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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 2, 1997 0-28752
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Date of Report (Date of earliest event reported) Commission File Number
KAPSON SENIOR QUARTERS CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-3323503
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
125 Froelich Farm Boulevard
Woodbury, New York 11797
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(Address of Principal Executive Offices) (Zip Code)
(516) 921-8900
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(Registrant's telephone number, including area code)
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Item 5. Other Events.
On October 2, 1997, Kapson Senior Quarters Corp. ("Kapson") and
Prometheus Senior Quarters LLC, an affiliate of Lazard Freres Real Estate
Investors LLC (LFREI), issued a press release announcing that Prometheus has
entered into a definitive agreement to acquire substantially all of the
outstanding shares of Kapson in a transaction valued at approximately $250
million, including the assumption of debt.
Under terms of the agreement, Prometheus will offer $16 a share for
approximately 92% of Kapson's 7.8 million outstanding common shares. In
addition, Prometheus will offer $30.82 a share for all of the company's 2.4
million outstanding convertible preferred shares. The acquisition will be
treated as a recapitalization for accounting purposes and shares will be
acquired on a pro rata basis.
The transaction is contingent upon certain regulatory approvals and
a favorable vote by Kapson's stockholders.
The Agreement and Plan of Merger (the "Merger Agreement") among
Prometheus Senior Quarters LLC, a Delaware limited liability company
("Investor"), Prometheus Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Investor ("Sub") and Kapson, upon and subject to the terms
and conditions of which Sub will be merged with and into Kapson is filed
herewith as Exhibit 2.1, and is incorporated herein by reference.
Pursuant to a Stockholders' Agreement, dated as of September 30,
1997, by and among Investor and Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan
(the "Stockholders"), who collectively beneficially own approximately 53.5% of
the outstanding common stock of Kapson, Stockholders have agreed, among other
things, to vote their shares of common stock in favor of the Merger. The
Stockholders' Agreement is filed herewith as Exhibit 10.1 and is incorporated
herein by reference.
The press release, dated October 2, 1997, is filed herewith as
Exhibit 99.1 and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) not applicable
(b) not applicable
(c) Exhibits
2
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2.1 Agreement and Plan of Merger, dated as of September 30, 1997, by and among
Prometheus Senior Quarters LLC, Prometheus Acquisition Corp. and Kapson
Senior Quarters Corp.
10.1 Stockholders' Agreement, dated as of September 30, 1997, by and among
Prometheus Senior Quarters LLC and Glenn Kaplan, Wayne L. Kaplan and Evan
A. Kaplan.
99.1 Press Release, dated October 2, 1997.
3
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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 hereunto duly authorized.
Date: October 2, 1997
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
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Glenn Kaplan
Chairman of the Board and
Chief Executive Officer
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EXHIBIT INDEX
Exhibit Description Page
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2.1 Agreement and Plan of Merger, dated as of September
30, 1997, by and among Prometheus Senior Quarters
LLC, Prometheus Acquisition Corp. and Kapson Senior
Quarters Corp.
10.1 Stockholders' Agreement, dated as of September 30,
1997, by and among Prometheus Senior Quarters LLC and
Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.
99.1 Press Release, dated October 2, 1997.
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5
Execution Copy
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
September 30, 1997
AMONG
PROMETHEUS SENIOR QUARTERS LLC,
PROMETHEUS ACQUISITION CORP.
AND
KAPSON SENIOR QUARTERS CORP.
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TABLE OF CONTENTS
Page
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AGREEMENT AND PLAN OF MERGER.................................................1
ARTICLE I THE MERGER.................................................2
Section 1.1 The Merger...........................................2
Section 1.2 Effective Time of the Merger.........................2
Section 1.3 Company Actions......................................2
ARTICLE II THE SURVIVING CORPORATION..................................3
Section 2.1 Certificate of Incorporation.........................3
Section 2.2 Bylaws...............................................3
Section 2.3 Board of Directors and Officers......................3
Section 2.4 Effects of Merger....................................3
ARTICLE III CONVERSION OF SHARES.................................3
Section 3.1 Retained Share Elections.............................3
Section 3.2 Conversion of Shares.................................5
Section 3.3 Proration............................................6
Section 3.4 Conversion of Common Stock of Sub....................7
Section 3.5 Exchange of Certificates.............................7
Section 3.6 Stock Options.......................................10
Section 3.7 Stockholders' Meetings..............................10
Section 3.8 Closing.............................................10
Section 3.9 Transfer Taxes......................................10
Section 3.10 Form of Transaction.................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF INVESTOR...............................................11
Section 4.1 Organization, Standing and Power....................11
Section 4.2 Authority; NonContravention.........................11
Section 4.3 Financing...........................................12
Section 4.4 Brokers.............................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
THE COMPANY...............................................13
Section 5.1 Organization, Standing and Power....................13
Section 5.2 Capital Structure...................................13
Section 5.3 Subsidiaries........................................14
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Section 5.4 Authority; Non-Contravention........................14
Section 5.5 SEC Documents.......................................16
Section 5.6 Absence of Certain Events...........................17
Section 5.7 Litigation..........................................17
Section 5.8 Compliance with Law.................................18
Section 5.9 Employee Plans......................................21
Section 5.10 Employment Relations and Agreement..................23
Section 5.11 Contracts...........................................24
Section 5.12 Environmental Laws and Regulations..................26
Section 5.13 Property and Leases.................................28
Section 5.14 Patents, Trademarks, Copyrights.....................31
Section 5.15 Insurance...........................................32
Section 5.16 Takeover Statutes...................................32
Section 5.17 Taxes...............................................32
Section 5.18 No Change of Control................................32
Section 5.19 Brokers.............................................33
Section 5.20 Disclosures.........................................33
ARTICLE VI REPRESENTATIONS AND WARRANTIES
REGARDING SUB.............................................33
Section 6.1 Organization and Standing...........................33
Section 6.2 Authority; NonContravention.........................34
ARTICLE VII COVENANTS RELATING TO CONDUCT
OF BUSINESS...............................................34
Section 7.1 Conduct of Business by the Company Pending the
Merger..............................................34
Section 7.2 Conduct of Business of Sub Pending the Merger.......38
ARTICLE VIII ADDITIONAL AGREEMENTS.....................................38
Section 8.1 Registration Statement/Proxy Statement..............38
Section 8.2 Compliance with the Securities Act..................39
Section 8.3 Indemnification.....................................40
Section 8.4 Additional Agreements...............................41
Section 8.5 No Shop.............................................41
Section 8.6 Advice of Changes; SEC Filings......................42
Section 8.7 Registration Rights Agreement.......................42
Section 8.8 Directors...........................................43
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ARTICLE IX CONDITIONS PRECEDENT......................................43
Section 9.2 Conditions to Obligation of the Company to Effect
the Merger..........................................43
Section 9.3 Conditions to Obligations of Investor and Sub
to Effect the Merger................................44
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.........................45
Section 10.1 Termination by Mutual Consent.......................45
Section 10.2 Termination by Either Investor or the Company.......45
Section 10.3 Termination by Investor.............................45
Section 10.4 Termination by the Company..........................46
ARTICLE XI MISCELLANEOUS.............................................47
Section 11.1 Non-Survival of Representations, Warranties
and Agreements......................................48
Section 11.3 Fees and Expenses...................................49
Section 11.4 Publicity...........................................49
Section 11.5 Specific Performance................................49
Section 11.6 Assignment; Binding Effect..........................49
Section 11.7 Entire Agreement....................................50
Section 11.8 Amendment...........................................50
Section 11.9 Governing Law.......................................50
Section 11.10 Counterparts........................................50
Section 11.11 Headings and Table of Contents......................50
Section 11.12 Interpretation......................................50
Section 11.13 Waivers.............................................51
