-owned subsidiary of
Karrington Operating Company, Inc., an Ohio corporation, and is
referred to as Karrington), and Karrington Health, Inc., an Ohio
corporation ("Parent").
RECITALS
Kensington-Iowa owns and operates a dementia-specific
assisted living facility registered with the State of Iowa's Mental
Health Department as a Community Supervised Adult Living
Arrangement for up to 24-beds in Waterloo, Iowa, known as
Kensington Cottages of Waterloo.
Karrington desires to acquire Kensington Cottages of
Waterloo and certain assets related to Kensington-Iowa's
operations, as more specifically described below, and Kensington-
Iowa wishes to sell them to Karrington upon the terms set forth in
this Agreement (the Transaction).
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
The word "including" shall mean including without
limitation." Except where expressly provided to the contrary,
discretion means sole and absolute discretion. Except as
provided in Section 5.2, references to statements made to the
Knowledge of Kensington-Iowa include the Knowledge of the
Kensington-Iowa Shareholders and any director or officer of
Kensington-Iowa. References to any agreements or other
documents include groups of related agreements or other
documents.
1.3 Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Bismarck Investors, Kensington Living
Centers, Inc., and Jon D. Rappaport;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence, and Jon D.
Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota; and
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from Kensington-
Iowa (and Parent agrees to cause Karrington to purchase), and
Kensington-Iowa shall sell to Karrington, all of Kensington-Iowa's
right, title, and interest in and to the assets pertaining to the
operation of Kensington Cottages of Waterloo (the "Assets"),
including the following:
2.1.1 The real property owned in fee simple by
Kensington-Iowa as more particularly described in Schedule 2.1.1
(the "Land"), together with all buildings, improvements, and
fixtures located thereon (the "Improvements") and all rights,
privileges, servitudes, and appurtenances thereunto belonging or
appertaining, including all right, title and interest of Kensington-
Iowa in and to the streets, alleys, and rights-of-way adjacent to the
Land, if any (the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of
Kensington Cottages of Waterloo (the "Services"), including any
residential leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that Kensington-Iowa shall continue to have reasonable
access to such books and records to the extent necessary to enable
Kensington-Iowa to comply with applicable financial or legal
reporting requirements, and Kensington-Iowa shall have the right to
copy such materials as it desires, at its own expense, for that
purpose; and
2.1.8 All other assets of Kensington-Iowa, including any
Intellectual Property and any other rights, claims, or interests,
which are reasonably necessary to enable Karrington to perform the
Services (including the performance of all Contracts) after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by Kensington-Iowa;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of Kensington-Iowa under any claims,
prepayments, refund, causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment (including such
items relating to the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 9.1 and 9.2,
Kensington-Iowa's rights under any policies of insurance purchased
by Kensington-Iowa, or any benefits payable or paid thereunder;
2.2.7 The corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other
identification numbers, general ledgers, tax returns, seals, minute
books, stock transfer books and similar documents relating to the
organization, maintenance and existence of Kensington-Iowa as a
corporation, provided, however, that Karrington shall have
reasonable access to such books and records to the extent
reasonably necessary for the operation of its Business and to
comply with applicable financial and legal reporting requirements,
and Karrington shall have the right to copy such materials as it
desires, at its own expense, for that purpose;
2.2.8 Any of the rights of Kensington-Iowa under this
Agreement or any other agreement between Kensington-Iowa and
Karrington entered into on or after the date of this Agreement; and
2.2.9 Other tangible or intangible assets of Kensington-
Iowa which are not specifically included in the definition of Assets.
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of Kensington-Iowa which
are associated with the Contracts, Equipment Leases,
Vehicle Leases, and Software Licenses, including
Kensington-Iowa's obligations with respect to the security
deposits included in the Assets, as more fully described on
Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify Kensington-Iowa with
respect to all losses, costs, damages, and expenses arising out of
any act or omission relating to the Assumed Liabilities occurring
after Closing, and Kensington-Iowa shall indemnify Karrington with
respect to any such loss, cost, damage or expense arising out of any
act or omission relating to the Assumed Liabilities occurring prior
to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
Kensington-Iowa a purchase price equal to One Million Four
Hundred Sixty Thousand Dollars ($1,460,000.00) (the "Purchase
Price") as follows:
a. An amount equal to the total amount of Employee
Accruals shall be deemed paid by Karrington's assumption
thereof at Closing; and
b. The balance of the Purchase Price shall be paid at
Closing by wire transfer or other form of immediately
available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to Kensington-Iowa and the Kensington-Iowa
Shareholders as follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of North
Dakota, neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-IOWA AND ITS SHAREHOLDERS
Kensington-Iowa and each of the Kensington-Iowa
Shareholders separately represents and warrants to Karrington and
Parent as follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 Organization, Qualification.
Kensington-Iowa is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of
its incorporation. It is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where
qualification to do business is required. It has full corporate power
and corporate authority to carry on its business and to own and use
its property. It has not filed for relief as a debtor under any state
receivership laws or federal bankruptcy laws.
4.3 Governing Documents.
Kensington-Iowa has delivered or made reasonably available
to Karrington true, correct, and complete copies of its Governing
Documents. It is not in default under or in violation of any
provision of its Governing Documents.
4.4 Authorization of Transaction.
Kensington-Iowa has full power and authority to execute,
deliver, and perform this Agreement. This Agreement constitutes
Kensington-Iowa's valid and legally binding obligation, enforceable
in accordance with its terms and conditions (Subject to Equitable
Principles).
4.5 Effect on Other Governing Documents.
Kensington-Iowa's execution and delivery of this Agreement
and its consummation of the Transaction will not violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Kensington-Iowa is subject
or any provision of its Governing Documents.
4.6 Finder's Fees.
To Kensington-Iowa's Knowledge, no person or entity is
entitled to any brokerage commission, finder's fee, or similar
compensation in connection with the execution, delivery, or
performance of this Agreement.
4.7 Stock Ownership.
The Kensington-Iowa Shareholders are the only
shareholders of Kensington-Iowa.
4.8 Subsidiaries.
Kensington-Iowa has no Subsidiaries. Kensington-Iowa
owns no equity securities of any other person or entity.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
BY KENSINGTON-IOWA AND JON D. RAPPAPORT
Kensington-Iowa and Jon D. Rappaport each separately
represents and warrants to Karrington and Parent as follows:
5.1 Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2 Knowledge.
References in this Article to statements made to the
Knowledge of Kensington-Iowa are made to the Knowledge of Jon
D. Rappaport.
5.3 Financial Statements.
Attached as Schedule 5.3 are the following financial
statements of Kensington-Iowa (the "Kensington-Iowa Financial
Statements"): unaudited balance sheets and statements of income
for the fiscal years ended on December 31st of each of the years
1994, 1995, and 1996, and for the one month period ended on
January 31, 1997, all of which are consistent with Kensington-
Iowa's books and records (which are maintained as provided in
Section 5.22) and fairly present Kensington-Iowa's results of
operations for the periods indicated. The January 31, 1997 financial
statements are the "Most Recent Financial Statements" and January
31, 1997 is the "Most Recent Fiscal Month End." December 31,
1996 is the "Most Recent Fiscal Year End." "Most Recent Balance
Sheet" means the balance sheet contained within the Most Recent
Financial Statements.
5.4 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Kensington-Iowa's Business, financial condition,
operations, or results of operations which have a material adverse
effect on the Assets, Services, or Assumed Liabilities either
separately or in the aggregate (a "Material Adverse Effect").
Without limiting the generality of the preceding sentence, since that
date, Kensington-Iowa has not:
5.4.1 imposed any Security Interest of any kind upon
any of the Assets;
5.4.2 granted any license or sublicense pertaining to the
Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
5.4.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
5.4.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
5.4.5 defaulted on or postponed payment of the
Assumed Liabilities;
5.4.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
5.4.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Kensington-Iowa is a party or by
which it is bound which pertains in any way to the Assets or the
Services; or
5.4.8 committed to any of the foregoing.
5.5 Undisclosed Liabilities.
5.5.1 Kensington-Iowa has no Liability and, to the
Knowledge of Kensington-Iowa, there is no Basis for any Liability
which would have a Material Adverse Effect except for (a)
Liabilities set forth on the Most Recent Balance Sheet or which
would not be required to be set forth on a balance sheet prepared in
accordance with GAAP, and (b) Liabilities which have arisen after
the Most Recent Fiscal Month End in the Ordinary Course of
Business, none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, or similar cause.
5.5.2 Kensington-Iowa is not a guarantor or otherwise
liable for any Liability or obligation (including indebtedness) of any
other Person.
5.6 Insurance.
5.6.1 Kensington-Iowa, through KMGI, maintains
insurance policies (copies of which have been delivered to or made
reasonably available to Karrington) reasonable in scope and amount
in connection with the Assets and Services, and has done so for the
past three years.
5.6.2 Schedule 5.6 sets forth a true and accurate list of
all insurance policies carried on the Assets. The casualty insurance
covering the Property insures the full replacement value thereof.
5.6.3 Kensington-Iowa has complied with all notices or
requests it has received from any insurance company issuing any of
the insurance policies required to be set forth on Schedule 5.6.
5.7 Effect on Other Agreements.
Except as disclosed in Schedule 5.7, Kensington-Iowa's
execution and delivery of this Agreement and its consummation of
the Transaction will not breach, conflict with, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, mortgage, lease, license, instrument, or
other arrangement to which Kensington-Iowa is a party or by which
it is bound or to which any of its assets is subject, or result in the
imposition of any Security Interest upon any of its assets to which
Karrington may be subject after the Closing.
5.8 No Notice or Consent.
Except as disclosed in Schedule 5.8, Kensington-Iowa is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the
Transaction.
5.9 Tangible Assets.
Each tangible asset included in the Assets is in good
operating condition and repair (normal wear and tear excepted),
and is suitable for the purposes for which it presently is used and
proposed to be used.
5.10 Property Matters.
5.10.1 Except as disclosed on Schedule 5.10, no notices
have been received by Kensington-Iowa from the holder of any of
the existing mortgages on the Property or from insurers or
governmental authorities requiring any work to be performed with
respect to the Property which has not already been performed.
5.10.2 Except as disclosed on Schedule 5.10, the
Property and the present use of the Property does not violate any
provisions of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
5.10.3 Except as disclosed on Schedule 5.10, there are
no hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or of any roof or wall
leaks, or backed up sewer problems. All improvements on the Real
Estate were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, Kensington-Iowa
shall assign all of its interest in appliance and equipment
manufacturers' warranties, and all other warranties relating to the
construction of the improvements on the Real Estate, if any, to the
extent assignable.
5.10.4 Except as disclosed in Schedule 2.1.2, there are
no leases affecting the Real Estate except for the Resident
Agreements.
5.10.5 To the Knowledge of Kensington-Iowa there is
no threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
5.10.6 To the Knowledge of Kensington-Iowa, except
as disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
5.11 Legal Compliance.
5.11.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property
(which debt shall be paid and the security released at or prior to
Closing, as provided in Section 8.7) (the "Mortgage Debt"), the
Equipment Leases, Vehicle Leases, and the Vehicle Financing, and
as otherwise required to be disclosed in this Agreement,
Kensington-Iowa has not taken or failed to take any action with
respect to any legal matter which has resulted in, or may result in
(a) the imposition of any Security Interest on the Assets, or (b) any
Liability with respect to the Assets or Services to which Karrington
may be subject after Closing.
5.11.2 Kensington-Iowa has complied with all laws
(including any related rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges) of federal, state,
local and foreign governments (including any governmental
agencies) applicable to the Assets, Services, and Assumed
Liabilities the failure to comply with which would have a Material
Adverse Effect with respect to the Assets, Services or Assumed
Liabilities, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or
commenced against Kensington-Iowa alleging any failure to
comply.
5.11.3 Kensington-Iowa has all necessary or appropriate
governmental licenses, certificates, permits and authorizations to
own or lease the Assets and to perform the Services (the
"Kensington-Iowa Permits") with respect to which the failure to
have would have a Material Adverse Effect with respect to the
Assets, Services or Assumed Liabilities. To Kensington-Iowa's
Knowledge, no violations have occurred with respect to the
Kensington-Iowa Permits, and no proceeding is pending or
threatened which might have the effect of revoking or rescinding, or
otherwise having a materially adverse effect upon, any Kensington-
Iowa Permit. Kensington-Iowa has filed all reports, cost reports,
registrations and statements, together with any required
amendments, that are or were required to be filed with any
governmental authorities (or with any fiscal intermediaries)
pursuant to the Kensington-Iowa Permits or otherwise. As of their
respective dates, all such reports, cost reports, registrations and
statements complied in all material respects with the terms of the
then-existing contracts between any governmental authorities or
fiscal intermediaries and Kensington-Iowa, and with all statutes,
rules and regulations enforced or promulgated by the regulatory
authority (or by any fiscal intermediary) with which they were filed,
and were true, correct and complete as filed in all material respects.
5.11.4 Kensington-Iowa is not a party to any
supervisory agreement, memorandum of understanding, consent
order, cease and desist order, or condition of any regulatory order
or decree with or by any governmental regulatory authority or
agency that relates to the Assets or the Services.
5.11.5 Kensington-Iowa does not qualify for cost
reporting or cost reimbursement under any health care or similar
program administered by any governmental authority or agency.
5.12 Litigation.
5.12.1 Except as disclosed on Schedule 5.12,
Kensington-Iowa is not a party and, to the Knowledge of
Kensington-Iowa, has not been threatened to be made a party, to
any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
which in any way pertains to the Assets, Services, or Assumed
Liabilities.
5.12.2 Kensington-Iowa is not subject, and, to the
Knowledge of Kensington-Iowa, has not been threatened to be
made subject, to any injunction, judgment, order, decree, ruling, or
charge pertaining to the Assets, Services, or Assumed Liabilities.
5.13 Tax Matters.
5.13.1 Kensington-Iowa has delivered to Karrington
true and complete copies of (a) the most recent real estate tax and
assessment bills for the Property, (b) all Tax Returns that have been
or are currently subject to audit, and (c) all examination reports and
statements of deficiencies assessed against or agreed to by
Kensington-Iowa.
5.13.2 Kensington-Iowa has not taken or failed to take
any action with respect to any tax matter which has resulted in, or,
to the Knowledge of Kensington-Iowa, may result in (a) the
imposition of any Security Interest on the Assets, or (b) any
Liability with respect to which the Assets or Services or Karrington
may be subject after Closing.
5.13.3 Kensington-Iowa has filed all required Tax
Returns, all of which were correct and complete in all material
respects when filed, and has fully paid all Taxes to which it is or has
been subject, whether or not shown on any Tax Return. Except as
set forth on Schedule 5.13, no filing date has been extended for any
Tax Return Kensington-Iowa is or has been required to file which
has not yet been filed. To Kensington-Iowa's Knowledge, no taxing
authority in a jurisdiction where Kensington-Iowa does not file Tax
Returns has ever asserted that Kensington-Iowa is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the Assets that arose in connection with any
actual or alleged failure to pay any Tax.
5.13.4 Kensington-Iowa has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
5.13.5 To the Knowledge of Kensington-Iowa, no
taxing authority plans to assess any additional Taxes for any period
for which Tax Returns have been filed. To the Knowledge of
Kensington-Iowa, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
5.13.6 Kensington-Iowa has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
5.14 Intellectual Property.
Kensington-Iowa does not own, license, or otherwise
possess any rights in any Intellectual Property which pertain in any
way to the Assets or Services, and is not subject to any such rights
held by third parties, other than rights made available to it by
KMGI.
5.15 Other Agreements.
5.15.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which Kensington-Iowa is a
party which pertain to the Assets or Services, including all
maintenance contracts, concession agreements, or other contracts
affecting the Property (other than the Equipment Leases, Software
Licenses, and Vehicle Leases).
5.15.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 5.7 or 5.8, will continue to be legal, valid, and
binding, and in full force and effect on identical terms immediately
following the consummation of the Transaction (Subject to
Equitable Principles). Kensington-Iowa is not in default in the
performance of any such agreements and, to the Knowledge of
Kensington-Iowa no parties thereto have any defenses, set-offs or
rebates relating to any such agreements. Except as disclosed in
Schedule 5.15: to the Knowledge of Kensington-Iowa, no other
party is in breach or default of any such agreement; to the
Knowledge of Kensington-Iowa no event has occurred which with
notice or lapse of time would constitute a breach or default, or
permit termination, modification or acceleration, under the
agreement, and no party has repudiated any provision of the
agreement.
5.15.3 Kensington-Iowa has delivered or made
reasonably available to Karrington a correct and complete copy of
each written agreement or a written summary describing the terms
and conditions of each oral agreement referred to in this Section
5.15.
5.15.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
5.16 Performance of Services.
Schedule 5.16 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Kensington-Iowa has been in conformity in all material respects
with all applicable contractual commitments and all express and
implied warranties.
5.17 Employees.
5.17.1 Except as provided in Subsection 11.1.10, to
Kensington-Iowa's Knowledge as of the date hereof, no Service
Employee employed in a management capacity has any plans to
terminate employment with Kensington-Iowa prior to Closing or to
refuse employment with Karrington following Closing.
5.17.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, Kensington-Iowa shall have discharged all obligations to
the Service Employees with respect to compensation or benefits of
any kind under any type of Employee Benefit Plan, and after
Closing Karrington shall have no obligation to any Service
Employee for any such item attributable to the action or inaction of
Kensington-Iowa.
5.17.3 Kensington-Iowa is not and never has been a
party to or bound by any collective bargaining agreement. To the
Knowledge of Kensington-Iowa, there has never been and there is
not now any effort by any labor union to organize any employees of
Kensington-Iowa into one or more collective bargaining units.
Kensington-Iowa has not experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining
disputes. Kensington-Iowa has not committed any unfair labor
practice or other violation of labor or employment law relating to
the Service Employees.
5.18 Employee Benefits.
5.18.1 Kensington-Iowa does not now maintain and is
not now required to contribute to, and has never maintained or
been required to contribute to, any Employee Pension Benefit Plan.
5.18.2 Kensington-Iowa has not taken or failed to take
any action with respect to any Employee Benefit Plan which has
resulted in, or may result in (a) the imposition of any Security
Interest on the Assets, or (b) any Liability with respect to the
Assets or Services to which Karrington may be subject after
Closing.
5.18.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
5.18.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which Kensington-Iowa
maintains or ever has maintained or to which it contributes, ever
has contributed, or ever has been required to contribute; no
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan; no
action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of Kensington-Iowa, threatened; and
Kensington-Iowa has no Knowledge of any Basis for any such
action, suit, proceeding, hearing, or investigation.
5.18.5 Kensington-Iowa does not contribute to, never
has contributed to, and never has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
5.19 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Kensington-Iowa which pertain to or could pertain to the
Assets or Services in any way.
5.20 Environment, Health and Safety.
5.20.1 To the Knowledge of Kensington-Iowa, it has no
Liability for any illness of or personal injury to any employee or
other individual, for damage to any site, location, or body of water
(surface or subsurface), for any damages or claims under any past,
present, or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice, or for any other reason
under any Environmental, Health and Safety Law in any way
pertaining to or affecting the Assets or Services.
5.20.2 Kensington-Iowa and its predecessors (i) have
complied with all Environmental, Health and Safety Laws, and no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any
of them alleging any failure to comply, and (ii) have obtained and
been in compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which
are required under, and have complied in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
5.20.3 Kensington-Iowa has not disposed of or arranged
for the disposal of any Hazardous Substance on the Property and
Kensington-Iowa has no Knowledge of the disposal of any
Hazardous Substance on the Property by any other person or entity.
5.20.4 There have not been, and there currently are no
pending or, to the Knowledge of Kensington-Iowa, threatened
claims against Kensington-Iowa alleging the violation of any
Environmental, Health and Safety Laws.
5.20.5 Except as disclosed in the Environmental Audit,
the Property is free of asbestos, PCB's, methylene chloride,
trichloroethylene, dioxins, dibenzofurans and Extremely Hazardous
Substances.
5.21 Data Processing Matters.
5.21.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Kensington-Iowa owns, leases, or licenses (the
"Data Processing Systems"):
a. Kensington-Iowa, through KMGI, has taken
appropriate action, by instruction, agreement, or otherwise,
with its employees or other persons permitted access to
system application programs and data files, to protect
against unauthorized access, use, copying, modification,
theft and destruction of any such programs and files; and
Kensington-Iowa has not sustained, and Jon D. Rappaport
is not aware of any information or circumstances indicating
that it may sustain, disruption of business or loss by reason
of unauthorized access, use, copying, modification, theft, or
destruction of any such programs and files by its employees
or any such other persons; and
b. Kensington-Iowa, through KMGI, has arranged for
back-up data processing services adequate to meet data
processing needs in the event that the Data Processing
Systems are rendered temporarily or permanently
inoperative as a result of a natural disaster or other cause.
5.21.2 Kensington-Iowa's data processing and data
storage facilities are adequate for the Services, are properly
protected, and possess proper temperature and humidity control
devices and fire protection equipment.
5.22 Books and Records.
5.22.1 Kensington-Iowa's books of account pertaining
to the Services reflect all material items of income and expense and
all material assets, liabilities and accruals, and are prepared and
maintained in form and substance adequate for preparing financial
statements and related information in accordance with any
accounting principles required by any governmental agency with
regulatory authority over Kensington-Iowa's financial statements
and otherwise in accordance with the standards required by this
Agreement.
5.22.2 Kensington-Iowa has devised and maintained a
system of internal accounting controls with respect to the Services
sufficient to provide reasonable assurances that (a) transactions are
executed in accordance with management directives, (b)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with Subsection 5.22.1, (c) the
recorded amounts are compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any
differences, and (d) access to information pertaining to the
preceding items (a) - (c) is permitted only in accordance with
management directives.
5.23 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreements, Kensington-Iowa does not hold, and the
Assets do not include, funds of any residents of Kensington
Cottages of Waterloo in excess of two hundred dollars ($200.00)
per resident.
ARTICLE 6
NATURE OF DISCLOSURES
6.1 Disclosure by Kensington-Iowa and Jon D. Rappaport.
Kensington-Iowa and Jon D. Rappaport each separately
represent and warrant to Karrington and Parent as follows:
6.1.1 All items concerning Kensington-Iowa which are
required to be disclosed or identified on the Schedules to this
Agreement have been disclosed and identified accurately,
completely, and with reasonable particularity.
6.1.2 No representation or warranty made by or about
Kensington-Iowa in this Agreement, and no schedule, list,
certificate, document, or other instrument or exhibit concerning
Kensington-Iowa which is required under this Agreement contains
any untrue statement of a material fact or omits any material fact
necessary to make the statements made not misleading.
6.1.3 To the Knowledge of Kensington-Iowa, there is
no fact which materially and adversely affects the Assets, Services,
or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials Kensington-Iowa
is required to furnish under this Agreement.
6.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties of Kensington-
Iowa and the Kensington-Iowa Shareholders that are not set forth
in this Agreement or required to be set forth in a schedule, list,
certificate, document or other instrument or exhibit required under
this Agreement and that there shall not be deemed to be any other
express or implied representations or warranties made by or on
behalf of Kensington-Iowa or the Kensington-Iowa Shareholders in
connection with the Transaction.
6.2 Copies and Lists.
Unless a representation and warranty made by or about
Kensington-Iowa in this Agreement is solely with respect to the
existence or non-existence of a document or other item, the mere
listing or inclusion of a copy of the document or other item shall
not be adequate to disclose (a) a permitted exception to a
representation or warranty if an additional description of facts and
circumstances is reasonably necessary to enable Karrington to
understand the exception or (b) an exception to a representation or
warranty which is not permitted.
6.3 Due Diligence.
The obligations of Kensington-Iowa and the Kensington-
Iowa Shareholders to make representations and warranties in
accordance with the standards set forth in this Agreement shall not
be affected or deemed waived on the grounds that Karrington,
based upon its investigation and review or otherwise, should have
known that any such representation or warranty is or might be
inaccurate or incomplete.
ARTICLE 7
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
7.1 Title Commitment and Policy.
7.1.1 Kensington-Iowa has furnished and delivered to
Karrington in form acceptable to Karrington, a current Owner's
Title Insurance Commitment (form ALTA 1966), together with
copies of all documents referred to therein (the "Title
Commitment").
7.1.2 Kensington-Iowa shall furnish and deliver to
Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
7.2 Title.
The Updated Title Commitment shall show in Kensington-
Iowa good and marketable title in fee simple to the Real Estate, free
and clear of all liens and encumbrances except those listed in
Section 7.3 (the "Permitted Encumbrances"), and the Title Policy
shall insure the same in Karrington.
7.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
7.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
7.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
7.3.3 Liens and encumbrances listed in Schedule 7.3.
7.4 Exceptions and Endorsements.
7.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
7.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
7.5 Survey and Legal Descriptions.
Kensington-Iowa, has furnished to Karrington (a) plats of
survey for the Real Estate prepared in accordance with the
Minimum Standard Detail Requirements for Urban Class Land Title
Surveys (jointly established by ALTA/ACSM, as revised in 1992
including the following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9,
10, 11, 13, 14, 15 and 16), and acknowledging receipt of the Title
Commitment and that the location of each exception set forth in the
Title Commitment, to the extent it can be located, has been shown
thereon (with recording references and reference to the exception
number of the Title Commitment), which on or prior to the Closing
shall be certified to Karrington, the title insurer and any lender of
Karrington's if requested (dated subsequent to the date of this
Agreement) and (b) legal descriptions for the Real Estate prepared
by a surveyor registered in the State of Iowa who is acceptable to
Karrington (the "Surveys").
7.6 Occupancy Permits.
Kensington-Iowa has provided Karrington with true and
complete copies of the occupancy permits for the Real Estate.
7.7 Environmental Audit
Karrington has received from Kensington-Iowa a Phase I
Environmental Audit of the Real Property, in form and content
satisfactory to Karrington and performed by an environmental
engineer satisfactory to Karrington (the "Environmental Audit").
ARTICLE 8
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
8.1 In General.
Kensington-Iowa and Karrington will each use its best
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate the Transaction.
8.2 Transfer of Licenses.
Kensington-Iowa and Karrington shall use their mutual best
efforts to arrange the transfer or re-issuance to Karrington as of
Closing of all necessary or appropriate licenses, certificates,
permits, or other authorizations to enable Karrington to own the
Assets and perform the Services after Closing.
8.3 Rappaport Letter of Understanding.
Jon D. Rappaport and Robert L. Rappaport shall terminate
the letter of understanding by and between the two of them dated
May 16, 1994, as amended, in which they make certain agreements
regarding the development and ownership of Kensington Cottages
projects and related matters (the "Rappaport Letter of
Understanding").
8.4 Pre-Closing Audit.
Kensington-Iowa shall fully cooperate with Ernst & Young
in connection with the completion of their audit, prior to closing,
of Kensington-Iowa's financial statements for the fiscal years ending
December 31, 1994, 1995, and 1996 (the "Audit"). Karrington and
Kensington-Iowa shall use their best efforts to cause the Audit to
be completed by Ernst & Young on or before April 30, 1997.
8.5 Allen Memorial Hospital Agreements.
As required under the terms of certain agreements between
Allen Memorial Hospital and Kensington-Iowa (as set forth on
Schedule 2.1.1), Kensington-Iowa shall obtain Allen Memorial
Hospital's waiver of its right of first refusal concerning the transfer
of the Real Estate to Karrington, and its consent to the transfer to
Karrington of Kensington-Iowa's Option to Purchase certain
additional real property.
8.6 Insurance.
Kensington-Iowa shall maintain the insurance required to be
set forth on Schedule 5.6 in full force and effect through Closing.
8.7 Mortgage Debt.
Kensington-Iowa shall make all necessary arrangements to
pay the Mortgage Debt in full and release the Assets from all
Security Interests in connection therewith at Closing. To the extent
reasonably requested by Karrington, Kensington-Iowa shall fully
cooperate with any attempts by Karrington to obtain new financing
for the Property, provided that such cooperation shall not require
any payment of fees or incurrence of out-of-pocket expenses by
Kensington-Iowa with respect to such financing except as
otherwise expressly provided in this Agreement.
8.8 Operation of Business.
Kensington-Iowa will not engage in any practice, take any
action or enter into any transaction pertaining to the Services which
is outside the Ordinary Course of Business, including any practice,
action, or transaction of a type described in Section 5.4.
8.9 Preservation of Assets.
Kensington-Iowa will use commercially reasonable efforts
to keep the Assets and Services substantially intact, including all
present operations, physical facilities, working conditions and
relationships with lessors, licensors, suppliers, lessees, residents,
customers, and employees. Kensington-Iowa shall maintain the
Assets in their present condition and repair (ordinary wear and tear
excepted), shall not enter into any material contract relating to the
Assets or Services which extends beyond the Closing Date without
the consent of Karrington, and shall continue the existing operation
of the Property including continuing its present advertising
commitments and its usual program of advertising. Kensington-
Iowa shall not remove from the Property any items of Personal
Property between the date hereof and the Closing, except as may be
required for repair or replacement; and any replacements shall be of
equal or better quality and quantity. Nothing herein shall require
Kensington-Iowa to repair or replace Property substantially
damaged or destroyed by fire or other casualty prior to Closing.
8.10 Access to Properties.
Kensington-Iowa will permit representatives of Karrington
full access during normal business hours to all of its premises,
properties, personnel, books, records, contracts, documents and
other materials as reasonably required by Karrington.
8.11 Notice of Developments.
Karrington and Kensington-Iowa will give prompt written
notice to one another of any development of which it has
Knowledge which reasonably appears to cause any representations
and warranties by any party in this Agreement not to be true and
correct in all material respects as of Closing (except as provided
with respect to the dates of financial statements under Section 5.3
and except for the date limitation concerning certain employee
matters set forth in Subsection 5.17.1). Such written notice shall
describe the matter with reasonable particularity and shall set forth
the manner in which it would cause any such representation and
warranty (identified by specific reference to the applicable provision
of this Agreement) not to be true as of Closing. No notice under
this Section 8.11 shall be deemed to amend or supplement any
representation or warranty or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the
party giving notice; provided that in the event a party would have
the right not to proceed to Closing by reason of such breach, if the
nondefaulting party elects to close notwithstanding such breach,
such breach shall be deemed waived for all purposes of this
Agreement unless the parties otherwise agree in writing.
8.12 Updated Schedules.
Kensington-Iowa will update the Schedules to this
Agreement at and as of (a) five business days prior to the Closing
Date or (b) any other time specifically required by this Agreement,
and shall provide the updated Schedules to Karrington for its
review at the applicable time. No updated Schedule shall be deemed
to amend or supplement any representation or warranty or any
Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant related to any Schedule; provided
that in the event a party would have the right not to proceed to
Closing by reason of such breach, if the nondefaulting party elects
to close notwithstanding such breach, such breach shall be deemed
waived for all purposes of this Agreement unless the parties
otherwise agree in writing.
8.13 Exclusivity.
So long as this Agreement has not been terminated,
Kensington-Iowa will not (a) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of any substantial portion of its assets (including any
acquisition structured as a merger, consolidation or share exchange)
or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
otherwise facilitate any of the foregoing except as required by this
Agreement. Kensington-Iowa will notify Karrington immediately if
any of the foregoing occur.
8.14 Confidentiality.
8.14.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
8.14.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 8.14
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
8.14.3 The provisions of this Section 8.14 shall not
supersede any confidentiality provisions contained in the letter of
intent between KMGI and Karrington Operating Company, Inc.,
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 9
DAMAGE, EMINENT DOMAIN
9.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Kensington-Iowa until Closing. If the Property is
substantially damaged or destroyed by fire or other casualty prior to
the Closing of the transaction, Kensington-Iowa shall not be
obligated to repair or replace the damaged or destroyed Property,
but in that event Karrington may (a) elect to proceed with the
Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such damage or destruction, be
entitled to all insurance money payable to Kensington-Iowa under
any and all policies of insurance covering the Property so damaged
or destroyed, or (b) elect to terminate this Agreement.
9.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Kensington-Iowa on account of such taking,
or (b) elect to terminate this Agreement.
ARTICLE 10
TERMINATION
10.1 Termination of Agreement.
10.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
10.1.2 Karrington may terminate this Agreement as
provided in Article 9.
10.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
10.2 Effect of Termination.
If the Agreement is terminated as provided in this Article
10, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 11
CONDITIONS TO OBLIGATION TO CLOSE
11.1 Conditions to Karrington's Obligation to Close.
The obligations of Karrington and Parent to consummate
the Transaction are subject to satisfaction in favor of Karrington
and Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
11.1.1 The representations and warranties by or about
Kensington-Iowa set forth in this Agreement shall be true and
correct in all material respects as of the Closing Date as though
made on such date, except as provided with respect to the dates of
financial statements under Section 5.3 and except for the date
limitation concerning certain employee matters set forth in
Subsection 5.17.1.