Section 11.14 Incorporation of Exhibits...........................51
Section 11.15 Severability........................................51
Section 11.16 Subsidiaries........................................51
Schedules
Schedule 2.3 - Directors
Schedule 9.3(c) - Consents and Approvals
Schedule 9.3(f) - Certain Matters
Exhibits
Exhibit A Current Operating Plan and Budget of Company
and its Subsidiaries
Exhibit B Form of Affiliate Letter
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Defined Terms Index
Affiliate......................................................Section 8.2
Affiliate Letter...............................................Section 8.2
Agreement......................................................Preamble
Alternative Proposal...........................................Section 8.5
Blue Sky Laws..................................................Section 4.2
Budgets........................................................Section 9.3
Capital Expenditure Budget and Schedule........................Section 5.14
Cash Merger Price..............................................Section 3.2
Closing........................................................Section 3.8
Code...........................................................Section 5.10
Common Stock...................................................Section 3.2
Common Stock Cash Merger Price.................................Section 3.2
Company........................................................Preamble
Company Benefit Plan...........................................Section 5.10
Company Disclosure Letter......................................Section 5.2
Company Properties.............................................Section 5.14
Company Property...............................................Section 5.14
Company Reports................................................Section 5.5
Company SEC Documents..........................................Section 5.5
Contracts......................................................Section 5.12
Development Budget and Schedule................................Section 5.14
Development Properties.........................................Section 5.14
DGCL...........................................................Recitals
Dissenting Shares..............................................Section 3.2
Effective Time.................................................Section 1.2
Elected Cash Share.............................................Section 3.1
Elected Retained Share.........................................Section 3.1
Elected Retained Share Number..................................Section 3.3
Election Date..................................................Section 3.1
Election Form..................................................Section 3.1
Employment Agreements..........................................Section 5.11
Environmental Claim............................................Section 5.13
Environmental Laws.............................................Section 5.13
ERISA..........................................................Section 5.10
Exchange Act...................................................Section 4.2
Exchange Fund..................................................Section 3.5
Exchangeable Preferred.........................................Section 3.2
Exchangeable Preferred Cash Merger Price.......................Section 3.2
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Excluded Shares................................................Section 3.2
Financial Advisor..............................................Section 1.3
Form S-4.......................................................Section 8.1
Governmental Entity............................................Section 4.2
Hazardous Materials............................................Section 5.13
HSR Act........................................................Section 4.2
Indemnified Parties............................................Section 8.3
Investor.......................................................Preamble
Investor Share Amount .........................................Section 3.4
Investor Shares................................................Section 3.4
Investor Share Number..........................................Section 3.4
Leased Property................................................Section 5.14
Liens..........................................................Section 5.14
Maximum Election Amount........................................Section 3.1
Material Adverse Change........................................Section 4.2
Material Adverse Effect........................................Section 4.2
Merger.........................................................Recitals
Minimum Retained Share Number..................................Section 3.3
Multiemployer Plan.............................................Section 5.10
Non-Elected Retained Share.....................................Section 3.3
Notice of Guaranteed Delivery..................................Section 3.1
Option.........................................................Section 3.6
Options........................................................Section 3.6
Owned Property.................................................Section 5.14
Investor Expenses..............................................Section 10.5
Paying Agent...................................................Section 3.1
PCBs...........................................................Section 5.13
Permits........................................................Section 5.9
Permitted Liens................................................Section 5.14
Plan...........................................................Section 5.10
Projects.......................................................Section 5.14
Property.......................................................Section 5.13
Proxy Statement/Prospectus.....................................Section 8.1
Registration Rights Agreement..................................Section 8.7
Retained Share.................................................Section 3.2
Retained Surviving Corporation Shares..........................Section 3.2
SEC............................................................Section 8.1
Section 9.3 Agreements.........................................Section 9.3
Securities Act.................................................Section 4.2
Shares.........................................................Section 3.2
Salomon Brothers Book..........................................Section 9.3
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Special Meeting................................................Section 3.7
Stock Plan.....................................................Section 5.2
Stockholders Agreement.........................................Recitals
Sub............................................................Preamble
Sub Share......................................................Section 3.4
Surviving Corporation..........................................Section 1.1
Tax; Taxes; Taxable............................................Section 5.18
Tax Return.....................................................Section 5.18
Termination Fee................................................Section 10.5
Title Policies.................................................Section 5.14
Transfer Taxes.................................................Section 3.9
UST............................................................Section 5.13
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 30, 1997, by and among Prometheus Senior Quarters LLC, a Delaware
limited liability company or an affiliate thereof ("Investor"); Prometheus
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Investor ("Sub"); and Kapson Senior Quarters Corp., a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has determined that
it is fair and in the best interests of its stockholders for Sub to merge with
and into the Company (the "Merger") pursuant to Section 251 of the Delaware
General Corporation Law ("DGCL"), upon the terms and subject to the conditions
set forth herein;
WHEREAS, the Board of Directors of the Company has adopted
resolutions approving the Merger, this Agreement and the transactions to which
the Company is a party contemplated hereby, and has agreed, upon the terms and
subject to the conditions set forth herein, to recommend that the Company's
stockholders approve the Merger and this Agreement;
WHEREAS, the parties have agreed (subject to the terms and
conditions of this Agreement), as soon as practicable following the approval by
the stockholders of the Company, to effect the Merger, as more fully described
herein;
WHEREAS, it is intended that the Merger be treated as a
recapitalization of the Company for financial reporting purposes;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Investor to enter into this Agreement, Investor and certain
stockholders of the Company are entering into a Stockholders Agreement (the
"Stockholders Agreement") pursuant to which such stockholders have, among other
matters, granted to Investor an irrevocable proxy to vote their Shares (as
hereinafter defined) in favor of the Merger and all other actions necessary to
consummate the Merger, and granted to Investor an option to purchase the Shares
(as hereinafter defined) owned by such stockholder, in each case, upon the terms
and subject to the conditions specified in the Stockholders Agreement; and
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WHEREAS, Investor and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger.
Upon the terms and subject to the conditions hereof, on the
Effective Time (as hereinafter defined), Sub shall be merged with and into the
Company and the separate existence of Sub shall thereupon cease, and the
Company, as the corporation surviving the Merger (the "Surviving Corporation"),
shall by virtue of the Merger continue its corporate existence under the laws of
the State of Delaware.
Section 1.2 Effective Time of the Merger.
The Merger shall become effective at the date and time (the
"Effective Time") when a Certificate of Merger meeting the requirements of
Section 251 of the DGCL shall have been duly executed and filed in accordance
with such Section, or at such other time as is specified in the Certificate of
Merger in accordance with the DGCL, which Certificate of Merger shall be filed
as soon as practicable following fulfillment of the conditions set forth in
Article IX hereof.
Section 1.3 Company Actions.