11.1.2 Kensington-Iowa and the Kensington-Iowa
Shareholders shall have performed and complied in all material
respects with all of their covenants set forth in this Agreement
through the Closing.
11.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of Kensington-Iowa, threatened before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator, to which
Kensington-Iowa or any Kensington-Iowa Shareholder is a party or
is threatened or expected to be made a party, or which is otherwise
known to Kensington-Iowa, in which an unfavorable outcome
would prevent the Closing, cause the Transaction to be rescinded in
whole or in part after Closing, or adversely effect Karrington's right
to own the Assets and perform the Services after Closing, and no
injunction, judgment, order, decree, ruling, charge or other holding
having such an effect shall be in force.
11.1.4 Kensington-Iowa and Jon D. Rappaport shall
have delivered to Karrington certificates in the form set forth on
Exhibit 11.1.4A certifying that each of the conditions specified
above in Sections 11.1.1 through 11.1.3 is satisfied as of the
Closing Date, and Robert L. Rappaport shall have delivered to
Karrington a certificate in the form set forth on Exhibit 11.1.4B
specifying that the representations and warranties made by him are
true and correct in all material respects as of the Closing Date.
11.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 8.7.
11.1.6 Karrington shall have received the Updated Title
Commitment.
11.1.7 Kensington-Iowa shall have executed and
delivered to Karrington and the title insurance company an affidavit
certifying that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in said Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
11.1.8 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-Iowa.
11.1.9 The Rappaport Letter of Understanding shall
have been terminated.
11.1.10 Kensington-Iowa shall have terminated all of
the Service Employees effective as of Closing.
11.1.11 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
11.1.12 The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Kensington-Iowa's financial statements for the fiscal years
ended December 31, 1994, 1995, and 1996, and the results of the
Audit shall not require any material adverse adjustments, either
individually or in the aggregate, to the Kensington-Iowa Financial
Statements.
11.1.13 Allen Memorial Hospital shall have waived its
right of first refusal concerning the transfer of the Real Estate to
Karrington, and shall have consented to the transfer to Karrington
of Kensington-Iowa's Option to Purchase certain additional real
property, as required under Section 8.5.
11.1.14 Karrington shall have received a written opinion
from Kensington-Iowa's legal counsel in form and substance as set
forth on Exhibit 11.1.14 dated as of the Closing Date.
11.1.15 Kensington-Iowa and the Kensington-Iowa
Shareholders shall have taken all actions required of them in
connection with the Transaction, and all certificates, opinions,
instruments and other documents required for the Transaction will
be reasonably satisfactory in form and substance to Karrington and
its legal counsel.
11.2 Conditions to Obligation of Kensington-Iowa.
The obligation of Kensington-Iowa to consummate the
Transaction is subject to satisfaction in favor of Kensington-Iowa
or waiver by Kensington-Iowa of the following conditions as of
Closing:
11.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
11.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
11.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be rescinded
in whole or in part after Closing, and no injunction, judgment,
order, decree, ruling, charge or other holding having such an effect
shall be in force.
11.2.4 Karrington shall have delivered to Kensington-
Iowa a certificate of its Chief Operating Officer and Chief Financial
Officer in the form set forth on Exhibit 11.2.4 certifying that each
of the conditions specified above in Sections 11.2.1 through 11.2.3
is satisfied in all respects.
11.2.5 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Kensington-Iowa.
11.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of Kensington-Iowa upon
terms satisfactory to Karrington.
11.2.7 Kensington-Iowa shall have received from
Karrington's legal counsel a written opinion in form and substance
as set forth on Exhibit 11.2.7, dated as of the Closing Date.
11.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Kensington-Iowa and its legal counsel.
ARTICLE 12
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
12.1 Taxes and Assessments.
At or prior to Closing, Kensington-Iowa shall (a) pay all
delinquent real estate taxes, including penalties and interest, (b) pay
or credit on the purchase price all special assessments due and
payable at or prior to Closing, and all agricultural use tax
recoupment for years through the year of Closing, if any, and (c)
pay or credit on the purchase price, all real estate taxes for years
prior to the Closing, and a portion of such taxes due and payable
(or prorated according to local commercial custom) for the year of
Closing, prorated through the Closing Date.
12.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
12.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and Kensington-Iowa on the basis of a 365-day year as
of the Closing Date.
12.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by Kensington-Iowa to the Closing Date.
12.5 Transfer Taxes and Fees.
Kensington-Iowa and Karrington shall share equally the cost
of all local or state transfer taxes and fees required for the transfer
of the Property by Kensington-Iowa to Karrington.
ARTICLE 13
CLOSING
13.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 11 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
13.2 Deliveries by the Parties at Closing.
13.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to Kensington-Iowa and
Karrington, and shall pay the cash purchase price in accordance
with Article 2, (b) Kensington-Iowa shall deliver to Karrington all
bills of sale, assignments, consents, and other documentation
required to transfer the Assets to Karrington as provided in this
Agreement, and (c) each party shall deliver to each other the
various documents, instruments, certificates, and opinions required
to be delivered at Closing under Article 11.
13.2.2 Deliveries by Kensington-Iowa shall include the
following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that Kensington-Iowa
generally will be required to provide a deed to each parcel
of Real Estate which sets forth the same warranties as those
set forth in the deed by which Kensington-Iowa originally
took title), signed by all Persons necessary or required by
the Title Commitment or Karrington's attorneys, conveying
title to the Real Estate to Karrington as required by this
Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by Kensington-
Iowa;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by Kensington-Iowa from any contractors,
materialmen, suppliers or manufacturers with respect to any
work or installations on or with respect to the Property to
the extent assignable;
l. All security deposits held by Kensington-Iowa which
have been paid by third parties under the Contracts,
Equipment Leases and Motor Vehicle Leases, or any other
leases included in the Assets; and
m. Such other documents as are otherwise required of
Kensington-Iowa by this Agreement.
13.2.3 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent;
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
13.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 14
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
14.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
14.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Kensington-
Iowa, each party will make available its personnel, provide
testimony and access to its books, and otherwise cooperate to the
extent reasonably necessary or advisable without jeopardizing its
own interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 15.
14.3 Transition.
Kensington-Iowa shall take no action intended to
discourage any lessor, licensor, lessee, resident, customer, supplier
or other business associate of Kensington-Iowa relating to the
Services from maintaining the same business relationships with
Karrington after the Closing as it maintained with Kensington-Iowa
prior to the Closing.
14.4 Non-Compete.
14.4.1 For a period of five (5) years from and after
Closing, Kensington-Iowa and the Kensington-Iowa Shareholders
shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of Iowa;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
14.4.2 Notwithstanding the provisions in this Section
14.4, nothing herein shall restrict Jon D. Rappaport or Robert L.
Rappaport from competing with the Services or undertaking any
activity otherwise restricted by this Section 14.4 if and when Jon D.
Rappaport is not subject to a covenant not to compete under his
employment agreement with Karrington.
14.4.3 This Section 14.4 shall survive Closing.
ARTICLE 15
INDEMNIFICATION
15.1 Meaning of Certain Terms.
15.1.1 In this Article, Kensington-Iowa and the
Kensington-Iowa Shareholders are collectively referred to as the
"Kensington Entities," and Karrington and Parent are collectively
referred to as the "Karrington Entities."
15.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
15.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty by or about it in this Agreement is untrue or otherwise
does not conform to the standards for representations and
warranties set forth in this Agreement.
15.1.4 For purposes of this Article, all covenants,
representations, and warranties made by Kensington-Iowa in this
Agreement shall be deemed to also have been made by Jon D.
Rappaport, and Kensington-Iowa and Jon D. Rappaport shall be
jointly and severally liable for indemnity claims related thereto.
15.1.5 Notwithstanding any other provision of this
Article, Karrington acknowledges and agrees that Robert L.
Rappaport is making only those representations and warranties set
forth in Article 4, and is personally obligated to perform only those
covenants expressly made by him individually or in his capacity as a
Kensington-Iowa Shareholder in Sections 8.3, 11.1.4, and 14.4.
Accordingly, Robert L. Rappaport's indemnification obligations
under this Article shall pertain only to the provisions of Article 4
and, only as they pertain to and bind him personally, the covenants
and agreements contained in Sections 8.3, 11.1.4, and 14.4.
15.2 Survival of Representations and Warranties.
15.2.1 Except as provided in Section 15.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
15.2.2 Survival Period" means the eighteen (18) month
period set forth in Subsection 15.2.1 or the period described in
Section 15.7, whichever applies.
15.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
15.3 Indemnification Obligations of the Kensington
Entities.
15.3.1 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections
15.1.5, 15.5, and 15.6.
15.3.2 In addition, Kensington-Iowa and Jon D.
Rappaport shall jointly and severally indemnify and hold harmless
the Karrington Entities from and against all Adverse Consequences
related to (a) any Liability for the unpaid Taxes of (i) Kensington-
Iowa or (ii) any other Person (as a transferee or successor, by
contract, or otherwise) as a result of any action taken or not taken
by Kensington-Iowa, or (b) any matter which is the subject of
actual or threatened litigation, judicial order, administrative action,
or any similar matter concerning Kensington-Iowa (other than
related to the enforcement of this Article), whether or not disclosed
or required to be disclosed on any Schedule to this Agreement.
15.4 Indemnification Obligations of Karrington and
Parent.
15.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless the
Kensington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections 15.5
and 15.6.
15.4.2 The Karrington Entities shall indemnify and hold
harmless the Kensington Entities from and against all Adverse
Consequences arising from or in connection with ownership of the
Assets, the Services, or the Assumed Liabilities after the Closing
Date, except to the extent the Kensington Entities are required to
indemnify the Karrington Entities in respect thereof under this
Article.
15.5 Basket Amount.
15.5.1 Except as provided in Section 15.7, the
Kensington Entities shall have no obligation to indemnify the
Karrington Entities under this Article unless and until the
Karrington Entities have suffered Adverse Consequences giving rise
to a right of indemnification under this Article of at least Fifteen
Thousand Dollars ($15,000.00) in the aggregate (the "Basket
Amount"), and then only as to the amount by which aggregate
claims by the Karrington Entities exceed the Basket Amount.
15.5.2 Except as provided in Section 15.7, the
Karrington Entities shall have no obligation to indemnify the
Kensington Entities under this Article unless and until the
Kensington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article in the aggregate
of at least the Basket Amount; and then only as to the amount by
which aggregate claims by the Kensington Entities exceed the
Basket Amount.
15.6 Limitation on Recovery.
15.6.1 Except as provided in Section 15.7, the
aggregate obligation of the Karrington Entities to indemnify the
Kensington Entities under this Article shall be limited to One
Hundred Fifty Thousand Dollars ($150,000.00) (the "Indemnity
Cap").
15.6.2 Except as provided in Section 15.7, the
aggregate obligation of the Kensington Entities to indemnify the
Karrington Entities under this Article shall be limited to the
Indemnity Cap.
15.7 Liability for Certain Claims.
The limitations set forth in Sections 15.5 and 15.6 shall not
apply to any claim (a) if the Indemnifying Party had actual
conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
15.3.2, or (c) by the Kensington Entities under Subsection 15.4.2.
The aggregate obligation of the Karrington Entities to indemnify
the Kensington Entities for all such indemnity claims shall be limited
to the purchase price, and the Kensington Entities' aggregate
obligation to indemnify the Karrington Entities for all such
indemnity claims shall be limited to the purchase price. The Survival
Period for any such indemnity claim shall be the greater of the
eighteen (18) month period set forth in Section 15.2.1 or the period
set forth in the statute of limitations under applicable law.
15.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
15.9 Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
15.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 16.4 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 14.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
9.1 and 9.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
15.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
15.12 Matters Involving Third Parties.
15.12.1 If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
15.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 15.12.2 shall be
reasonably satisfactory to the Indemnified Party.
15.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
15.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
15.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 15.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 15.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 Expenses.
Kensington-Iowa and Karrington shall share equally all
expenses (including the costs of the Audit and the opinion of Ernst
& Young with respect to such Audit, the Surveys, the Title
Commitment, Updated Title Commitment and Title Policy, the
Environmental Audit and all pre-payment penalties and other
expenses with respect to Mortgage Debt, but excluding any
financing costs of Karrington) incurred in connection with this
Agreement and the Transaction, except as provided in Article 15 or
as otherwise specifically provided to the contrary in this
Agreement, and except that each party shall bear its own attorneys
fees.
16.2 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
16.3 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
16.4 Entire Agreement.
Except as provided in Section 8.14.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc., and KMGI).
16.5 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
16.6 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
Kensington-Iowa's consent.
16.7 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
16.8 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Kensington-Iowa:
Mr. Jon D. Rappaport
President
Kensington Cottages Corporation of Iowa
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Jon D. Rappaport:
Mr. Jon D. Rappaport
Kensington Cottages Corporation of Iowa
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
If to Kensington-Iowa or Jon D. Rappaport, copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Robert L. Rappaport:
Mr. Robert L. Rappaport
11111 Excelsior Blvd.
Hopkins, MN 55343
Copy to:
Steven D. DeRuyter, Esq.
Leonard, Street and Deinard, P.A.
150 South Fifth Street
Suite 2300
Minneapolis, MN 55402
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 16.8 by giving the other parties written notice in the
manner set forth in this section.
16.9 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
16.10 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
16.11 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
16.12 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
16.13 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
16.14 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
16.15 Forum.
Except as provided in Section 16.14, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
16.16 Tax Free Exchange
Kensington-Iowa may wish to dispose of the Real Property
by means of an exchange for like-kind property qualifying for tax-
free treatment pursuant to Section 1031 of the Code. Karrington
agrees to cooperate with Kensington-Iowa in effecting a qualifying
like-kind exchange through a trust or other means determined by
Kensington-Iowa. Kensington-Iowa shall bear the additional
transaction costs, if any, attributable to the consummation of a
qualifying exchange. Kensington-Iowa shall hold Karrington
harmless from any risk or liability that Karrington might incur in
cooperating with Kensington-Iowa. In such an exchange,
Karrington shall not be required to take title to any property other
than the Real Property. Any such exchange shall not affect the time
for Closing set forth in this Agreement.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
KENSINGTON
COTTAGES
CORPORATION OF
IOWA
By:
Jon D. Rappaport
Its: President
KENSINGTON-IOWA
SHAREHOLDERS
Jon D. Rappaport
Robert L. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
8.4
Basket Amount
15.5
Bill of Sale
13.2.2
Closing
13.1
Closing Date
13.1
Contracts
2.1.3
Data Processing Systems
5.21
Deeds
13.2.2
Employee Accruals
2.3.1
Environmental Audit
7.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
15.6
Karrington
Preamble
Karrington Entities
15
Kensington Cottages of Waterloo
Recitals
Kensington-Iowa
Preamble
Kensington-Iowa Financial
Statements
5.3
Kensington-Iowa Permits
5.11.3
Kensington-Iowa Shareholders
Preamble
KMGI
1.3
Knowledge of Kensington-Iowa
1.2
Land
2.1.1
Material Adverse Effect
5.4
Mortgage Debt
5.11.1
Most Recent Financial Statements
5.3
Most Recent Fiscal Month End
5.3
Most Recent Fiscal Year End
5.3
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
7.3
Personal Property
2.1.2
Property
2.1.2
Purchase Price
2.4
Rappaport Letter of Understanding
8.3
Real Estate
2.1.1
Resident
11.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
7.5
Title Commitment
7.1.1
Title Insurance Affidavit
11.1.7
Title Policy
7.1.2
Transaction
Recitals
Updated Title Commitment
7.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
Knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual Knowledge or Knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
ASSET PURCHASE AGREEMENT
BY AND AMONG
KENSINGTON COTTAGES CORPORATION OF AMERICA,
KARRINGTON HEALTH, INC.
BISMARCK INVESTORS,
KENSINGTON LIVING CENTERS, INC.
AND
JON D. RAPPAPORT
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement")
is entered into effective as of April 24, 1997, by and among
Bismarck Investors, a Minnesota general partnership ("Bismarck
Investors"), Kensington Living Centers, Inc., a Nevada corporation
("KLC"), Jon D. Rappaport, Kensington Cottages Corporation of
America, a Minnesota corporation (Kensington Cottages
Corporation of America is a wholly-owned subsidiary of Karrington
Operating Company, Inc., an Ohio corporation, and is referred to as
"Karrington"), and Karrington Health, Inc., an Ohio corporation
("Parent"). Bismarck Investors and KLC are collectively referred to
as "Seller."
RECITALS
Seller owns certain facilities operated as a 72-bed assisted
living facility in Bismarck, North Dakota, known as The
Kensington-Bismarck.
Karrington desires to acquire The Kensington-Bismarck and
certain assets related to Seller's operations, as more specifically
described below, and Seller wishes to sell them to Karrington upon
the terms set forth in this Agreement (the "Transaction").
The parties desire to make certain agreements,
representations, and warranties in connection with the Transaction.
AGREEMENT
NOW THEREFORE, in consideration of these premises and
the parties' covenants, representations, and warranties, the parties
agree as follows.
ARTICLE 1
DEFINITIONS
1.1 Definitions.
Certain terms used in this Agreement (which may or may
not be capitalized) are defined in Annex A.
1.2 Meaning of Certain Words and Phrases.
1.2.1 The word "including" shall mean "including
without limitation." Except where expressly provided to the
contrary, "discretion" means sole and absolute discretion.
References to any agreements or other documents include groups
of related agreements or other documents.
1.2.2 Except as provided in Subsection 1.2.3,
covenants, representations, and warranties of Seller shall be deemed
to have been made separately by Bismarck Investors, KLC, and
Jon D. Rappaport (individually and as a general partner of
Bismarck Investors), and covenants, representations, and
warranties of Bismarck Investors shall be deemed to have been
made separately by each of its general partners.
1.2.3 The representations and warranties with respect to
Seller in Article 6 shall be deemed to have been made (a) with
respect to Bismarck Investors, only by Jon D. Rappaport
(individually and as a general partner of Bismarck Investors) and
not by the other general partners of Bismarck Investors, and (b)
with respect to KLC, by KLC and Jon D. Rappaport.
1.2.4 Statements made to the Knowledge of Bismarck
Investors in Article 4 include the Knowledge of each of its general
partners. Statements made to the Knowledge of KLC in Article 5
include the Knowledge of its directors and officers and of Jon D.
Rappaport.
1.3 Acquisition Agreements:
"Acquisition Agreements" refers collectively to the
following:
a. this Agreement;
b. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Iowa, and the individual shareholders of Kensington
Cottages Corporation of Iowa;
c. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Rochester, and Jon D. Rappaport;
d. the Asset Purchase Agreement by and among
Karrington, Parent, Buffalo Hills Residence, and Jon D.
Rappaport;
e. the Asset Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
North Dakota, and the individual shareholders of
Kensington Cottages Corporation of North Dakota;
f. the Asset Purchase Agreement by and among
Karrington, Parent, Centex-Kensington (Mankato I)
Partnership, Centex Senior Services Corporation, Centex
Life Solutions, Inc., Kensington Cottages Corporation of
Mankato, and Jon D. Rappaport;
g. the Stock Purchase Agreement by and among
Karrington, Parent, Kensington Cottages Corporation of
Minnesota, and the individual shareholders of Kensington
Cottages Corporation of Minnesota; and
h. the Agreement and Plan of Merger by and among
Karrington, Parent, Kensington Mergeco, Inc., Kensington
Management Group, Inc. ("KMGI"), and Jon D. Rappaport.
ARTICLE 2
PURCHASE OF ASSETS
2.1 Asset Purchase.
At Closing, Karrington shall purchase from Seller (and
Parent agrees to cause Karrington to purchase), and Seller shall sell
to Karrington, all of Seller's right, title, and interest in and to the
assets pertaining to the operation of The Kensington-Bismarck (the
"Assets"), including the following:
2.1.1 The real property owned in fee simple by Seller as
more particularly described in Schedule 2.1.1 (the "Land"), together
with all buildings, improvements, and fixtures located thereon (the
"Improvements") and all rights, privileges, servitudes, and
appurtenances thereunto belonging or appertaining, including all
right, title and interest of Seller in and to the streets, alleys, and
rights-of-way adjacent to the Land, if any (the "Real Estate");
2.1.2 All of the tangible and intangible personal property
located upon, relating to, or used in connection with or in the
operation and maintenance of the Real Estate, including, but not
limited to, electric and gas appliances, maintenance equipment,
furniture, books and records, inventory and supplies, leases,
security deposits, trade names and signage, as more fully itemized
on Schedule 2.1.2 (the "Personal Property") (the Real Estate and
Personal Property are collectively referred to as the "Property");
2.1.3 All contracts pertaining to the provision or
administration of assisted living services to the residents of The
Kensington-Bismarck (the "Services"), including any residential
leases or similar agreements with residents or their legal
representatives or caregivers (the "Resident Agreements"), as more
fully itemized on Schedule 2.1.3 (the "Contracts");
2.1.4 All leased equipment used in connection with the
Services, as more fully itemized on Schedule 2.1.4 (the "Equipment
Leases");
2.1.5 All licenses from or to third parties relating to
software as more fully itemized on Schedule 2.1.5 (the "Software
Licenses");
2.1.6 All motor vehicles associated with the Services, as
more fully itemized on Schedule 2.1.6 (the "Motor Vehicles"),
including Motor Vehicles subject to leases also as more fully
itemized on Schedule 2.1.6 (the "Vehicle Leases");
2.1.7 All books and records (including all computer files
and other electronic data) relating to the Assets and the Services
and the records pertaining to persons receiving Services; provided,
however, that Seller shall continue to have reasonable access to
such books and records to the extent necessary to enable Seller to
comply with applicable financial or legal reporting requirements,
and Seller shall have the right to copy such materials as it desires, at
is own expense, for that purpose; and
2.1.8 All other assets of Seller, including any Intellectual
Property and any other rights, claims, or interests, which are
reasonably necessary to enable Karrington to perform the Services
(including the performance of all Contracts) after Closing.
2.2 Exclusions.
The Assets do not include:
2.2.1 Cash and cash equivalents;
2.2.2 All securities owned by Seller;
2.2.3 All contract rights, replacement reserve accounts,
and debt service reserve accounts as more fully described on
Schedule 2.2.3;
2.2.4 All rights of Seller under any claims, prepayments,
refund, causes of action, choses in action, rights of recovery, rights
of set off and rights of recoupment (including such items relating to
the payment of Taxes);
2.2.5 All accounts receivable;
2.2.6 Except as provided in Sections 10.1 and 10.2,
Seller's rights under any policies of insurance purchased by Seller,
or any benefits payable or paid thereunder;
2.2.7 The corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other
identification numbers, general ledgers, tax returns, seals, minute
books, stock transfer books and similar documents relating to the
organization, maintenance and existence of Seller as a corporation,
provided, however, that Karrington shall have reasonable access to
such books and records to the extent reasonably necessary for the
operation of its Business and to comply with applicable financial
and legal reporting requirements, and Karrington shall have the
right to copy such materials as it desires, at its own expense, for
that purpose;
2.2.8 Any of the rights of Seller under this Agreement
or any other agreement between Seller and Karrington entered into
on or after the date of this Agreement; and
2.2.9 Other tangible or intangible assets of Seller which
are not specifically included in the definition of Assets.
2.3 Liabilities.
2.3.1 From and after Closing, Karrington shall assume
only the following liabilities (the "Assumed Liabilities"):
a. The contractual liabilities of Seller which are
associated with the Contracts, Equipment Leases, Vehicle
Leases, and Software Licenses, including Seller's obligations
with respect to the security deposits included in the Assets
as more fully described on Schedule 2.3.1;
b. The amount of accrued vacation and sick pay
liabilities for employees associated with the Services (the
"Service Employees") as of Closing, as set forth in Schedule
2.3.1 (the "Employee Accruals");
c. Obligations under the bank financing identified in
Schedule 2.3.1 for certain of the Motor Vehicles (the
"Vehicle Financing"); and
d. Obligations with respect to special assessments which
are not yet due and payable as shown on the Updated Title
Commitment.
2.3.2 Karrington shall indemnify Seller with respect to
all losses, costs, damages, and expenses arising out of any act or
omission relating to the Assumed Liabilities occurring after Closing,
and KLC and Jon D. Rappaport shall indemnify Karrington with
respect to any such loss, cost, damage or expense arising out of any
act or omission relating to the Assumed Liabilities occurring prior
to and through Closing.
2.4 Purchase Price.
In consideration of the Transaction, Karrington shall pay to
Seller a purchase price equal to Two Million Eight Hundred
Thousand Dollars ($2,800,000.00) as follows:
a. An amount equal to the Employee Accruals shall be
deemed paid by Karrington's assumption thereof at Closing;
and
b. The balance shall be paid at Closing by wire transfer
or other form of immediately available funds.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF KARRINGTON AND PARENT
Karrington and Parent each separately represents and
warrants to Seller as follows:
3.1 Date of Representations and Warranties.
The representations and warranties in this Article 3 are true
and correct as of the effective date of this Agreement.
3.2 Organization, Qualification.
Each of Karrington and Parent is a corporation duly
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation, is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where qualification to do business is required, and has full
corporate power and corporate authority and all licenses, permits,
and authorizations necessary to carry on its business and to own
and use its property.
3.3 Authorization of Transaction.
Each of Karrington and Parent has full power and authority
to execute, deliver, and perform this Agreement. This Agreement
constitutes Karrington's and Parent's valid and legally binding
obligation, enforceable in accordance with its terms and conditions
(Subject to Equitable Principles).
3.4 Effect on Other Agreements.
Karrington's and Parent's execution and delivery of this
Agreement and its consummation of the Transaction will not
violate, breach, conflict with or constitute a default under any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Karrington or Parent is
subject or any provision of its Governing Documents or any
indenture, contract or agreement to which Karrington or Parent is
subject.
3.5 No Notice or Consent.
Except for new operating licenses in the State of North
Dakota, neither Karrington nor Parent is required to give any notice
to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the parties to consummate the Transaction.
3.6 Finder's Fees.
To Karrington's Knowledge, no person or entity is entitled
to any brokerage commission, finder's fee, or similar compensation
in connection with the execution, delivery, or performance of this
Agreement.
3.7 Proceedings.
There is no action, suit, proceeding or investigation pending
or, to the Knowledge of Karrington or Parent, threatened against
Karrington or Parent which, if decided adversely to Karrington or
Parent, may prevent or in any material way impair the
consummation of the Transaction.
3.8 Financing.
Parent either has the funds available or has arranged
financing for consummation of the Transaction.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
CONCERNING BISMARCK INVESTORS
Bismarck Investors represents and warrants to Karrington
and Parent as follows:
4.1 Date of Representations and Warranties.
The representations and warranties in this Article 4 are true
and correct as of the effective date of this Agreement.
4.2 General Partners.
The general partners of Bismarck Investors are Earl H.
Cohen, Jon D. Rappaport, and Norauto Investments Limited
Partnership, a Minnesota limited partnership of which the limited
partners are Beatrice Fligelman and Linda Nathanson, and the
general partner is Gary B. Rappaport III, LLC, a Minnesota limited
liability company of which the sole member and governor is Gary
B. Rappaport. There are no other partners.
4.3 Organization, Qualification.
Bismarck Investors is a general partnership organized,
validly existing, and in good standing under the laws of the State of
Minnesota. It has full power and authority to carry on its business
and to own and use its property. Neither Bismarck Investors nor
any of its partners has filed for relief as a debtor under any state
receivership laws or federal bankruptcy laws.
4.4 Governing Documents.
Bismarck Investors has delivered or made reasonably
available to Karrington true, correct, and complete copies of its
Governing Documents. It is not in default under or in violation of
any provision of its Governing Documents.
4.5 Authorization of Transaction.
Bismarck Investors has full power and authority to execute,
deliver, and perform this Agreement. This Agreement constitutes
Bismarck Investors' valid and legally binding obligation, enforceable
in accordance with its terms and conditions (Subject to Equitable
Principles).
4.6 Effect on Other Governing Documents.
Bismarck Investors' execution and delivery of this
Agreement and its consummation of the Transaction will not violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Bismarck
Investors is subject or any provision of its Governing Documents.
4.7 Finder's Fees.
To the Knowledge of Bismarck Investors, no person or
entity is entitled to any brokerage commission, finder's fee, or
similar compensation in connection with Bismarck Investors'
execution, delivery, or performance of this Agreement.
4.8 Subsidiaries.
Bismarck Investors does not own any equity securities of
any other person or entity.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
CONCERNING KLC
KLC and Jon D. Rappaport each separately represents and
warrants to Karrington and Parent as follows:
5.1 Date of Representations and Warranties.
The representations and warranties in this Article 5 are true
and correct as of the effective date of this Agreement.
5.2 Organization, Qualification.
KLC is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its
incorporation. It is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where
qualification to do business is required. It has full corporate power
and corporate authority to carry on its business and to own and use
its property. It has not filed for relief as a debtor under any state
receivership laws or federal bankruptcy laws.
5.3 Governing Documents.
KLC has delivered or made reasonably available to
Karrington true, correct, and complete copies of its Governing
Documents. It is not in default under or in violation of any
provision of its Governing Documents.
5.4 Authorization of Transaction.
KLC has full power and authority to execute, deliver, and
perform this Agreement. This Agreement constitutes KLC's valid
and legally binding obligation, enforceable in accordance with its
terms and conditions (Subject to Equitable Principles).
5.5 Effect on Other Governing Documents.
KLC's execution and delivery of this Agreement and its
consummation of the Transaction will not violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental
agency, or court to which KLC is subject or any provision of its
Governing Documents.
5.6 Finder's Fees.
To the Knowledge of KLC, no person or entity is entitled to
any brokerage commission, finder's fee, or similar compensation in
connection with the execution, delivery, or performance of this
Agreement.
5.7 Stock Ownership.
The shareholders of KLC are Beatrice Fliegelman, Linda
Nathanson, Gary B. Rappaport, Jon D. Rappaport, and Earl H.
Cohen. There are no other shareholders.
5.8 Subsidiaries.
KLC has no Subsidiaries. KLC does not own any equity
securities of any other person or entity.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER
KLC and Jon D. Rappaport each separately represents and
warrants to Karrington and Parent as follows:
6.1 Date of Representations and Warranties.
The representations and warranties in this Article 6 are true
and correct as of the effective date of this Agreement.
6.2 Financial Statements.
Attached as Schedule 6.2 are the following financial
statements of Seller (the "Seller Financial Statements"): unaudited
balance sheets and statements of income for the fiscal years ended
on December 31st of each of the years 1994, 1995, and 1996, all of
which are consistent with Seller's books and records (which are
maintained as provided in Section 6.23) and fairly present Seller's
results of operations for the periods indicated. The December 31,
1996 financial statements are the "Most Recent Financial
Statements." December 31, 1996 is the "Most Recent Fiscal Year
End" and the "Most Recent Fiscal Month End." "Most Recent
Balance Sheet" means the balance sheet contained within the Most
Recent Financial Statements.
6.3 Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there have been no
changes in Seller's Business, financial condition, operations, or
results of operations which have a material adverse effect on the
Assets, Services, or Assumed Liabilities either separately or in the
aggregate (a "Material Adverse Effect"). Without limiting the
generality of the preceding sentence, since that date, Seller has not:
6.3.1 imposed any Security Interest of any kind upon
any of the Assets;
6.3.2 granted any license or sublicense pertaining to the
Software Licenses or any rights under or with respect to any
Intellectual Property pertaining to the Services;
6.3.3 experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Assets which would
have a Material Adverse Effect;
6.3.4 sold, leased, transferred, or assigned any of the
Assets other than in the Ordinary Course of Business;
6.3.5 defaulted on or postponed payment of the
Assumed Liabilities;
6.3.6 entered into any written or oral employment
contract or collective bargaining agreement concerning the Service
Employees, modified the terms of any such existing contract or
agreement, or made any other change in employment terms
pertaining to the Services, except for changes in compensation or
terms of employment in the Ordinary Course of Business and not in
contemplation of this Agreement;
6.3.7 entered into, accelerated, terminated, modified,
canceled, or made any other type of material change to any
agreement, contract, mortgage, lease, or license pertaining to the
Assets or the Services to which Seller is a party or by which it is
bound which pertains in any way to the Assets or the Services; or
6.3.8 committed to any of the foregoing.