The Company hereby represents and warrants that (a) its Board of
Directors (at a meeting duly called and held), has (i) determined that the
Merger (upon the terms and subject to the conditions of this Agreement) is fair
to and in the best interests of the stockholders of the Company, (ii) resolved
to approve this Agreement, the Merger and the Stockholders Agreement, and to
recommend approval of the Merger and this Agreement by the stockholders of the
Company, and (iii) taken all necessary steps to render Section 203 of the DGCL
inapplicable to the Merger and the transactions contemplated by this Agreement
and the Stockholders Agreement, and (b) Salomon Brothers Inc (the "Financial
Advisor") has advised the Company's Board of Directors
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that, in its opinion, the consideration to be received and retained by the
Company's stockholders in the Merger is fair, from a financial point of view, to
such stockholders.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation.
The Certificate of Incorporation of the Company as in effect at the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until further amended in accordance with its terms and as provided
by law and this Agreement.
Section 2.2 By-laws.
The By-laws of Sub as in effect at the Effective Time shall be the
By-laws of the Surviving Corporation, and thereafter may be amended in
accordance with their terms and as provided by law and this Agreement.
Section 2.3 Board of Directors and Officers.
The persons specified in Schedule 2.3 shall be the directors of the
Surviving Corporation and the officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified.
Section 2.4 Effects of Merger.
The Merger shall have the effects set forth in Section 259 of the
DGCL.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Retained Share Elections. (a) Each person who is a
record holder of Shares at 5:00 p.m., New York City time, on the date of the
Special Meeting (as hereinafter defined) or the date of any meeting of
stockholders held pursuant to any adjournment of the Special Meeting (the
"Election Date") will be entitled, with respect to no more than 9.740% of his or
its Shares (the "Maximum Election Amount"), to make an election to retain Shares
as set forth in, and subject to the provisions of this Section 3.1.
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The Bank of New York or such other entity mutually agreeable to Investor and the
Company shall be the paying agent for the purpose of this Agreement (the "Paying
Agent").
(b) The Company shall prepare and mail a form of election, which
form shall be subject to the approval of Investor (the "Election Form"), with
the Proxy Statement/Prospectus (as hereinafter defined) to the record holders of
Shares as of the record date for the Special Meeting, which Election Form shall
be used by each record holder of Shares who wishes to elect to retain Shares up
to the Maximum Election Amount in lieu of such Shares being converted into the
right to receive the Cash Merger Price (as hereinafter defined) for each such
Share. The Company will use commercially reasonable efforts to make the Election
Form and the Proxy Statement/Prospectus available to all persons who become
holders of Shares during the period between such record date and the Election
Date. Any such holder's election to retain Shares shall have been validly made
only if the Paying Agent shall have received at its designated office, on or
prior to the Election Date, an Election Form properly completed and signed in
accordance with such rules as the Paying Agent may establish pursuant to Section
3.1(e), and accompanied by either (i) certificates for the Shares to which such
Election Form relates, duly endorsed in blank or otherwise in form acceptable
for transfer on the books of the Company or (ii) an appropriate guarantee of
delivery of such certificates as set forth in such Election Form from a firm
which is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States (a "Notice of
Guaranteed Delivery"). Notwithstanding anything to the contrary contained
herein, any Election Form accompanied by a Notice of Guaranteed Delivery shall
be deemed not validly made if the certificate or certificates are in fact
delivered to the Paying Agent after three (3) Nasdaq Stock Market trading days
after the date of execution of such guarantee of delivery.
(c) Any Election Form may be revoked by the stockholder submitting
such Election Form if a written notice of revocation is received by the Paying
Agent prior to 5:00 p.m., New York City time, on the Election Date. In addition,
all Election Forms shall be revoked automatically if this Agreement is
terminated pursuant to Article X. If an Election Form is revoked, the
certificate or certificates (or guarantees of delivery, as appropriate) for the
Shares to which such Election Form relates shall be returned by the Paying Agent
to the stockholder submitting the same to the Paying Agent.
(d) For purposes of this Agreement, (i) "Elected Retained Share"
shall mean a Share in respect of which an election to retain such Share is
validly made and not validly revoked prior to the Election Date and (ii)
"Elected Cash Share" shall mean a
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Share in respect of which either an election to retain such Share is not validly
made prior to the Election Date or an election to retain such Share is validly
revoked prior to the Election Date.
(e) The Paying Agent may, with the mutual agreement of the Investor
and the Company, make such rules as are consistent with this Section 3.1 for the
implementation of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.
(f) The Paying Agent in its sole discretion shall determine (i)
whether or not elections to retain Shares have been validly made or validly
revoked pursuant to this Section 3.1 and (ii) when elections and revocations
have been received by it. If the Paying Agent determines that any election to
retain Shares was not validly made, such Shares shall be converted in the Merger
into the right to receive the Cash Merger Price (as defined below). The Paying
Agent shall also make all computations as to the allocation and the proration
contemplated by Section 3.3. All determinations and calculations by the Paying
Agent shall be conclusive and binding on the holders of Shares.
Section 3.2 Conversion of Shares. (a) All Shares held in the
treasury of the Company (the "Excluded Shares") shall be canceled and shall
cease to exist as of the Effective Time, without any consideration being payable
therefor.
(b) Notwithstanding anything in this Agreement to the contrary,
Shares which would otherwise constitute Elected Cash Shares hereunder, which are
issued and outstanding immediately prior to the Effective Time and which are
held by stockholders who did not vote in favor of the Merger and who comply with
all of the relevant provisions of Section 262 of the DGCL (the "Dissenting
Shares") shall not be converted into or be exchangeable for the right to receive
the Cash Merger Price (as defined below), but instead shall be converted into
the right to receive payment from the Surviving Corporation with respect to such
Dissenting Shares in accordance with the DGCL, unless and until such holders
shall have effectively withdrawn or lost their rights to appraisal under the
DGCL. If any such holder shall have effectively withdrawn or lost such right,
such holder's Shares shall be converted into the right to receive the Cash
Merger Price (as defined below). The Company shall give prompt notice to the
Investor of any demands received by the Company for appraisal of Shares, and the
Investor shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of the Investor, make any payment with respect to, or
settle or offer to settle, any such demands.
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(c) By virtue of the Merger, each Share issued and outstanding
immediately prior to the Effective Time, other than Excluded Shares and
Dissenting Shares (other than Shares held by the company or any of its
Subsidiaries, which shall be canceled), shall be retained or converted into the
right to receive cash as follows:
(i) Each Share that is an Elected Retained Share and each Share that
is a Non-Elected Retained Share (as hereinafter defined) (in either case,
a "Retained Share") shall be retained by the holder thereof following the
Effective Time, shall remain outstanding and (i) with respect to the
Common Stock, par value $0.01, of the Company (the "Common Stock"), shall
represent one share of Common Stock, par value $0.01, of the Surviving
Corporation and (ii) with respect to the $2.00 Exchangeable Preferred
Stock par value $0.01 of the Company (the "Exchangeable Preferred"; the
Common Stock, collectively, with the Exchangeable Preferred, the
"Shares"), shall represent 1.92604 shares of Common Stock, par value
$0.01, of the Surviving Corporation (shares of the Surviving Corporation
to which a holder shall be entitled pursuant to this Section 3.2(c)(i)
shall be referred to herein as "Retained Surviving Corporation Shares");
and
(ii) Subject to Section 3.3(b), each share of Common Stock that is
an Elected Cash Share of Common Stock shall be converted into the right to
receive from the Surviving Corporation $16.00 in cash (the "Common Stock
Cash Merger Price") and each share of Exchangeable Preferred that is an
Elected Cash Share shall be converted into the right to receive from the
Surviving Corporation $30.82 in cash (the "Exchangeable Preferred Cash
Merger Price"; the Common Stock Cash Merger Price and the Exchangeable
Preferred Cash Merger Price, as applicable, the "Cash Merger Price").