6.4 Undisclosed Liabilities.
6.4.1 Seller has no Liability and, to the Knowledge of
Jon D. Rappaport, there is no Basis for any Liability which would
have a Material Adverse Effect except for (a) Liabilities set forth on
the Most Recent Balance Sheet or which would not be required to
be set forth on a balance sheet prepared in accordance with GAAP,
and (b) Liabilities which have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business, none of which
results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort,
infringement, violation of law, or similar cause.
6.4.2 Seller is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
6.5 Insurance.
6.5.1 Seller, through KMGI, maintains insurance
policies (copies of which have been delivered to or made reasonably
available to Karrington) reasonable in scope and amount in
connection with the Assets and Services, and has done so for the
past four years.
6.5.2 Schedule 6.5 sets forth a true and accurate list of
all insurance policies carried on the Assets. The casualty insurance
covering the Property insures the full replacement value thereof.
6.5.3 Seller has complied with all notices or requests it
has received from any insurance company issuing any of the
insurance policies required to be set forth on Schedule 6.5.
6.6 Effect on Other Agreements.
Except as disclosed in Schedule 6.6, Seller's execution and
delivery of this Agreement and its consummation of the Transaction
will not breach, conflict with, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, mortgage, lease, license, instrument, or other
arrangement to which Seller is a party or by which it is bound or to
which any of its assets is subject, or result in the imposition of any
Security Interest upon any of its assets to which Karrington may be
subject after the Closing.
6.7 No Notice or Consent.
Except as disclosed in Schedule 6.7, Seller is not required to
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the
Transaction.
6.8 Tangible Assets.
Except as disclosed on Schedule 6.8, each tangible asset
included in the Assets is in good operating condition and repair
(normal wear and tear excepted), and is suitable for the purposes
for which it presently is used and proposed to be used.
6.9 Property Matters.
6.9.1 Except as disclosed on Schedule 6.9, no notices
have been received by Seller from the holder of any of the existing
mortgages on the Property or from insurers or governmental
authorities requiring any work to be performed with respect to the
Property which has not already been performed.
6.9.2 Except as disclosed on Schedule 6.9, the Property
and the present use of the Property does not violate any provisions
of any applicable zoning ordinances, building codes, fire
regulations, or other governmental ordinances, orders, or
regulations.
6.9.3 Except as disclosed on Schedule 6.9, there are no
hidden structural or mechanical defects in the buildings or
improvements located on the Real Estate or of any roof or wall
leaks, or backed up sewer problems. All improvements on the Real
Estate were constructed in accordance with applicable law and
substantially in conformity with all plans and specifications
pertaining thereto, copies of which have been delivered to or made
reasonably available to Karrington. At Closing, Seller shall assign
all of its interest in appliance and equipment manufacturers'
warranties, and all other warranties relating to the construction of
the improvements on the Real Estate, if any, to the extent
assignable.
6.9.4 Except as disclosed in Schedule 2.1.2, there are no
leases affecting the Real Estate except for the Resident
Agreements.
6.9.5 To the Knowledge of Jon D. Rappaport there is
no threatened taking by any governmental authority which would
affect, involve or be adverse to the Property.
6.9.6 To the Knowledge of Jon D. Rappaport, except as
disclosed in the Environmental Audit, there are no wells,
underground or above-ground storage tanks, or individual sewage
treatment systems on the Property.
6.10 Legal Compliance.
6.10.1 Other than with respect to Security Interests
related to any mortgage indebtedness secured by the Property,
which debt shall be paid and the security released at or prior to
Closing, as provided in Section 9.8 (the "Mortgage Debt") and the
Equipment Leases, Vehicle Leases, Vehicle Financing, and as
otherwise required to be disclosed in this Agreement, Seller has not
taken or failed to take any action with respect to any legal matter
which has resulted in, or may result in (a) the imposition of any
Security Interest on the Assets, or (b) any Liability with respect to
the Assets or Services to which Karrington may be subject after
Closing.
6.10.2 Except as disclosed on Schedule 6.10.2, Seller
has complied with all laws (including any related rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings and
charges) of federal, state, local and foreign governments (including
any governmental agencies) applicable to the Assets, Services, and
Assumed Liabilities the failure to comply with which would have a
Material Adverse Effect with respect to the Assets, Services or
Assumed Liabilities, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been
filed or commenced against Seller alleging any failure to comply.
6.10.3 Except as disclosed on Schedule 6.10.2, Seller
has all necessary or appropriate governmental licenses, certificates,
permits and authorizations to own or lease the Assets and to
perform the Services (the "Seller Permits") with respect to which
the failure to have would have a Material Adverse Effect with
respect to the Assets, Services or Assumed Liabilities. To the
Knowledge of Jon D. Rappaport, no violations have occurred with
respect to the Seller Permits, and no proceeding is pending or
threatened which might have the effect of revoking or rescinding, or
otherwise having a materially adverse effect upon, any Seller
Permit. Seller has filed all reports, cost reports, registrations and
statements, together with any required amendments, that are or
were required to be filed with any governmental authorities (or with
any fiscal intermediaries) pursuant to the Seller Permits or
otherwise. As of their respective dates, all such reports, cost
reports, registrations and statements complied in all material
respects with the terms of the then-existing contracts between any
governmental authorities or fiscal intermediaries and Seller, and
with all statutes, rules and regulations enforced or promulgated by
the regulatory authority (or by any fiscal intermediary) with which
they were filed, and were true, correct and complete as filed in all
material respects.
6.10.4 Seller is not a party to any supervisory
agreement, memorandum of understanding, consent order, cease
and desist order, or condition of any regulatory order or decree
with or by any governmental regulatory authority or agency that
relates to the Assets or the Services.
6.11 Licensure and Reimbursement Programs.
6.11.1 Seller does not participate in Medicaid or
Medicare.
6.11.2 The Kensington Bismarck is duly licensed as a
Basic Care Facility by the NDDH, and no such license is in any way
provisional, probationary, or otherwise restricted. The Kensington
Bismarck is operated and maintained in accordance with the NDDH
and the NDDHS licensure provisions and reimbursement programs
applicable to Basic Care Facilities, and is not subject to any orders,
admission or payment holds, or other sanctions or restrictions
related thereto.
6.12 Cost Reports.
Seller has delivered or made reasonably available to
Karrington copies of all Cost Reports with respect to the operations
of The Kensington-Bismarck for the past three full fiscal years and
the current fiscal year. All such Cost Reports have been filed in
accordance with all applicable statutory and regulatory
requirements of the NDDHS. No deficiencies have been assessed
or, to Jon D. Rappaport's Knowledge, are contemplated or
threatened with respect to any such Cost Reports.
6.13 Litigation.
6.13.1 Except as disclosed on Schedule 6.11, Seller is
not a party and, to the Knowledge of Jon D. Rappaport, has not
been threatened to be made a party, to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator which in any way pertains to
the Assets, Services, or Assumed Liabilities.
6.13.2 Seller is not subject, and, to the Knowledge of
Jon D. Rappaport, has not been threatened to be made subject, to
any injunction, judgment, order, decree, ruling, or charge pertaining
to the Assets, Services, or Assumed Liabilities.
6.14 Tax Matters.
6.14.1 Seller has delivered to Karrington true and
complete copies of (a) the most recent real estate tax and
assessment bills for the Property, (b) all Tax Returns with respect
to Seller that have been or are currently subject to audit, and (c) all
examination reports and statements of deficiencies assessed against
or agreed to by Seller.
6.14.2 Seller have not taken or failed to take any action
with respect to any tax matter which has resulted in, or, to the
Knowledge of Jon D. Rappaport, may result in (a) the imposition of
any Security Interest on the Assets, or (b) any Liability with respect
to which the Assets or Services or Karrington may be subject after
Closing.
6.14.3 Seller has filed all required Tax Returns with
respect to Seller, all of which were correct and complete in all
material respects when filed, and has fully paid all Taxes to which it
is or has been subject, whether or not shown on any Tax Return.
Except as set forth on Schedule 6.14, no filing date has been
extended for any Tax Return Seller is or has been required to file
which has not yet been filed with respect to Seller. To the
Knowledge of Jon D. Rappaport, no taxing authority in a
jurisdiction where Seller does not file Tax Returns has ever asserted
that Seller or any of the partners of Bismarck Investors is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the Assets that arose in connection with any
actual or alleged failure to pay any Tax.
6.14.4 Seller has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder, or other third party.
6.14.5 To the Knowledge of Jon D. Rappaport, no
taxing authority plans to assess any additional Taxes for any period
for which Tax Returns have been filed. To the Knowledge of Jon
D. Rappaport, there is no dispute or claim concerning any Tax
Liability claimed or raised by any taxing authority.
6.14.6 Seller has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
6.15 Intellectual Property.
Seller does not own, license, or otherwise possess any rights
in any Intellectual Property which pertain in any way to the Assets
or Services, and is not subject to any such rights held by third
parties, other than rights made available to it by KMGI.
6.16 Other Agreements.
6.16.1 Schedule 2.1.3 lists and briefly describes all
material written or oral agreements to which Seller is a party which
pertain to the Assets or Services, including all maintenance
contracts, concession agreements, or other contracts affecting the
Property (other than the Equipment Leases, Software Licenses, and
Vehicle Leases).
6.16.2 Each of the Contracts, Equipment Leases,
Software Licenses, and Vehicle Leases, is legal, valid, and binding
(Subject to Equitable Principles), and in full force and effect and
subject to obtaining any consents or the giving of notices as
disclosed in Schedule 6.6 or 6.7, will continue to be legal, valid, and
binding, and in full force and effect on identical terms immediately
following the consummation of the Transaction (Subject to
Equitable Principles). Seller is not in default in the performance of
any such agreements and, to the Knowledge of Jon D. Rappaport
no parties thereto have any defenses, set-offs or rebates relating to
any such agreements. Except as disclosed in Schedule 6.16, to the
Knowledge of Jon D. Rappaport, no other party is in breach or
default of any such agreement; to the Knowledge of Jon D.
Rappaport no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement, and no party has
repudiated any provision of the agreement.
6.16.3 Seller has delivered or made reasonably available
to Karrington a correct and complete copy of each written
agreement or a written summary describing the terms and
conditions of each oral agreement referred to in this Section 6.16.
6.16.4 All Resident Agreements have fixed rental
periods of no longer than twelve months.
6.17 Performance of Services.
Schedule 6.17 describes and sets forth copies of all
documents containing the standard terms and conditions for the
Services (including any applicable warranty and indemnity
provisions). Each Service performed or otherwise delivered by
Seller has been in conformity in all material respects with all
applicable contractual commitments and all express and implied
warranties.
6.18 Employees.
6.18.1 Except as provided in Subsection 12.1.9, to the
Knowledge of Jon D. Rappaport as of the date hereof, no Service
Employee employed in a management capacity has any plans to
terminate employment with Seller prior to Closing or to refuse
employment with Karrington following Closing.
6.18.2 Except as provided in Subparagraph 2.3.1b, as of
Closing, Seller shall have discharged all obligations to the Service
Employees with respect to compensation or benefits of any kind
under any type of Employee Benefit Plan, and after Closing
Karrington shall have no obligation to any Service Employee for
any such item attributable to the action or inaction of Seller.
6.18.3 Seller is not and never has been a party to or
bound by any collective bargaining agreement. To the Knowledge
of Jon D. Rappaport, there has never been and there is not now any
effort by any labor union to organize any employees of Seller into
one or more collective bargaining units. Seller has not experienced
any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. Seller has not committed any unfair
labor practice or other violation of labor or employment law
relating to the Service Employees.
6.19 Employee Benefits.
6.19.1 Seller does not now maintain and is not now
required to contribute to, and has never maintained or been
required to contribute to, any Employee Pension Benefit Plan.
6.19.2 Seller has not taken or failed to take any action
with respect to any Employee Benefit Plan which has resulted in, or
may result in (a) the imposition of any Security Interest on the
Assets, or (b) any Liability with respect to the Assets or Services to
which Karrington may be subject after Closing.
6.19.3 All premiums or other payments for all periods
ending on or before the Closing Date have been paid or will be paid
when they become due with respect to each Employee Welfare
Benefit Plan.
6.19.4 There have been no Prohibited Transactions with
respect to any Employee Benefit Plan which Seller maintains or
ever has maintained or to which it contributes, ever has contributed,
or ever has been required to contribute; no Fiduciary has any
Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan; no action, suit,
proceeding, hearing or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of Jon D. Rappaport, threatened; and Jon D.
Rappaport has no Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
6.19.5 Seller does not contribute to, never has
contributed to, and never has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
6.20 Powers of Attorney.
There are no outstanding powers of attorney executed on
behalf of Seller which pertain to or could pertain to the Assets or
Services in any way.
6.21 Environment, Health and Safety.
6.21.1 To the Knowledge of Jon D. Rappaport, Seller
has no Liability for any illness of or personal injury to any employee
or other individual, for damage to any site, location, or body of
water (surface or subsurface), for any damages or claims under any
past, present, or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice, or for
any other reason under any Environmental, Health and Safety Law
in any way pertaining to or affecting the Assets or Services.
6.21.2 Seller and its predecessors (i) have complied with
all Environmental, Health and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any failure to comply, and (ii) have obtained and been in
compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which
are required under, and have complied in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
6.21.3 Seller has not disposed of or arranged for the
disposal of any Hazardous Substance on the Property and Jon D.
Rappaport has no Knowledge of the disposal of any Hazardous
Substance on the Property by any other person or entity.
6.21.4 There have not been, and there currently are no
pending or, to the Knowledge of Jon D. Rappaport, threatened
claims against Seller alleging the violation of any Environmental,
Health and Safety Laws.
6.21.5 Except as disclosed in the Environmental Audit,
to the Knowledge of Jon D. Rappaport, the Property is free of
asbestos, PCB's, methylene chloride, trichloroethylene, dioxins,
dibenzofurans and Extremely Hazardous Substances.
6.22 Data Processing Matters.
6.22.1 With respect to the computer equipment,
associated peripheral devices, related operating and application
systems, and other software used in connection with the Services
and Assets which Seller owns, leases, or licenses (the "Data
Processing Systems"):
a. Seller, through KMGI, has taken appropriate action,
by instruction, agreement, or otherwise, with its employees
or other persons permitted access to system application
programs and data files, to protect against unauthorized
access, use, copying, modification, theft and destruction of
any such programs and files; and Seller has not sustained,
and Jon D. Rappaport is not aware of any information or
circumstances indicating that it may sustain, disruption of
business or loss by reason of unauthorized access, use,
copying, modification, theft, or destruction of any such
programs and files by its employees or any such other
persons; and
b. Seller, through KMGI, has arranged for back-up data
processing services adequate to meet data processing needs
in the event that the Data Processing Systems are rendered
temporarily or permanently inoperative as a result of a
natural disaster or other cause.
6.22.2 Seller's data processing and data storage facilities
are adequate for the Services, are properly protected, and possess
proper temperature and humidity control devices and fire protection
equipment.
6.23 Books and Records.
6.23.1 Seller's books of account pertaining to the
Services reflect all material items of income and expense and all
material assets, liabilities and accruals, and are prepared and
maintained in form and substance adequate for preparing financial
statements and related information in accordance with any
accounting principles required by any governmental agency with
regulatory authority over Seller's financial statements and otherwise
in accordance with the standards required by this Agreement.
6.23.2 Seller has devised and maintained a system of
internal accounting controls with respect to the Services sufficient
to provide reasonable assurances that (a) transactions are executed
in accordance with management directives, (b) transactions are
recorded as necessary to permit preparation of financial statements
in conformity with Subsection 6.23.1, (c) the recorded amounts are
compared with the actual levels at reasonable intervals and
appropriate action is taken with respect to any differences, and (d)
access to information pertaining to the preceding items (a) - (c) is
permitted only in accordance with management directives.
6.24 Residents' Assets.
Except for security deposits held in connection with the
Resident Agreement, Seller does not hold, and the Assets do not
include, funds of any residents of The Kensington-Bismarck in
excess of two hundred dollars ($200.00) per resident.
ARTICLE 7
NATURE OF DISCLOSURES
7.1 Disclosure by KLC and Jon D. Rappaport.
KLC and Jon D. Rappaport each separately represent and
warrant to Karrington and Parent as follows:
7.1.1 All items concerning Seller which are required to
be disclosed or identified on the Schedules to this Agreement have
been disclosed and identified accurately, completely, and with
reasonable particularity.
7.1.2 No representation or warranty made by or about
Seller in this Agreement, and no schedule, list, certificate,
document, or other instrument or exhibit concerning Seller which is
required under this Agreement contains any untrue statement of a
material fact or omits any material fact necessary to make the
statements made not misleading.