Section 3.3 Proration. (a) Notwithstanding anything in this
Agreement to the contrary, the aggregate number of Retained Shares retained by
holders of Common Stock at their election shall not be less than a number of
Shares equal to 11.1% of the shares of Common Stock outstanding immediately
after the Effective Time (the "Minimum Retained Share Number").
(b) If the Minimum Retained Share Number is greater than the
aggregate number of Shares constituting Elected Retained Shares with respect to
shares of Common Stock (the "Elected Retained Share Number"), then the aggregate
number of shares of Common Stock which shall be converted into the right to
receive cash pursuant to Section 3.2(c)(ii) shall be decreased by a number of
shares of Common Stock equal to the excess of the Minimum Retained Share Number
over the Elected Retained Share Number (each Share included among such excess, a
"Non-Elected Retained Share"). In such event, each holder of a share of Common
Stock which is an Elected Cash Share
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(other than the Investor with respect to Investor Shares) shall be allocated a
portion of the Non-Elected Retained Shares in lieu of Elected Cash Shares
(without giving effect to Section 3.5(e)) equal to (i) the number of Elected
Cash Shares (other than the Investor Shares) with respect to shares of Common
Stock held by such holder, multiplied by (ii) a fraction, the numerator of which
is the number of Non-Elected Retained Shares and the denominator of which is the
aggregate number of Elected Cash Shares held by all holders of shares of Common
Stock (other than the Investor with respect to Investor Shares); provided,
however, that notwithstanding the foregoing, no holder shall be allocated
Non-Elected Retained Shares if such allocation will result in such holder being
allocated Retained Shares in an amount equal to a number which is more than
9.740% of the number of shares of Common Stock owned by such holder prior to the
Effective Time (in which case the excess number of Non-Elected Retained Shares
which would have been allocated to such holder but for this proviso will be
reallocated to the other holders of Shares of Common Stock which are Elected
Cash Shares in accordance with the formula specified in this sentence).
Section 3.4 Conversion of Common Stock of Sub. (a) The shares of
common stock, par value $.01 per share (each a "Sub Share"), of Sub, 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 and become at the Effective Time a number of shares of Common Stock of the
Surviving Corporation equal to the number which is equal to (i) $100,000,000
less a dollar amount equal to (A) the number of Retained Shares multiplied by
(B) $16.00, divided by (ii) $16.00 (the "Investor Share Number").
(b) At the Effective Time, Sub will be capitalized with cash equity
in an amount equal to the Investor Share Number multiplied by $16.00.
Section 3.5 Exchange of Certificates. (a) On or before the Effective
Time of the Merger, Investor shall cause the Company to deposit with the Paying
Agent, for the benefit of the holders of Shares, for payment in accordance with
this Article III, the funds necessary to pay the Cash Merger Price for each
Share.
(b) As soon as practicable after the Effective Time of the Merger,
each holder of an outstanding certificate or certificates which prior thereto
represented Shares, upon surrender to the Paying Agent of such certificate or
certificates (or delivery of such customary affidavits and indemnities with
respect to a lost certificate which the Paying Agent and/or the Company's
transfer agent may reasonably require) and acceptance thereof by the Paying
Agent, shall be entitled to a certificate or certificates representing the
number of full Retained Surviving Corporation Shares, if any, to be retained by
the holder thereof as Retained Surviving Corporation Shares pursuant to this
Agreement and
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the amount of cash, if any, into which the number of Shares previously
represented by such certificate or certificates surrendered shall have been
converted pursuant to this Agreement. The Paying Agent shall accept such
certificates upon compliance with such reasonable terms and conditions as the
Paying Agent may impose to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time of the Merger, there shall
be no further transfer on the records of the Company or its transfer agent of
certificates representing Shares which have been converted, in whole or in part,
pursuant to this Agreement, into the right to receive cash, and if such
certificates are presented to the Company for transfer, they shall be canceled
against delivery of such cash. If any certificate for Retained Surviving
Corporation Shares is to be issued in, or if cash is to be remitted to, a name
other than that in which the certificate for Shares surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed or otherwise
in proper form for transfer and that the person requesting such exchange shall
pay to the Company or its transfer agent any transfer or other taxes required by
reason of the issuance of certificates for such Retained Surviving Corporation
Shares in a name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 3.5(b), each certificate for Shares shall be deemed
at any time after the Effective Time of the Merger to represent only the right
to receive upon such surrender the Cash Merger Price for each Share (other than
any Retained Surviving Corporation Share) and a new certificate for each
Retained Surviving Corporation Share.
(c) No dividends or other distributions with respect to Retained
Surviving Corporation Shares with a record date after the Effective Time of the
Merger shall be paid to the holder of any certificate for Shares not surrendered
with respect to the Retained Shares represented thereby and no cash payment in
lieu of fractional Shares shall be paid to any such holder pursuant to Section
3.5(e) until the surrender of such certificate in accordance with this Article
III. Subject to applicable law, following surrender of any such certificate,
there shall be paid to the holder of the certificate representing whole Retained
Surviving Corporation Shares issued in connection therewith, without interest
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional retained share to which such holder is entitled pursuant to Section
3.5(e) and the proportionate amount of dividends or other distributions with a
record date after the Effective Time of the Merger therefor paid with respect to
such Retained Surviving Corporation Shares, and (ii) at the appropriate payment
date, the proportionate amount of dividends or other distributions with a record
date after the Effective Time of the Merger but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
Retained Surviving Corporation Shares.
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(d) All cash paid upon the surrender for exchange of certificates
representing Shares in accordance with the terms of this Article III (including
any cash paid pursuant to Section 3.5(e)) shall be deemed to have been paid in
full satisfaction of all rights pertaining to the Shares exchanged for cash
theretofore represented by such certificates.
(e) Notwithstanding any other provision of this Agreement, each
holder of Shares retained pursuant to the Merger who would otherwise have been
entitled to retain a fraction of a Retained Surviving Corporation Share (after
taking into account all Shares delivered by such holder) shall receive, in lieu
thereof, a cash payment (without interest) equal to such fraction multiplied by
the applicable Cash Merger Price.
(f) Any cash deposited with the Paying Agent pursuant to this
Section 3.5 (the "Exchange Fund") which remains undistributed to the holders of
the certificates representing Shares 180 days after the Effective Time of the
Merger shall be delivered to the Surviving Corporation at such time and any
holders of Shares prior to the Merger who have not theretofore complied with
this Article III shall thereafter look only to the Surviving Corporation and
only as general unsecured creditors thereof for payment of their claim for cash,
if any.
(g) None of the Sub or the Company or the Paying Agent shall be
liable to any person in respect of any cash from the Exchange Fund delivered to
a public office pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing Shares shall not have been
surrendered prior to two years after the Effective Time of the Merger (or
immediately prior to such earlier date on which any cash in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined below)), any such cash in respect of such
certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(h) The Paying Agent shall invest any cash included in the Exchange
Fund, as directed by the Investor, on a daily basis. Any interest and other
income resulting from such investments shall be paid to the Company. To the
extent that there are losses with respect to such investments, or the Exchange
Fund diminishes for other reasons below the level required to make prompt
payments of the Cash Merger Price as contemplated hereby, Investor shall
promptly replace or restore the portion of the Exchange Fund lost through
investments or other events so as to ensure that the Exchange Fund is, at all
times, maintained at a level sufficient to make such payments.
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(i) The Company shall pay all charges and expenses of the Paying
Agent.
Section 3.6 Stock Options. All options (individually, an "Option"
and collectively, the "Options") outstanding immediately prior to the Effective
Time under any Company stock option plan, whether or not then exercisable, shall
be canceled and each holder of an Option will be entitled to receive from the
Surviving Corporation, for each share of Common Stock subject to an Option, an
amount in cash equal to the excess, if any, of the Merger Consideration over the
per share exercise price of such Option, without interest. All amounts payable
pursuant to this Section 3.6 shall be subject to all applicable withholding of
taxes. The Company shall take all action necessary to effectuate the foregoing,
including obtaining all necessary consents of the holders of Options.
Notwithstanding the foregoing, the Company will use reasonable efforts to cause
the holders of the Options to exercise such Options on or prior to the Effective
Time.
Section 3.7 Stockholders' Meetings. Subject to the provisions or
Sections 8.5 and 10.4, the Company will take all action necessary in accordance
with applicable law and its Certificate of Incorporation and By-laws to convene
a meeting of its stockholders (the "Special Meeting") as promptly as practicable
to consider and vote upon this Agreement and the transactions contemplated
hereby. Subject to the provisions of Sections 8.5 and 10.4, the Board of
Directors of the Company shall recommend such approval and the Company shall
take all lawful action to solicit such approval, including, without limitation,
timely and promptly mailing the Proxy Statement/Prospectus.
Section 3.8 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004, at
9:00 a.m. local time on the day which is no later than 20 business days after
the day on which the last of the conditions set forth in Article VIII (other
than those that can only be fulfilled at the Effective Time) is fulfilled or
waived or at such other time and place as Investor and the Company shall agree
in writing.
Section 3.9 Transfer Taxes. Investor and the Company shall cooperate
in the preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to the fourth sentence of Section 3.5(b) (collectively,
"Transfer Taxes"). The Company will pay all of the Transfer Taxes.
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Section 3.10 Form of Transaction. Investor, at its option, shall
have the right to restructure the Merger to a form of transaction, which may
take the form of a two-step transaction (i.e., a tender offer followed by a
merger) or a one step transaction, pursuant to which all holders of shares of
Common Stock of the Company will receive $16.00 in cash and all holders of
Exchangeable Preferred Stock will receive $30.82 in cash, so long as the other
terms and conditions of such transaction are substantially comparable to the
terms of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company as follows:
Section 4.1 Organization, Standing and Power. Investor is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite power and authority to
carry on its business as now being conducted.
Section 4.2 Authority; Non-Contravention. Investor has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Investor and the consummation by Investor of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
Investor. This Agreement has been duly executed and delivered by Investor and
(assuming the valid authorization, execution and delivery of this Agreement by
the Company) constitutes a valid and binding obligation of Investor enforceable
against Investor in accordance with its terms. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Investor or any of its Subsidiaries
under, any provision of (i) the organizational documents of Investor and any of
its Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Investor or any of its Subsidiaries or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Investor or any of its Subsidiaries or any of their respective properties or
assets, other than, in the case of clauses (ii) or (iii), any such conflicts,
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a Material Adverse Effect
(as
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hereinafter defined) on Investor, materially impair the ability of Investor to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory or
administrative agency, authority or tribunal (a "Governmental Entity") is
required by or with respect to Investor or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by Investor or is necessary
for the consummation of the Merger and the other transactions contemplated by
this Agreement, except for (i) in compliance with the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business, (iii) compliance with any applicable requirement of
the Securities Act of 1933, as amended (the "Securities Act"), (iv) compliance
with any applicable foreign or state securities or blue sky laws (collectively,
"Blue Sky Laws") and (v) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Investor, materially impair the ability of Investor to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. For purposes of this Agreement "Material Adverse Change" or
"Material Adverse Effect" means, when used with respect to Investor, Sub or the
Company, as the case may be, any change or effect, either individually or in the
aggregate, that is or is reasonably likely to be materially adverse to the
business, assets, prospects, liabilities, properties, or financial condition (i)
with respect to Investor, Investor and its Subsidiaries taken as a whole, and
(ii) with respect to the Company, the Company and its Subsidiaries taken as a
whole.
Section 4.3 Financing. Investor has available and will make
available to the Company sufficient funds to enable it to consummate the Merger
on the terms contemplated by this Agreement.
Section 4.4 Brokers. No broker, investment banker or other person,
other than Lazard Freres & Co. LLC, the fees and expenses of which will be paid
by the Investor, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Investor or Sub.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor and Sub as follows:
Section 5.1 Organization, Standing and Power. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite power and authority to carry on their respective businesses as
now being conducted. The Company and each of its Subsidiaries is duly qualified
to do business, and is in good standing, in each jurisdiction where the
character of its respective properties owned or held under lease or the nature
of its respective activities makes such qualification necessary, except where
the failure to be so qualified would not, individually or in the aggregate, have
a Material Adverse Effect on the Company.
Section 5.2 Capital Structure. The authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, par value $0.01 per
share, and 10,000,000 shares of preferred stock, par value $0.01 per share,
issuable in one or more series, of which 2,400,000 shares of $2.00 Convertible
Exchangeable Preferred Stock have been designated. At the close of business on
September 29, 1997, (i) 7,750,000 shares of Common Stock were issued and
outstanding and (ii) 5,222,496 shares of Common Stock were reserved for issuance
upon the exercise of outstanding options, convertible securities and stock
rights in the Company. At the close of business on September 29, 1997, 2,400,000
shares of Exchangeable Preferred Stock were issued and outstanding. All
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable and not subject to preemptive rights. As of September 29,
1997, the Company had granted options to acquire an aggregate of 144,350 shares
of Common Stock at $9.625 to $10.00 per share, pursuant to the Company's 1996
Stock Incentive Plan (the "Stock Plan"). Except as otherwise set forth in this
Section 5.2 or in the Company Disclosure Letter, there are no options, warrants,
rights, commitments, agreements, arrangements or undertakings of any kind to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or any of its
Subsidiaries, including any securities pursuant to which rights to acquire
capital stock became exercisable only after a change of control of the Company
or any of its Subsidiaries or upon the acquisition of a specified amount of the
Common Stock or voting powers of the Company or any of its Subsidiaries. Since
September 29, 1997, no shares of the capital stock of the Company or any of its
Subsidiaries have been issued other than pursuant to the exercise of Company
stock options and warrants already in existence and outstanding on such date,
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or conversion of Exchangeable Preferred Stock, and neither the Company nor any
of its Subsidiaries has granted any stock options, warrants or other rights to
acquire any capital stock of the Company or any of its Subsidiaries. Except as
specified in the Company Disclosure Letter (the "Company Disclosure Letter"),
there are no securities issued by the Company or agreements, arrangements or
other understandings to which the Company is a party giving any person any right
to acquire equity securities of the Surviving Corporation at or following the
Effective Time and all securities, agreements, arrangements and understandings
relating to the right to acquire equity securities of the Company (whether
pursuant to the exercise of options, warrants or otherwise) provide that, at and
following the Effective Time, such right shall entitle the holder thereof to
receive the consideration he would have received in the Merger had he exercised
his right immediately before the Effective Time.