7.1.3 To the Knowledge of KLC and Jon D. Rappaport,
there is no fact which materially and adversely affects the Assets,
Services, or Assumed Liabilities which has not been set forth in this
Agreement, the Schedules, or any other materials concerning Seller
which are required to be furnished under this Agreement.
7.1.4 Karrington and Parent each agree that it is not
relying upon any representations and warranties by or about Seller
that are not set forth in this Agreement or required to be set forth in
a schedule, list, certificate, document or other instrument or exhibit
required under this Agreement and that there shall not be deemed
to be any other express or implied representations or warranties
made by or on behalf of Seller in connection with the Transaction.
Karrington and Parent further acknowledge and agree that the
partners of Bismarck Investors other than Jon D. Rappaport are
making only the representations and warranties set forth in Article
4, and Karrington and Parent shall not have any claims against any
of the partners of Bismarck Investors other than Jon D. Rappaport,
either directly or indirectly, by reason of any representations and
warranties in this Agreement other than those set forth in Article 4.
7.2 Copies and Lists.
Unless a representation and warranty made by or about
Seller in this Agreement is solely with respect to the existence or
non-existence of a document or other item, the mere listing or
inclusion of a copy of the document or other item shall not be
adequate to disclose (a) a permitted exception to a representation
or warranty if an additional description of facts and circumstances is
reasonably necessary to enable Karrington and Parent to understand
the exception or (b) an exception to a representation or warranty
which is not permitted.
7.3 Due Diligence.
The obligations of Seller and Jon D. Rappaport to make
representations and warranties in accordance with the standards set
forth in this Agreement shall not be affected or deemed waived on
the grounds that Karrington or Parent, based upon its investigation
and review or otherwise, should have known that any such
representation or warranty is or might be inaccurate or incomplete.
ARTICLE 8
TITLE TO REAL ESTATE; ENVIRONMENTAL AUDIT
8.1 Title Commitment and Policy.
8.1.1 Seller has furnished and delivered to Karrington in
form acceptable to Karrington, a current Owner's Title Insurance
Commitment (form ALTA 1966), together with copies of all
documents referred to therein (the "Title Commitment").
8.1.2 Seller shall furnish and deliver to Karrington:
a. An update of the Title Commitment certified to within
ten (10) days prior to the Closing Date (the "Updated Title
Commitment"); and
b. At Closing, an Owner's Title Insurance Policy (form
ALTA 1992) in the amount of the full purchase price of the
Real Estate and effective as of the date and time of the
recording of the Deeds (the "Title Policy").
8.2 Title.
The Updated Title Commitment shall show in Seller good
and marketable title in fee simple to the Real Estate, free and clear
of all liens and encumbrances except those listed in Section 8.3 (the
"Permitted Encumbrances"), and the Title Policy shall insure the
same in Karrington.
8.3 Permitted Encumbrances.
Permitted Encumbrances are as follows:
8.3.1 Those created or assumed by Karrington, or which
are otherwise acceptable to Karrington in its discretion;
8.3.2 General real estate taxes and special assessments
which are a lien but not payable or delinquent as of Closing; and
8.3.3 Liens and encumbrances listed in Schedule 8.3.
8.4 Exceptions and Endorsements.
8.4.1 The Title Policy shall not contain a survey
exception or an exception for unfiled mechanics liens or an
exception for rights of parties in possession other than rights of
residents under the Resident Agreements.
8.4.2 The Title Policy shall contain a zoning
endorsement, general comprehensive endorsement, access
endorsement, survey endorsement, environmental lien endorsement,
and such other endorsements which Karrington determines are
necessary, in Karrington's reasonable discretion, each of which shall
be satisfactory to Karrington in its discretion.
8.5 Survey and Legal Descriptions.
Seller has furnished to Karrington (a) plats of survey for the
Real Estate prepared in accordance with the Minimum Standard
Detail Requirements for Urban Class Land Title Surveys (jointly
established by ALTA/ACSM, as revised in 1992 including the
following items of Table A thereof: 1, 2, 3, 6, 7, 8, 9, 10, 11, 13, 14,
15 and 16), and acknowledging receipt of the Title Commitment and
that the location of each exception set forth in the Title Commitment,
to the extent it can be located, has been shown thereon (with
recording references and reference to the exception number of the Title
Commitment), which on or prior to the Closing shall be certified to
Karrington, the title insurer and any lender of Karrington's if
requested (dated subsequent to the date of this Agreement) and (b)
legal descriptions for the Real Estate prepared by a surveyor
registered in the State of North Dakota who is acceptable to
Karrington (the "Surveys").
8.6 Occupancy Permits.
Seller has provided Karrington with true and complete
copies of the occupancy permits for the Real Estate.
8.7 Environmental Audit
Karrington has received from Seller a Phase I
Environmental Audit of the Real Property, in form and content
satisfactory to Karrington and performed by an environmental
engineer satisfactory to Karrington (the "Environmental Audit").
ARTICLE 9
PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period of
time between the date of this Agreement and the Closing:
9.1 In General.
Seller and Karrington will each use its best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate the Transaction.
9.2 Transfer of Licenses.
Seller and Karrington shall use their mutual best efforts to
arrange the transfer or re-issuance to Karrington as of Closing of all
necessary or appropriate licenses, certificates, permits, or other
authorizations to enable Karrington to own the Assets and perform
the Services after Closing.
9.3 Qualification for Reimbursement Programs.
Seller shall keep in effect all required measures to continue
to qualify The Kensington-Bismarck in accordance with the
requirements of the Reimbursement Programs.
9.4 Cost Reports.
Seller shall prepare and file all Cost Reports due on or
before the Closing Date with respect to The Kensington-Bismarck.
Seller shall provide all such Cost Reports to Karrington for review
and comment prior to filing.
9.5 Notice to Departments.
Karrington and Seller shall provide the Departments with all
required notices concerning their execution of this Agreement and
consummation of the Transaction.
9.6 Pre-Closing Audit.
Seller shall fully cooperate with Ernst & Young in
connection with the completion of their audit, prior to Closing, of
Seller's financial statements for the fiscal years ending December
31, 1994, 1995, and 1996 (the "Audit). Karrington and Seller shall
use their best efforts to cause the Audit to be completed by Ernst &
Young on or before April 30, 1997.
9.7 Insurance.
Seller shall maintain the insurance required to be set forth
on Schedule 6.5 in full force and effect through Closing.
9.8 Mortgage Debt.
Seller shall make all necessary arrangements to pay the
Mortgage Debt in full and release the Assets from all Security
Interests in connection therewith at Closing. To the extent
reasonably requested by Karrington, Seller shall fully cooperate
with any attempts by Karrington to obtain new financing for the
Property, provided that such cooperation shall not require any
payment of fees or incurrence of out-of-pocket expenses by Seller
with respect to such financing, except as otherwise expressly
provided in this Agreement.
9.9 Operation of Business.
Seller will not engage in any practice, take any action or
enter into any transaction pertaining to the Services which is
outside the Ordinary Course of Business, including any practice,
action, or transaction of a type described in Section 6.3.
9.10 Preservation of Assets.
Seller will use commercially reasonable efforts to keep the
Assets and Services substantially intact, including all present
operations, physical facilities, working conditions and relationships
with lessors, licensors, suppliers, lessees, residents, customers, and
employees. Seller shall maintain the Assets in their present
condition and repair (ordinary wear and tear excepted), shall not
enter into any material contract relating to the Assets or Services
which extends beyond the Closing Date without the consent of
Karrington, and shall continue the existing operation of the
Property including continuing its present advertising commitments
and its usual program of advertising. Seller shall not remove from
the Property any items of Personal Property between the date
hereof and the Closing, except as may be required for repair or
replacement; and any replacements shall be of equal or better
quality and quantity. Nothing herein shall require Seller to repair or
replace Property substantially damaged or destroyed by fire or
other casualty prior to Closing.
9.11 Access to Properties.
Seller will permit representatives of Karrington full access
during normal business hours to all of its premises, properties,
personnel, books, records, contracts, documents and other
materials as reasonably required by Karrington.
9.12 Notice of Developments.
Karrington and Seller will give prompt written notice to one
another of any development of which it has Knowledge which
reasonably appears to cause any representations and warranties by
any party in this Agreement not to be true and correct in all material
respects as of Closing (except as provided with respect to the dates
of financial statements under Section 6.2 and except for the date
limitation concerning certain employee matters set forth in
Subsection 6.18.1). Such written notice shall describe the matter
with reasonable particularity and shall set forth the manner in which
it would cause any such representation and warranty (identified by
specific reference to the applicable provision of this Agreement) not
to be true as of Closing. No notice under this Section 9.12 shall be
deemed to amend or supplement any representation or warranty or
to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant by the party giving notice; provided that in the
event a party would have the right not to proceed to Closing by
reason of such breach, if the nondefaulting party elects to close
notwithstanding such breach, such breach shall be deemed waived
for all purposes of this Agreement unless the parties otherwise
agree in writing.
9.13 Updated Schedules.
Seller will update the Schedules to this Agreement at and as
of (a) five business days prior to the Closing Date or (b) any other
time specifically required by this Agreement, and shall provide the
updated Schedules to Karrington for its review at the applicable
time. No updated Schedule shall be deemed to amend or
supplement any representation or warranty or any Schedule or to
prevent or cure any misrepresentation, breach of warranty or breach
of covenant related to any Schedule; provided that in the event a
party would have the right not to proceed to Closing by reason of
such breach, if the nondefaulting party elects to close
notwithstanding such breach, such breach shall be deemed waived
for all purposes of this Agreement unless the parties otherwise
agree in writing.
9.14 Exclusivity.
So long as this Agreement has not been terminated, Seller
will not (a) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any
substantial portion of its assets (including any acquisition structured
as a merger, consolidation or share exchange) or (b) participate in
any discussions or negotiations regarding, furnish any information
with respect to, assist or participate in, or otherwise facilitate any of
the foregoing except as required by this Agreement. Seller will
notify Karrington immediately if any of the foregoing occur.
9.15 Confidentiality.
9.15.1 Each party will hold all Confidential Information
concerning the other in strictest confidence, refrain from using it
except in connection with this Agreement, and, promptly upon the
direction of the other party, deliver to the other party or destroy all
originals or copies of the Confidential Information in its possession.
Each party shall immediately notify the other if it is requested or
required to disclose any Confidential Information in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process. If a protective order cannot be obtained and the
party is, on the written advice of counsel, compelled to disclose the
Confidential Information or else be held in contempt, the party may
disclose the Confidential Information to the tribunal; provided,
however, that it shall use its best efforts to obtain an appropriate
order or other assurance that confidential treatment will be
accorded to the Confidential Information disclosed.
9.15.2 Notwithstanding the definition of Confidential
Information set forth on Annex A, for purposes of this Section 9.15
any material identified as Confidential Information shall not be
regarded as Confidential Information if it is information already
available to the public or already known from a lawful source to the
party receiving such Confidential Information.
9.15.3 The provisions of this Section 9.15 shall not
supersede any confidentiality provisions contained in the letter of
intent between KMGI and Karrington Operating Company, Inc.,
dated November 12, 1996, which confidentiality provisions shall
remain in full force and effect; provided that, the provisions of this
Agreement shall control in the event of any conflict.
ARTICLE 10
DAMAGE, EMINENT DOMAIN
10.1 Damage or Other Destruction of Property.
Risk of loss to the Property from fire or other casualty shall
be borne by Seller until Closing. If the Property is substantially
damaged or destroyed by fire or other casualty prior to the Closing
of the transaction, Seller shall not be obligated to repair or replace
the damaged or destroyed Property, but in that event Karrington
may (a) elect to proceed with the Transaction, in which event
Karrington shall, as its exclusive recourse under this Agreement for
such damage or destruction, be entitled to all insurance money
payable to Seller under any and all policies of insurance covering
the Property so damaged or destroyed, or (b) elect to terminate this
Agreement.
10.2 Eminent Domain.
If prior to the Closing all or any material part of the
Property shall be taken by any governmental authority under its
power of eminent domain, Karrington may (a) elect to proceed with
the Transaction, in which event Karrington shall, as its exclusive
recourse under this Agreement for such taking, be entitled to all
payments payable to Seller on account of such taking, or (b) elect
to terminate this Agreement.
ARTICLE 11
TERMINATION
11.1 Termination of Agreement.
11.1.1 The parties may terminate this Agreement by
mutual written consent at any time prior to the Closing.
11.1.2 Karrington may terminate this Agreement as
provided in Article 10.
11.1.3 Any party may terminate this Agreement by
written notice to the others at any time prior to the Closing if (a)
any party other than the terminating party has breached any material
representation, warranty or covenant in this Agreement, and the
breach continues without cure for ten Business Days after notice of
the breach from the terminating party, or (b) the Closing shall not
have occurred on or before May 30, 1997, because of the failure of
any condition to the terminating party's obligation to close the
Transaction.
11.2 Effect of Termination.
If the Agreement is terminated as provided in this Article
11, all rights and obligations of the parties shall cease immediately
upon termination, except for any Liability of a party then in breach,
and except for any obligations of the parties with respect to use or
disclosure of Confidential Information.
ARTICLE 12
CONDITIONS TO OBLIGATION TO CLOSE
12.1 Conditions to Karrington's Obligation to Close.
The obligations of Karrington and Parent to consummate
the Transaction are subject to satisfaction in favor of Karrington
and Parent or waiver by Karrington and Parent of the following
conditions as of Closing:
12.1.1 The representations and warranties by or about
Seller set forth in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on such
date, except as provided with respect to the dates of financial
statements under Section 6.2 and except for the date limitation
concerning certain employee matters set forth in Subsection 6.18.1.
12.1.2 Seller shall have performed and complied in all
material respects with all of its covenants set forth in this
Agreement through the Closing.
12.1.3 No action, suit, or proceeding shall be pending
or, to the Knowledge of KLC and Jon D. Rappaport, threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator,
to which Seller or Jon D. Rappaport is a party or is threatened or
expected to be made a party, or which is otherwise known to either
of them, in which an unfavorable outcome would prevent the
Closing, cause the Transaction to be rescinded in whole or in part
after Closing, or adversely effect Karrington's right to own the
Assets and perform the Services after Closing, and no injunction,
judgment, order, decree, ruling, charge or other holding having
such an effect shall be in force.
12.1.4 Seller and Jon D. Rappaport shall have delivered
to Karrington certificates in the form set forth on Exhibit 12.1.4
certifying that each of the conditions specified above in Sections
12.1.1 through 12.1.3 is satisfied as of the Closing Date.
12.1.5 All arrangements shall have been made to pay in
full the Mortgage Debt and release all related Security Interests as
provided in Section 9.8.
12.1.6 Karrington shall have received the Updated Title
Commitment.
12.1.7 Seller shall have executed and delivered to
Karrington and the title insurance company an affidavit certifying
that: (a) there are no mortgages, judgment liens or other
encumbrances of any nature whatsoever affecting the Property
except as set forth in the Updated Title Commitment; (b) there are
no rights of possession, use or otherwise, outstanding in third
persons by reasons of unrecorded leases, land contracts, sale
contracts, options or other documents, other than rights of any
individual residing on the Real Estate pursuant to any Resident
Agreement ("Resident") or as disclosed on Schedule 2.1.2; and (c)
no unpaid-for improvements have been made, or materials,
machinery or fuel delivered to the Real Estate preceding the
Closing Date, which might form the basis of a mechanic's lien upon
the Real Estate (the "Title Insurance Affidavit").
12.1.8 The closings under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Seller.
12.1.9 Seller shall have terminated all of the Service
Employees effective as of Closing.
12.1.10 All arrangements necessary to transfer or re-
issue to Karrington at Closing all licenses, certificates, permits, or
other authorizations which are necessary or appropriate to enable
Karrington to own the Assets and perform the Services after
Closing shall have been made to Karrington's satisfaction.
12.1.11 The Audit shall have been completed and Ernst
& Young shall have issued an unqualified opinion in connection
with Seller's financial statements for the fiscal years ended
December 31, 1994, 1995, and 1996, and the results of the Audit
shall not require any material adverse adjustments, either
individually or in the aggregate, to the Seller Financial Statements.
12.1.12 Karrington shall have received a written opinion
from legal counsel to Seller and Jon D. Rappaport in form and
substance as set forth on Exhibit 12.1.12, dated as of the Closing
Date.