Section 5.3 Subsidiaries. Except as set forth in the Company
Disclosure Letter, (i) the Company owns, directly or indirectly through a
Subsidiary, all of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect directors or
others performing similar functions with respect to such Subsidiary) of each of
the Company's Subsidiaries and (ii) each of the outstanding shares of capital
stock of each of the Company's Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable, and is owned, directly or indirectly, by the
Company free and clear of all liens, pledges, security interests, claims or
other encumbrances. The Company Disclosure Letter sets forth for each Subsidiary
of the Company: (i) its name and jurisdiction of incorporation or organization;
(ii) its authorized capital stock or share capital; (iii) the number of issued
and outstanding shares of capital stock or share capital; and (iv) the holder or
holders of such shares. Except for interests in the Company's Subsidiaries or as
set forth in the Disclosure Letter, neither the Company nor any of its
Subsidiaries owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or other entity.
Section 5.4 Authority; Non-Contravention. The Board of Directors of
the Company has declared the Merger advisable, fair and in the best interests of
the Company and each of the holders of Common Stock and Exchangeable Preferred
Stock, and the Company has all requisite corporate power and authority to enter
into this Agreement and, subject to approval of the Merger by the stockholders
of the Company, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject to
approval of the Merger by the stockholders of the Company. The only votes of the
holders of any class or series of Company capital stock necessary to approve the
Merger are the affirmative votes of the
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holders of a majority of the outstanding shares of Common Stock, voting
separately as a class. This Agreement has been duly executed and delivered by
the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Investor and Sub, as applicable) constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
creditors' rights generally or by general principles of equity. Except as set
forth in the Company Disclosure Letter, the execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under, any
provision of (i) the Certificate of Incorporation, ByLaws or other
organizational documents of the Company or any of its Subsidiaries (true and
complete copies of which as of the date hereof have been delivered to Investor),
or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clause (ii), any such
conflicts, violations, defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company, materially impair the ability of the Company and
its Subsidiaries to perform its material obligations hereunder or prevent the
consummation of any of the material transactions contemplated hereby. No filing
or registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
except for (i) compliance with the provisions of the Exchange Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iii) compliance with any
applicable requirements of the Securities Act, (iv) compliance with any
applicable Blue Sky Laws, (v) those matters including but not limited to,
regulatory consents, approvals and waivers, set forth in the Company Disclosure
Letter, and (vi) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the Company,
materially impair the ability of the Company and its Subsidiaries to perform its
obligations hereunder or prevent the consummation of any of the material
transactions contemplated hereby; it being understood and agreed that the
Company is not making any representation or warranty with respect to third party
consents, waivers or amendments required to be obtained by the Company to
consummate the transactions contemplated hereby.
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Section 5.5 SEC Documents. (a) Since September 1, 1996, the Company
has filed all documents with the SEC required to be filed by the Company under
the Securities Act or the Exchange Act (the "Company SEC Documents"). As of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and none of the Company SEC Documents 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. The Company has
delivered to Investor each registration statement, report, proxy statement or
information statement prepared by it and filed with the SEC, in the form,
including any exhibits or amendments thereto, filed with the SEC (collectively,
the "Company Reports"). The financial statements of the Company included in the
Company SEC Documents and the Company Reports comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto) and fairly present in all material respects the financial position of
the Company as at the dates thereof and the results of its operations and
changes in financial position for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments and to any other
adjustments set forth therein).
(b) Except as set forth in the Company Disclosure Letter, the
Company SEC Documents, the Company Reports or the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has any liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise), except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1997 which would not, individually
or in the aggregate, have a Material Adverse Effect on the Company. Except as
set forth in the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries has any obligation in respect of any rate swap transaction, basis
swap, forward rate transaction, commodity swap, commodity option, equity or
equity index swap, equity or equity index option, bond option, interest rate
option, foreign exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option with
respect to any of the foregoing transactions) or any combination of the
foregoing transactions.
(c) The Company has heretofore made available or promptly shall make
to Investor a complete and correct copy of any amendments or modifications,
which have
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not yet filed with the SEC, to agreements, documents or other instruments which
previously have been filed with the SEC pursuant to the Exchange Act.
Section 5.6 Absence of Certain Events. Except as set forth in the
Company Disclosure Letter, since June 30, 1997, the Company and each of its
Subsidiaries has operated its respective business only in the ordinary course
consistent with past practice and, except as set forth in the Company Disclosure
Letter, there has not occurred (i) as of the date hereof any event, occurrence
or condition which, individually or in the aggregate, has, or is reasonably
likely to have, a Material Adverse Effect on the Company; (ii) any entry into
any commitment or transaction that, individually or in the aggregate, has or is
reasonably likely to have, a Material Adverse Effect on the Company; (iii) any
material change by the Company or any of its Subsidiaries in its accounting
methods, principles or practices; (iv) any amendments or changes in the
Certificate of Incorporation, By-Laws or other organizational documents of the
Company or any of its Subsidiaries; (v) any revaluation by the Company or any of
its Subsidiaries of any of its respective assets, including, without limitation,
write-offs of accounts receivable, other than in the ordinary course of business
consistent with past practices; (vi) any damage, destruction or loss which
resulted in or is reasonably likely to result in a Material Adverse Effect on
the Company; (vii) except with respect to ordinary dividends paid with respect
to the Exchangeable Preferred, any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company or any of its Subsidiaries, or any repurchase, redemption or other
acquisition by the Company or any of its Subsidiaries of any outstanding shares
of capital stock or other securities of, or other ownership interests in, the
Company or any of its Subsidiaries; (viii) any grant of any severance or
termination pay to any director or executive officer of the Company or any of
its Subsidiaries; (ix) any entry into any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement) with
any director or executive officer of the Company or any of its Subsidiaries; (x)
any increase in benefits payable under any existing severance or termination pay
policies or employment agreements with any director or executive officer of the
Company or any of its Subsidiaries; or (xi) any increase in compensation, bonus
or other benefits payable to directors or executive officers of the Company or
any of its Subsidiaries.
Section 5.7 Litigation. Except as set forth in the Company
Disclosure Letter, there are no actions, suits or proceedings pending against
the Company or any of its Subsidiaries or, to the knowledge of the Company or
any of its Subsidiaries, threatened against the Company or any of its
Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency, regulatory or administrative instrumentality
or other Governmental Entity or any arbitrator or arbitration tribunal, that are
reasonably likely to have a Material Adverse Effect on the
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Company, and, to the knowledge of the Company or any of its Subsidiaries, no
development has occurred with respect to any pending or threatened action, suit
or proceeding that is reasonably likely to result in a Material Adverse Effect
on the Company or would prevent or delay the consummation of the transactions
contemplated hereby.
Section 5.8 Compliance with Law. (a) Except as set forth in the
Company Disclosure Letter, to the knowledge of the Company, (i) neither the
Company nor any of its Subsidiaries is the subject of any investigation, nor
(ii) has any investigation or prosecution or other action been threatened by any
Governmental Entity or any private entity or person regarding non-compliance
with any law and (iii) no basis exists for any such investigation or prosecution
which is reasonably likely to have a Material Adverse Effect on the Company.
None of the Company or any of the Subsidiaries may reasonably be expected to
have criminal culpability or to be excluded from participation in the Medicare
and Medicaid programs and any other health care program operated by or financed
in whole or in part by any Governmental Entity (a "Medical Reimbursement
Program") for its corporate actions or failure to act. To the knowledge of the
Company, there is no executive officer of the Company or any Subsidiary
continuing to be employed by the Company or any of the Subsidiaries who is
reasonably likely to have individual culpability for matters under investigation
by the Office of the Inspector General of the United States Department of Health
and Human Services ("OIG") or other Governmental Entity.
(b) Current billing policies, arrangements, protocols and
instructions of the Company and its Subsidiaries related to services covered by
Medical Reimbursement Programs comply in all material respects with applicable
requirements of Medical Reimbursement Programs. The Company and each of its
Subsidiaries has complied with all applicable third party payor billing
policies, procedures, limitations and restrictions, and there is no pending or,
to the knowledge of the Company, threatened recoupment or penalty action or
proceedings against the Company or any of its Subsidiaries under any other third
party payor, except for such non-compliance, actions or proceedings that
individually or in the aggregate would not have a Material Adverse Effect on the
Company. The current operations of the Company and its Subsidiaries do not
require compliance with Medicare, Blue Cross/Blue Shield or CHAMPUS policies,
procedures, limitations or restrictions.
(c) Except as set forth in the Company Disclosure Letter, the
Company and each of its Subsidiaries has obtained, and maintains in force, all
licenses, permits, franchises, certificates of authority, orders and waivers
required from any Governmental Entity ("Permits") to operate their respective
businesses in the manner in which they are currently operated and to occupy,
operate and use any buildings, improvements, fixtures
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and equipment owned or leased in connection with the operation of assisted
living facilities to provide the services currently provided by the Company and
its Subsidiaries at all locations of the Company and its Subsidiaries, and all
such Permits are valid and in full force and effect with only such exceptions
that would not, individually or in the aggregate, have a Material Adverse Effect
on the Company. Except as specified in the Company Disclosure Letter, all of the
Permits referenced in the foregoing sentence have been issued in the name of the
Company or the applicable Subsidiary having an ownership, leasehold, management
or operational interest in the facilities referenced therein. Except as set
forth in the Company Disclosure Letter, no Permits of the Company or any
Subsidiary have been suspended, canceled or terminated and, to the knowledge of
the Company and its Subsidiaries, no suspension, cancellation or termination of
any such Permits is threatened or imminent. To the knowledge of the Company,
each employee of the Company and each of its Subsidiaries (including, but not
limited to, each facility administrator) has obtained, and maintains in force,
all licenses, permits or similar authorizations required to authorize such
employee to perform his or her duties on behalf of the Company and its
Subsidiaries with only such exceptions that, individually and in the aggregate,
would not have a Material Adverse Effect on the Company.
(d) Neither the Company nor any of its Subsidiaries, nor, to the
knowledge of the Company, any director, officer or employee of the Company or
any of its Subsidiaries acting for or on behalf of the Company or any of its
Subsidiaries, has paid or caused to be paid, directly or indirectly, in
connection with the business of the Company or any of its Subsidiaries: (i) any
bribe, kickback or other similar payment to any Governmental Entity or any agent
of any supplier or customer; or (ii) any contribution to any political party or
candidate (other than from personal funds of directors, officers or employees
not reimbursed by their respective employers or in compliance with applicable
law).
(e) The Company and its Subsidiaries do not provide services that
are covered by the Medicare program and do not participate in the Medicare
program. The Company and each of its Subsidiaries has filed or will timely file
all material claims or other reports required to be filed with respect to the
purchase of services by third-party payors, including, but not limited to, the
Medical Reimbursement Programs. All such claims or reports are or will be
complete and accurate in all material respects. The Company and each of its
Subsidiaries has paid or has properly recorded on the Company's financial
statements all actually known and undisputed refunds, discounts or adjustments
which have become due pursuant to such claims, and neither the Company nor any
of its Subsidiaries has any material liability to any payor with respect
thereto, except as has been fully reserved for in the Company's financial
statements. Neither the Company nor any of its Subsidiaries, nor, to the
knowledge of the Company, any of their
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respective directors or officers has been convicted of, or plead guilty or nolo
contendere to, patient abuse or neglect, or any other Medicare program-related
offense.
(f) The Company, each of its Subsidiaries, and their respective
directors, officers and employees and the other persons and entities providing
professional services for the Company and its Subsidiaries, have not engaged in
any activities which are in violation of Sections 1128A, 1128B, 1128C or 1877 of
the Social Security Act (42 U.S.C. ss.ss. 1320a-7a, 1320a-7b, 1320a-7c and
1395nn), the False Claims Act (31 U.S.C. ss. 3729 et seq.), the False Statements
Acts (18 U.S.C. ss. 2002), the Program Fraud Civil Penalties Act (31 U.S.C. ss.
3801 et seq.), or related regulations or other federal or state laws and
regulations, including, but not limited to, the following:
(i) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(ii) knowingly and willfully making or causing to be made a false
statement or representation of a material fact for use in determining
rights to any benefit or payment;
(iii) failure to disclose knowledge by a Medicare or Medicaid
claimant or a claimant under any Medical Reimbursement Program of the
occurrence of any event affecting the initial or continued right to any
benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment;
(iv) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or kind (i) in return
for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in
whole in or part by any Medical Reimbursement Program or (ii) in return
for purchasing, leasing, or ordering, or arranging, or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service,
or item for which payment may be made in whole or in part by any Medical
Reimbursement Program; or
(v) referring or billing a patient for designated health services
(as defined in 42 U.S.C. ss. 1395nn) or providing designated health
services to a patient upon a referral from an entity or person with which
the physician or an immediate family member has a financial relationship,
and to which no exception under 42 U.S.C. ss. 1395nn applies.
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Section 5.9 Employee Plans. (a) The Company and each of its
Subsidiaries has complied with and performed all contractual obligations and all
obligations under applicable federal, state and local laws, rules and
regulations (domestic and foreign) required to be performed by it under or with
respect to any of the Company Benefit Plans (as hereinafter defined) or any
related trust agreement or insurance contract, other than where the failure to
so comply or perform does not have, nor is reasonably likely to have, a Material
Adverse Effect on the Company. All contributions and other payments required to
be made by the Company or any of its Subsidiaries to any Company Benefit Plan or
Multiemployer Plan (as hereinafter defined) prior to the date hereof have been
made, other than where the failure to so contribute or make payments will not
have, nor is reasonably likely to have, a Material Adverse Effect on the
Company, and all material accruals required to be made with respect to any
Company Benefit Plan or Multiemployer Plan have been made. There is no claim,
dispute, grievance, charge, complaint, restraining or injunctive order,
litigation or proceeding pending, or, to the knowledge of the Company,
threatened (other than routine claims for benefits) against or relating to any
Company Benefit Plan or against the assets of any Company Benefit Plan, which is
reasonably likely to have a Material Adverse Effect on the Company. The Company
and each of its Subsidiaries has not made any promises or commitments to
employees or specifically to any employee regarding any future increase of
benefit levels (or future creations of new benefits) with respect to any Company
Benefit Plan beyond those reflected in the Company Benefit Plans, which benefit
increases or creations, either individually or in the aggregate, will have or
are reasonably likely to have, a Material Adverse Effect on the Company. The
Company and each of its Subsidiaries does not presently sponsor, maintain,
contribute to, nor is the Company required to contribute to, nor has the Company
or any of its Subsidiaries ever sponsored, maintained, contributed to, or been
required to contribute to, any employee pension benefit plan within the meaning
of section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or any multiemployer plan within the meaning of section 3(37)
or 4001(a)(3) of ERISA, other than those plans set forth in the Company
Disclosure Letter.