12.1.13 Seller shall have taken all actions required of
them in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction will be reasonably satisfactory in form and substance to
Karrington and its legal counsel.
12.2 Conditions to Obligation of Seller.
The obligation of Seller to consummate the Transaction is
subject to satisfaction in favor of Seller or waiver by Seller of the
following conditions as of Closing:
12.2.1 Karrington's representations and warranties set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on such date,
except to the extent such representations and warranties are
expressly made as of a specified date.
12.2.2 Karrington shall have performed and complied in
all material respects with all of its covenants set forth in this
Agreement through the Closing.
12.2.3 No action, suit or proceeding shall be pending or,
to the Knowledge of Karrington, threatened before any court or
quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator to which Karrington is a
party or is threatened or expected to be made a party, or which is
otherwise known to Karrington in which an unfavorable outcome
would prevent the Closing or cause the Transaction to be
rescinded in whole or in part after Closing, and no injunction,
judgment, order, decree, ruling, charge or other holding having
such an effect shall be in force.
12.2.4 Karrington shall have delivered to Seller a
certificate of its Chief Operating Officer and Chief Financial Officer
in the form set forth on Exhibit 12.2.4 certifying that each of the
conditions specified above in Sections 12.2.1 through 12.2.3 is
satisfied in all respects.
12.2.5 The closing under the Acquisition Agreements
shall occur simultaneously with the Closing under this Agreement
or in a sequence reasonably agreed upon by Parent, Karrington, and
Seller.
12.2.6 Karrington shall have offered employment to
substantially all of the Service Employees of Seller upon terms
satisfactory to Karrington.
12.2.7 Seller shall have received from Karrington's legal
counsel a written opinion in form and substance as set forth on
Exhibit 12.2.7, dated as of the Closing Date.
12.2.8 Karrington shall have taken all actions required
of it in connection with the Transaction, and all certificates,
opinions, instruments and other documents required for the
Transaction shall be reasonably satisfactory in form and substance
to Seller and its legal counsel.
ARTICLE 13
TAXES, ASSESSMENTS, PRORATIONS
AND OTHER REAL ESTATE COSTS
13.1 Taxes and Assessments.
At or prior to Closing, Seller shall (a) pay all delinquent real
estate taxes, including penalties and interest, (b) pay or credit on
the purchase price all special assessments due and payable at or
prior to Closing, and all agricultural use tax recoupment for years
through the year of Closing, if any, and (c) pay or credit on the
purchase price, all real estate taxes for years prior to the Closing,
and a portion of such taxes due and payable (or prorated according
to local commercial custom) for the year of Closing, prorated
through the Closing Date.
13.2 Prorations.
Proration of undetermined taxes shall be based on a 365-day
year and on the most recent available tax rate and valuation giving
effect to applicable exemptions, recently voted millage, change in
valuation, etc., whether or not officially certified to the appropriate
County Officials as of that date.
13.3 Additional Prorations.
Payments under the Contracts, Equipment Leases, Vehicle
Leases, Software Licenses, and all other agreements and contracts
which are included in the Assets shall be prorated between
Karrington and Seller on the basis of a 365-day year as of the
Closing Date.
13.4 Utilities.
All utility charges and all charges for services of any type
furnished to the Property by all governmental agencies, public
utilities and private utilities, including all charges for gas, electricity,
telephone, water, sewer, trash removal and street cleaning, shall be
paid by Seller to the Closing Date.
13.5 Transfer Taxes and Fees.
Seller and Karrington shall share equally the cost of all local
or state transfer taxes and fees required for the transfer of the
Property by Seller to Karrington.
ARTICLE 14
CLOSING
14.1 Closing.
The closing of the Transaction (the "Closing") shall take
place at the offices of Bricker & Eckler, 100 South Third Street,
Columbus, Ohio, on April 30, 1997 provided all conditions to the
obligations of the parties to Closing as set forth in Article 12 are
then satisfied, otherwise on a date mutually agreed upon by the
parties but in no event later than May 30, 1997 (the "Closing
Date"). Closing shall be effective as of 11:59 p.m. local time on the
Closing Date.
14.2 Deliveries by the Parties at Closing.
14.2.1 At Closing, (a) Karrington shall assume the
Assumed Liabilities pursuant to one or more assumption
agreements in form mutually acceptable to Seller and Karrington,
and shall pay the cash purchase price in accordance with Section
2.4, (b) Seller shall deliver to Karrington all bills of sale,
assignments, consents, and other documentation required to
transfer the Assets to Karrington as provided in this Agreement,
and (c) each party shall deliver to each other the various
documents, instruments, certificates, and opinions required to be
delivered at Closing under Article 12.
14.2.2 Deliveries by Seller shall include the following:
a. Transferable and recordable general or limited
warranty deeds, as Karrington shall determine in its
discretion (it being understood that Seller generally will be
required to provide a deed to each parcel of Real Estate
which sets forth the same warranties as those set forth in the
deed by which Seller originally took title), signed by all
Persons necessary or required by the Title Commitment or
Karrington's attorneys, conveying title to the Real Estate to
Karrington as required by this Agreement (the "Deeds");
b. A Bill of Sale conveying title to the Personal Property
to Karrington as required by this Agreement conveying
good and valid title or a valid leasehold interest in and to the
Assets free and clear of all Security Interests (the "Bill of
Sale");
c. All documentation and funds (including any pre-
payment premiums) necessary to pay in full the Mortgage
Debt and release all related Security Interests;
d. Assignments of all agreements and contracts relating
to the Property, along with all original documents;
e. The Title Insurance Affidavit;
f. Any well, private sewage, or septic system certificates
required by law or regulation, or which Karrington
reasonably believes are necessary or advisable;
g. A FIRPTA Affidavit;
h. The Title Policy;
i. All appropriate evidence of authorization for the
execution of this Agreement, the Deeds, Bill of Sale, and all
other instruments required to be executed by Seller;
j. All books and records relating to the management and
operation of the Property (all such books and records being
open for Karrington's inspection prior to Closing during
reasonable business hours);
k. Assignments of any guaranties and warranties
received by Seller from any contractors, materialmen,
suppliers or manufacturers with respect to any work or
installations on or with respect to the Property to the extent
assignable;
l. All security deposits held by Seller which have been
paid by third parties under the Contracts, Equipment Leases
and Motor Vehicle Leases, or any other leases included in
the Assets; and
m. Such other documents as are otherwise required of
Seller by this Agreement.
14.2.3 Deliveries by Karrington shall include the
following:
a. All appropriate evidence of authorization for the
execution of this Agreement and all other agreements,
documents or instruments required to be executed by
Karrington or Parent; and
b. Such other documents as are otherwise required by
Karrington or Parent by this Agreement.
14.3 Possession.
Possession of the Property shall transfer to Karrington
immediately upon Closing subject to the rights of residents pursuant
to the Resident Agreements and any other holder of a leasehold
interest disclosed in Schedule 2.1.2.
ARTICLE 15
POST-CLOSING COVENANTS
The parties agree as follows with respect to the period
following the Closing:
15.1 General.
Each party shall take such further action, and execute and
deliver such further instruments as any other party may reasonably
request to carry out the purposes of this Agreement.
15.2 Litigation Support.
In the event of any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection
with (a) any transaction contemplated under this Agreement or (b)
any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving Seller, each
party will make available its personnel, provide testimony and
access to its books, and otherwise cooperate to the extent
reasonably necessary or advisable without jeopardizing its own
interests. Any such cooperation shall be at the expense of the
contesting or defending party, except to the extent it is entitled to
indemnification under Article 16.
15.3 Transition.
Seller shall take no action intended to discourage any lessor,
licensor, lessee, resident, customer, supplier or other business
associate of Seller relating to the Services from maintaining the
same business relationships with Karrington after the Closing as it
maintained with Seller prior to the Closing.
15.4 Non-Compete.
15.4.1 For a period of five (5) years from and after
Closing, Seller shall not, directly or indirectly:
a. Compete with the Services or competitively bid for or
agree to perform the Contracts;
b. Compete with any program similar to the Services or
competitively bid for or agree to perform any agreements
similar to the Contracts in the State of North Dakota;
c. Influence any Service Employee to terminate
employment with Karrington or accept employment with
any of Karrington's competitors; or
d. Interfere with any of Karrington's business
relationships, including those with customers, suppliers,
consultants, attorneys, and other agents, whether or not
evidenced by written or oral agreements.
15.4.2 Notwithstanding the provisions in this Section
15.4, nothing herein shall restrict (a) Jon D. Rappaport or the other
partners of Bismarck Investors from competing with the Services or
undertaking any activity otherwise restricted by this Section 15.4 if
and when Jon D. Rappaport is not subject to a covenant not to
compete under his employment agreement with Karrington or (b)
restrict the partners of Bismarck Investors other than Jon D.
Rappaport from acquiring not more than five percent (5%) of any
equity security of a company listed for trading on any stock
exchange or quoted on the National Association of Securities
Dealers Automated Quotation System.
15.4.3 This Section 15.4 shall survive Closing.
15.5 Post-Closing Cost Reports.
15.5.1 From and after Closing, to the extent that any
Cost Report Karrington is required to file after Closing relates to
information prior to Closing, Seller shall, at Karrington's request
from time to time, provide Karrington with all information
Karrington requires to prepare and file any such Cost Report, and
certify to all applicable Departments that, to the best of Seller's
knowledge, the information provided therein is a true and complete
statement prepared from the books and records of The Kensington-
Bismarck in accordance with applicable instructions, except as
noted, and that all salary and non-salary expenses presented as a
basis for securing reimbursement for patients were incurred in
providing patient care.
15.5.2 From and after Closing, Karrington will maintain,
and make available to NDDHS upon reasonable demand, such
books and records conveyed to Karrington hereunder with respect
to periods prior to the Closing as Seller may be required to maintain
and make available to NDDHS in accordance with the requirements
of the Reimbursement Programs.
ARTICLE 16
INDEMNIFICATION
16.1 Meaning of Certain Terms.
16.1.1 In this Article, KLC and Jon D. Rappaport
(individually and as a general partner of Bismarck Investors) are
collectively referred to the "Kensington Entities" and Karrington
and Parent are collectively referred to as the "Karrington Entities."
16.1.2 A party asserting a claim for indemnification
under this Article is referred to as the "Indemnified Party." The
party obligated to indemnify the Indemnified Party under this
Article is referred to as the "Indemnifying Party."
16.1.3 For purposes of this Article, a party shall be
deemed to have made a "misrepresentation" if any representation or
warranty made by it in this Agreement is untrue or otherwise does
not conform to the standards for representations and warranties set
forth in this Agreement.
16.1.4 For purposes of this Article, all covenants,
representations, and warranties made by Seller, Bismarck Investors,
or KLC in this Agreement shall be deemed to also have been made
separately by KLC and Jon D. Rappaport, and KLC and Jon D.
Rappaport shall be jointly and severally liable for indemnity claims
related thereto.
16.1.5 Notwithstanding any other provision of this
Article, Karrington acknowledges and agrees that the general
partners of Bismarck Investors other than Jon D. Rappaport are
making only those representations and warranties in Article 4, and
that their indemnification obligations under this Article shall pertain
only to the representations and warranties set forth therein.
16.2 Survival of Representations and Warranties.
16.2.1 Except as provided in Section 16.7, the parties'
covenants, representations and warranties set forth in this
Agreement shall survive Closing and continue in full force and
effect for a period of eighteen (18) months from and after Closing.
16.2.2 "Survival Period" means the eighteen (18) month
period set forth in Subsection 16.2.1 or the period described in
Section 16.7, whichever applies.
16.2.3 In order to be eligible for indemnification under
this Article, the Indemnified Party must bring a claim for
indemnification during the Survival Period.
16.3 Indemnification Obligations of the Kensington
Entities.
16.3.1 If Bismarck Investors makes any
misrepresentation in this Agreement, Bismarck Investors shall
indemnify and hold harmless the Karrington Entities from and
against all related Adverse Consequences, subject to the limitations
set forth in Sections 16.1.5, 16.5, and 16.6.
16.3.2 If any Kensington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Kensington
Entities shall jointly and severally indemnify and hold harmless the
Karrington Entities from and against all related Adverse
Consequences, subject to the limitations set forth in Sections 16.5
and 16.6.
16.3.3 In addition, KLC and Jon D. Rappaport shall
jointly and severally indemnify and hold harmless the Karrington
Entities from and against all Adverse Consequences related to (a)
any Liability for the unpaid Taxes of (i) Seller or (ii) any other
Person (as a transferee or successor, by contract, or otherwise) as a
result of any action taken or not taken by Seller, (b) any matter
which is the subject of actual or threatened litigation, judicial order,
administrative action, or any similar matter concerning Seller (other
than related to the enforcement of this Article), whether or not
disclosed or required to be disclosed on any Schedule to this
Agreement, or (c) matters described in Sections 15.5.1 and 17.2.
16.4 Indemnification Obligations of Karrington and
Parent.
16.4.1 If any Karrington Entity breaches any covenant
or makes any misrepresentation in this Agreement, the Karrington
Entities shall jointly and severally indemnify and hold harmless
Bismarck Investors and the Kensington Entities from and against all
related Adverse Consequences, subject to the limitations set forth in
Section 16.5 and 16.6.
16.4.2 The Karrington Entities shall indemnify and hold
harmless Bismarck Investors and the Kensington Entities from and
against all Adverse Consequences arising from or in connection
with ownership of the Assets, the Services, or the Assumed
Liabilities after the Closing Date, except to the extent Bismarck
Investors or the Kensington Entities are required to indemnify the
Karrington Entities in respect thereof under this Article.
16.5 Basket Amount.
16.5.1 Except as provided in Section 16.7, Bismarck
Investors and the Kensington Entities shall have no obligation to
indemnify the Karrington Entities under this Article unless and until
the Karrington Entities have suffered Adverse Consequences giving
rise to a right of indemnification under this Article of at least
Twenty-Eight Thousand Dollars ($28,000.00) in the aggregate (the
"Basket Amount"), and then only as to the amount by which
aggregate claims by the Karrington Entities exceed the Basket
Amount.
16.5.2 Except as provided in Section 16.7, the
Karrington Entities shall have no obligation to indemnify Bismarck
Investors or the Kensington Entities under this Article unless and
until Bismarck Investors and the Kensington Entities have suffered
Adverse Consequences giving rise to a right of indemnification
under this Article in the aggregate of at least the Basket Amount;
and then only as to the amount by which aggregate claims by
Bismarck Investors or the Kensington Entities exceed the Basket
Amount.
16.6 Limitation on Recovery.
16.6.1 Except as provided in Section 16.7, the
aggregate obligation of the Karrington Entities to indemnify
Bismarck Investors and the Kensington Entities under this Article
shall be limited to Two Hundred Eighty Thousand Dollars
($280,000.00) (the "Indemnity Cap").
16.6.2 Except as provided in Section 16.7, the
aggregate obligation of Bismarck Investors and the Kensington
Entities to indemnify the Karrington Entities under this Article shall
be limited to the Indemnity Cap.
16.7 Liability for Certain Claims.
The limitations set forth in Sections 16.5 and 16.6 shall not
apply to any claim for indemnification (a) if the Indemnifying Party
had actual conscious awareness as of Closing of the breach or
misrepresentation giving rise to the claim for indemnification by the
Indemnified Party, (b) by the Karrington Entities under Subsection
16.3.3, or (c) by Bismarck Investors or the Kensington Entities
under Subsection 16.4.2. The aggregate obligation of the
Karrington Entities to indemnify Bismarck Investors and the
Kensington Entities for all such indemnity claims shall be limited to
the purchase price, and the aggregate obligation of Bismarck
Investors and the Kensington Entities to indemnify the Karrington
Entities for all such indemnity claims shall be limited to the
purchase price. The Survival Period for any such indemnity claim
shall be the greater of the eighteen (18) month period set forth in
Section 16.2.1 or the period set forth in the statute of limitations
under applicable law.
16.8 Extent of Indemnification.
The right to indemnification under this Article shall extend
to Adverse Consequences incurred through and after the date of the
claim for indemnification.
16.9 Right of Set-Off.
If the Karrington Entities suffer Adverse Consequences as a
result of a breach or misrepresentation by the Kensington Entities
under this Agreement, the Karrington Entities may, in their
discretion, apply the actual dollar amount of any such Adverse
Consequences as a set-off against any liability or obligation they
may have under this Agreement.
16.10 Remedies.
The rights of indemnification set forth in this Article shall be
the parties' sole and exclusive remedy with respect to claims
relating to this Agreement except with respect to actions for
specific performance under Section 17.15 or claims relating to
Intellectual Property, Confidential Information, or the covenant not
to compete set forth in Section 15.4, and also except to the extent
this Agreement provides Karrington with a right of insurance
recovery (for example, and not in limitation, as provided in Sections
10.1 and 10.2), or where it otherwise reasonably appears that
irreparable harm may occur or a remedy in damages may be
inadequate. In furtherance of the foregoing, each of the parties, to
the fullest extent permitted by applicable law, waives any and all
rights, claims and causes of action that it may have against each of
the other parties in connection with any such claims arising under or
based upon any federal, state or local statute, law, ordinance, rule
or regulation of, arising under or based upon common law or
otherwise, except to the extent provided in this Article.
16.11 Notice.
An Indemnified Party shall assert a claim for indemnification
under this Article by notifying the Indemnifying Party in writing of
its claim.
16.12 Matters Involving Third Parties.
16.12.1 If any Person other than a party to this
Agreement (a "Third Party") asserts a right or claim which may
give rise to a claim for indemnification under this Article (a "Third
Party Claim"), any party having Knowledge of the matter shall
promptly notify the other parties of the matter; provided that any
delay by the Indemnified Party in providing notice shall not affect
the right of indemnification unless the Indemnifying Party's rights
and interests under this Article or otherwise have been materially
prejudiced by the delay.
16.12.2 An Indemnifying Party may defend an
Indemnified Party against any Third Party Claim giving rising to a
right of indemnification under this Article provided (a) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen days after receipt of the notice required under this Section
that the Indemnifying Party will indemnify the Indemnified Party as
required by this Article, (b) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying
Party will have the financial resources to both undertake the
defense and fulfill its indemnification obligations, (c) the Third
Party Claim involves only money damages and does not seek
equitable relief which might be materially adverse to the
Indemnified Party's continuing business, (d) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (e) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently. The Indemnifying Party's choice of legal
counsel for a defense under this Subsection 16.12.2 shall be
reasonably satisfactory to the Indemnified Party.
16.12.3 At any time an Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
16.12.2, the Indemnified Party may retain separate co-counsel at its
own expense and participate in the defense. If both the
Indemnifying Party and the Indemnified Party are participating in
the defense, neither may consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the other's prior written consent, which shall not be
withheld unreasonably.
16.12.4 If, however, at any time an Indemnifying Party
is conducting the defense of the Third Party Claim but not in
accordance with Section 16.12.2, the Indemnified Party may
conduct its own defense and may consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim in any manner it may reasonably determine with the
consent of the Indemnifying Party, which shall not be unreasonably
withheld, in which case the Indemnifying Party shall promptly and
at reasonable intervals periodically reimburse the Indemnified Party
for the costs of its defense (including reasonable attorneys' fees).
An Indemnified Party's action under this Section 16.12.4 shall not
affect its right of indemnification under this Article.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 Expenses.
Seller and Karrington shall share equally all expenses
(including the cost of the Audit and the opinion of Ernst & Young
with respect to such Audit, the Surveys, the Title Commitment,
Updated Title Commitment and Title Policy, the Environmental
Audit and all pre-payment penalties and other expenses with respect
to Mortgage Debt, but excluding any financing costs of Karrington)
incurred in connection with this Agreement and the Transaction,
except as provided in Article 16 or as otherwise specifically
provided to the contrary in this Agreement, and except that each
party shall bear its own attorneys fees.
17.2 Expenses Relating to Reimbursement Programs Prior
to Closing.
Notwithstanding any other provision of this Agreement,
Seller shall be solely responsible for any refunds or retroactive
adjustments required to be paid to or for the benefit of NDDHS,
and any reimbursement charge-backs, depreciation recapture, or
disallowances for depreciation, cost reimbursement, or otherwise,
relating to the operation of The Kensington-Bismarck prior to
Closing.
17.3 Press Releases and Public Announcements.
No party shall issue any press release or make any public
announcement relating to this Agreement or the Transaction prior
to the Closing without the prior written approval of the other
parties; provided, however, that any party may make any public
disclosure it believes in good faith is required by applicable law, in
which case the disclosing party shall advise the other party and
consult with the legal counsel of such other party prior to making
the disclosure.
17.4 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies on
any Person other than the parties and their respective successors
and permitted assigns.
17.5 Entire Agreement.
Except as provided in Section 9.15.3, this Agreement
constitutes the entire agreement among the parties concerning its
subject matter and supersedes all other understandings, agreements,
or representations by or among the parties, written or oral, to the
extent they relate in any way to its subject matter (including the
letter of intent dated November 12, 1996 by and between
Karrington Operating Company, Inc. and KMGI).
17.6 No Merger.
All warranties, representations and covenants contained
herein shall survive the Closing of the purchase and sale of the
Property, and if any deed or other document of conveyance and any
provisions of this Agreement are inconsistent, the provisions of this
Agreement shall control and shall not be deemed to have merged
within such deed or other document.
17.7 Succession and Assignment.
This Agreement shall bind and benefit the parties and its
respective successors and permitted assigns. No party may assign
either this Agreement or any rights, interests, or obligations arising
under it without the prior written approval of all parties; provided,
however, that Karrington may assign all or any portion of its
interest in this Agreement to one or more of its Affiliates without
Seller's consent.
17.8 Headings.
The section headings contained in this Agreement are
inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement.
17.9 Notices.
All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing and, shall
be deemed duly given two days after being deposited postage
prepaid, registered or certified, return receipt requested, in the
United States Mail, addressed to the intended recipient as set forth
below:
If to Seller:
Jon D. Rappaport
Bismarck Investors/Kensington Living Centers, Inc.
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
Earl H. Cohen
1560 International Centre
900 Second Avenue South
Minneapolis, MN 55402-3383
Gary B. Rappaport
Norauto Investments Limited Partnership
11111 Excelsior Blvd.
Hopkins, MN 55343
Copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Alan W. Van Dellen
Leonard, Street and Deinard
150 South Fifth Street
Suite 2300
Minneapolis, MN 55402
If to Jon D. Rappaport:
Jon D. Rappaport
Bismarck Investors/Kensington Living Centers, Inc.
1500 South Highway 100, Suite 200
Golden Valley, MN 55416
Copy to:
David M. Vander Haar, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
If to Karrington or Parent:
Alan B. Satterwhite
COO and CFO
Karrington Operating Company, Inc.
919 Old Henderson Rd.
Columbus, OH 43220
Copy to:
Charles H. McCreary, Esq.
Bricker & Eckler
100 South Third Street
Columbus, OH 43215-4291
Any party may send any notice, request, demand, claim, or other
communication to the intended recipient using other means,
including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail, in which case the
notice, request, demand, claim or other communication shall be
deemed duly given when actually received by the intended recipient.
Any party may change its address of record for purposes of this
Section 17.9 by giving the other parties written notice in the
manner set forth in this section.
17.10 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Minnesota or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Minnesota.
17.11 Amendments and Waivers.
This Agreement may be amended only by a writing signed
by all parties. No waiver by any party of any provision, default, or
breach of this Agreement, whether intentional or not, shall be
deemed to extend to any other provision, default, or breach or to
the same provision, default or breach on another occasion.
17.12 Severability.
If any term or provision of this Agreement is determined by
a court of competent jurisdiction or in binding arbitration to be
invalid or unenforceable, that finding shall not affect the validity or
enforceability of the remaining terms and provisions.
17.13 General Rules of Construction.
The parties have participated jointly in negotiating and
drafting this Agreement. If a question concerning intent or
interpretation arises, no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship. Any
reference to any federal, state, local or foreign statute or law shall
be deemed also to refer to all related rules and regulations unless
the context requires otherwise. Each representation, warranty and
covenant shall have independent significance, and if any party has
breached any of them in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter which the party has not breached shall not detract
from or mitigate the fact that the party is in breach.
17.14 Incorporation of Annexes, Exhibits, and Schedules.
The Annexes, Exhibits, and Schedules identified in this
Agreement are incorporated into this Agreement by this reference.
17.15 Specific Performance.
Each of the parties acknowledges and agrees that the other
party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with
its specific terms or otherwise are breached. Accordingly, the non-
breaching party shall be entitled to appropriate injunctive relief,
including specific performance in any action instituted in any court
of the United States or any of the fifty states having jurisdiction
over the parties and the matter, in addition to any other remedy to
which it may be entitled under this Agreement or otherwise.
17.16 Forum.
Except as provided in Section 17.15, the forum for legal
action concerning this Agreement and the Transaction shall be the
appropriate court in the State of Minnesota, and the parties agree to
in personam jurisdiction for that purpose.
17.17 Tax Free Exchange
Seller may wish to dispose of the Real Property by means of
an exchange for like-kind property qualifying for tax-free treatment
pursuant to Section 1031 of the Code. Karrington agrees to
cooperate with Seller in effecting a qualifying like-kind exchange
through a trust or other means determined by Seller. Seller shall
bear the additional transaction costs, if any, attributable to the
consummation of a qualifying exchange. Seller shall hold
Karrington harmless from any risk or liability that Karrington might
incur in cooperating with Seller. In such an exchange, Karrington
shall not be required to take title to any property other than the
Real Property. Any such exchange shall not affect the time for
Closing set forth in this Agreement.
The remainder of this page is intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date indicated above.
KENSINGTON
COTTAGES
CORPORATION OF
AMERICA
By:
Alan B. Satterwhite
Its: COO and CFO
KARRINGTON HEALTH,
INC.
By:
Alan B. Satterwhite
Its: COO and CFO
BISMARCK INVESTORS
By:
Jon D. Rappaport,
General Partner
By:
Earl H. Cohen, General
Partner
By:
Gary B. Rappaport, as
sole member and
governor of Gary B.
Rappaport III, LLC,
general partner of
Norauto Investments
Limited Partnership,
General Partner
KENSINGTON LIVING
CENTERS, INC.
By:
Jon D. Rappaport
Its: President
Jon D. Rappaport
ANNEX A
TO
ASSET PURCHASE AGREEMENT
DEFINITIONS
Transactional Terms.
The following transactional terms used in this Agreement
are defined in the Sections of this Agreement identified below:
Term Section Containing
Definition
Acquisition Agreements
1.3
Assets
2.1
Assumed Liabilities
2.3.1
Audit
9.6
Basket Amount
16.5
Bill of Sale
14.2.2
Seller
Preamble
Seller Financial Statements
7.2
Seller Permits
6.10.3
Closing
14.1
Closing Date
14.1
Contracts
2.1.3
Data Processing Systems
6.22
Deeds
14.2.2
Employee Accruals
2.3.1
Environmental Audit
8.7
Equipment Leases
2.1.4
Improvements
2.1.1
Indemnity Cap
16.6
Karrington
Preamble
Karrington Entities
16.1
The Kensington-Bismarck
Recitals
KMGI
1.3
Land
2.1.1
Material Adverse Effect
6.3
Mortgage Debt
6.10.1
Most Recent Financial Statements
6.2
Most Recent Fiscal Month End
6.2
Most Recent Fiscal Year End
6.2
Motor Vehicles
2.1.6
Parent
Preamble
Permitted Encumbrances
8.3
Personal Property
2.1.2
Property
2.1.2
Rappaport Letter of Understanding
9.6
Real Estate
2.1.1
Resident
12.1.7
Resident Agreements
2.1.3
Service Employees
2.3.1
Services
2.1.3
Software Licenses
2.1.5
Surveys
8.5
Title Commitment
8.1.1
Title Insurance Affidavit
12.1.7
Title Policy
8.1.2
Transaction
Recitals
Updated Title Commitment
8.1.2
Vehicle Financing
2.3.1
Vehicle Leases
2.1.6
Miscellaneous Terms
Adverse Consequences means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses.
Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
Basis means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
Business refers to a party's business as presently conducted
and as presently proposed to be conducted.
Business Day shall mean any day on which banks are open
to conduct business in Minneapolis, Minnesota.
Confidential Information means information in whatever
form, including without limitation information which is written,
electronically stored, orally transmitted, or memorized, which is of
commercial value to a party's Business, including any idea,
knowledge, know-how, process, system, formula, composition,
method, technique, research and development, drawing, design,
specification, technology, software, technical information, trade
secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, pricing or cost
information, tax or financial information, business or marketing
plan, proposal, strategy, or forecast; provided, that Confidential
Information does not include information which is or becomes
generally known within a party's industry through no act or
omission by any other party or which is or becomes generally
known to the public or otherwise is required to be made public by
state or federal law; further provided, however, that the
compilation, manipulation, or other exploitation of generally known
information may constitute Confidential Information.
Environmental, Health and Safety Laws means the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended through the date hereof, together with all other laws
(including rules, regulations, codes, judgments, orders, decrees,
rulings, and changes thereunder), of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
Extremely Hazardous Substance has the meaning set forth
in Sec. 302 of the Emergency Planning and Community Right-to-
Know Act of 1986, as amended.
GAAP means United States generally accepted accounting
principles in effect from time to time.
Governing Documents means, as to any Person, the articles
or certificate of incorporation, code of regulations, and bylaws if
the Person is a corporation; the partnership agreement and
partnership certificate if the Person is a partnership; or the
operating agreement if the Person is a limited liability company; and
any other documents relating to and establishing or governing the
existence and legal operation of any Person of any type or nature,
each as amended.
Intellectual Property means: (a) all inventions, whether
patentable or unpatentable and whether or not reduced to practice,
all improvements to any such inventions, and all patents, patent
applications, and patent disclosures, together with all related
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations; (b) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with
all related translations, adaptations, derivations, and combinations,
including all associated goodwill, and all applications, registrations,
and renewals in connection with the same; (c) all copyrightable
works, all copyrights, and all applications, registrations, and
renewals in connection with the same, (d) all mask works and all
applications, registrations, and renewals in connection with the
same, (e) all computer software, data, and related documentation,
(f) all other proprietary rights, and (g) all copies and tangible
embodiments of the foregoing, in whatever form or medium.
Knowledge means actual knowledge or knowledge which
could be reasonably obtained by inquiry and investigation within the
scope of a Person's normal operations, duties, or responsibilities.
Liability means any liability, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to
become due, including any liability for Taxes.
Ordinary Course of Business means the ordinary course of
business consistent with past custom and practice.
Party, unless the context indicates otherwise, includes a
party's Subsidiaries and Affiliates.
Person means any individual, partnership, corporation,
association, joint stock company, trust, joint venture,
unincorporated organization, governmental or quasi-governmental
entity (or any governmental department, agency, or political
subdivision), or any other form of legal entity or enterprise.
Security Interest means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of
money. Security Interest does not include any protective filing by a
lessor of any of the Assets.
Subject to Equitable Principles means subject, as to
enforcement of remedies, to bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting creditors'
rights generally and to general equitable principles.
Subsidiary means any corporation with respect to which a
specified Person or its Subsidiary owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
Tax Terms
Code means the Internal Revenue Code of 1986, as
amended.
Tax means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment.
Employee Benefits and ERISA Terms
Employee Benefit Plan means any Employee Welfare
Benefit Plan or other material fringe benefit plan or program (other
than an Employee Pension Benefit Plan).
Employee Pension Benefit Plan has the meaning set forth in
ERISA Section 3(2).
Employee Welfare Benefit Plan has the meaning set forth in
ERISA Section 3(1).
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Fiduciary has the meaning set forth in ERISA Section
3(21).
Multiemployer Plan has the meaning set forth in ERISA
Section 3(37).
Prohibited Transaction has the meaning set forth in ERISA
Section 406 and Code Section 4975.
Cost Reimbursement Terms
Cost Report means any cost report required to be filed with
NDDHS for reimbursement under any Reimbursement Program.
Department refers to NDDH or NDDHS, as applicable, and
Departments refers to both of them collectively.
Medicaid means the federal and state Medicaid program
codified at U.S.C. Title XIX, and all enabling legislation and
regulations promulgated thereunder by the Departments.
Medicare means the federal Medicare program codified at
U.S.C. Title XVIII, and all enabling legislation and regulations
promulgated thereunder by the United States Department of Health
and Human Services and the fiscal intermediary appointed in
connection with the administration of the Medicaid Program.
NDDH refers to the North Dakota Department of Health.
NDDHS refers to the North Dakota Department of Health
and Human Services.
Reimbursement Program refers to the Basic Care Facility
provisions regarding the reimbursement of health care providers by
NDDHS.