(b) Except as set forth in the Company Disclosure Letter, each
Company Benefit Plan can be terminated or otherwise discontinued without
material liability to the Company or any of its Subsidiaries. With respect to
each Company Benefit Plan subject to Title IV of ERISA, (i) no termination of
any Company Benefit Plan has occurred pursuant to which all liabilities have not
been satisfied in full, and no event has occurred and no condition exists that
could reasonably be expected to result in the Company or any of its Subsidiaries
incurring a liability under Title IV of ERISA or could constitute grounds for
terminating any Plan (as hereinafter defined); (ii) each such Company Benefit
Plan which is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412
of the Internal Revenue Code of 1986, as amended (the "Code"), has been
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maintained in compliance with the minimum funding standards of ERISA and the
Code and no such Company Benefit Plan has incurred any "accumulated funding
deficiency," as defined in Section 412 of the Code and Section 302 of ERISA,
whether or not waived; (iii) neither the Company nor any of its Subsidiaries has
sought or received a waiver of its funding requirements with respect to any
Company Benefit Plan and all contributions payable with respect to each Plan
have been timely made; (iv) no reportable event, within the meaning of Section
4043 of ERISA, and no event set forth in Section 4062 or 4063 of ERISA, has
occurred with respect to any Company Benefit Plan; and (v) the aggregate
accumulated benefit obligations of each Company Benefit Plan subject to Title IV
of ERISA (as of the date of the most recent actuarial valuation prepared for
such Company Benefit Plan) do not exceed the fair market value of the assets of
such Company Benefit Plan (as of the date of such valuation).
(c) Neither the Company nor any of its Subsidiaries has incurred,
nor has any event occurred which has imposed or is reasonably likely to impose
upon the Company or any of its Subsidiaries, any withdrawal liability (partial
or complete) in respect of any multiemployer plan (within the meaning of Section
3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan"), which withdrawal
liability has not been satisfied or discharged in full or which, either
individually or in the aggregate, will cause, or is reasonably likely to cause,
a Material Adverse Effect on the Company.
(d) Except as set forth in the Company Disclosure Letter, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby will not result in the imposition of any federal excise tax
under Section 4975 of the Code with respect to any Company Benefit Plan.
(e) Except as set forth in the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries maintains or contributes to (or has
maintained or contributed to) any Company Benefit Plan which provides, or has a
liability to provide, life insurance, medical, severance, or other employee
welfare benefit to any employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code.
(f) (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA and (ii) "Company Benefit
Plan" means any employee pension benefit plan and any Plan, other than a
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Multiemployer Plan, established by the Company or any of its Subsidiaries or to
which the Company or any of its Subsidiaries contributes or has contributed
(including any such Plans not now maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries does not now
contribute, but with respect to which the Company or any of its Subsidiaries has
or may have any liability). Copies of all Plans (and, if applicable, related
trust agreements) and all amendments thereto and written interpretations thereof
and the two most recent Forms 5500 required to be filed with respect thereto
shall be promptly furnished to Investor after the date of this Agreement. The
Company Disclosure Letter sets forth each Plan with respect to which benefits
will be accelerated, vested, increased or paid as a result of the transactions
contemplated by this Agreement.
Section 5.10 Employment Relations and Agreement. (a) Except as set
forth in the Company Disclosure Letter, and except as would not constitute a
Material Adverse Effect on the Company, (i) the Company and each of its
Subsidiaries is, and at all times has been, in compliance in all material
respects with all federal, state or other applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, and has not and is not engaged in any unfair labor practice; (ii) no
unfair labor practice complaint against the Company or any of its Subsidiaries
is pending before the National Labor Relations Board; (iii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the knowledge of
the Company, threatened against or involving the Company or any of its
Subsidiaries; (iv) no representation question exists and there has been no
effort to organize unorganized employees of the Company or any of its
Subsidiaries; (v) neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement; (vi) no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries; and (vii)
neither the Company nor any of its Subsidiaries has experienced any material
labor difficulty during the last three years. Except as set forth in the Company
Disclosure Letter, as of the date of this Agreement, to the knowledge of the
Company, there has not been any change in relations with employees of the
Company and its Subsidiaries as a result of the transactions contemplated by
this Agreement which could have a Material Adverse Effect on the Company.
(b) Except as set forth in the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries has any written, or to the knowledge of
the Company, any binding oral employment agreement ("Employment Agreements")
which is not terminable by the Company and its Subsidiaries with payment or
penalty of less than $20,000. Copies of all Employment Agreements and all
amendments thereto were furnished to Investor prior to the date hereof.
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Section 5.11 Contracts. (a) Neither the Company nor any of its
Subsidiaries is in default under or in violation of any provision of any
Contract (as hereinafter defined), except for such defaults or violations which
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect on the Company.
(b) Except as set forth in the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries is a party to or bound by any:
(i) employment agreement or employment contract that has an
aggregate future liability in excess of $500,000 and is not terminable by
the Company or a Subsidiary by notice of not more than 60 days for a cost
of less than $100,000;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant of the Company or a Subsidiary not to compete;
(iv) agreement, contract or other arrangement with any current
or former officer, director, or affiliate or relative thereof, of the
Company or any Subsidiary (other than employment agreements covered by
clause (i) above);
(v) lease, sublease or similar agreement involving annual
payments in excess of $100,000 with any person (other than the Company or
a Subsidiary) under which the Company or a Subsidiary is a lessor or
sublessor of, or makes available for use to any person (other than the
Company or a Subsidiary), (A) any Company Property (as hereinafter
defined) or (B) any portion of any premises otherwise occupied by the
Company or a Subsidiary;
(vi) lease or similar agreement with any person (other than
the Company or a Subsidiary) under which (A) the Company or a Subsidiary
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by any person or (B) the Company or a
Subsidiary is a lessor or sublessor of, or makes available for use any
person, any tangible personal property owned or leased by the Company or a
Subsidiary, in any such case which has an aggregate annual future
liability or receivable, as the case may be, in excess of $100,000 and is
not terminable by the Company or a Subsidiary by notice of not more than
60 days for a cost of less than $100,000;
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(vii) (A) continuing contract for the future purchase of
materials, supplies or equipment (other than purchase contracts and orders
for inventory in the ordinary course of business consistent with past
practice) in excess of $100,000 annually, (B) management, service,
consulting or other similar type of contract or (C) advertising agreement
or arrangement, in any such case which has an aggregate future liability
to any person (other than the Company or a Subsidiary) in excess of
$100,000 and is not terminable by the Company or a Subsidiary by notice of
not more than 60 days for a cost of less than $100,000;
(viii) material license, option or other agreement relating in
whole or in part to intellectual property (including any license or other
agreement under which the Company or a Subsidiary is licensee or licensor
of any such intellectual property);
(ix) agreement, contract or other instrument under which the
Company or a Subsidiary has borrowed any money from, or issued any note,
bond, debenture or other evidence of indebtedness to, any person (other
than the Company or a Subsidiary) or any other note, bond, debenture or
other evidence of indebtedness issued to any person (other than the
Company or a Subsidiary);
(x) agreement, contract or other instrument (including
so-called take-or-pay or keepwell agreements) under which (A) any person
(including the Company or a Subsidiary) has directly or indirectly
guaranteed indebtedness, liabilities or obligations of the Company or a
Subsidiary or (B) the Company or a Subsidiary has directly or indirectly
guaranteed indebtedness, liabilities or obligations of any person (in each
case other than endorsements for the purpose of collection in the ordinary
course of business);
(xi) other than inter-company guarantees, agreement, contract
or other instrument under which the Company or a Subsidiary has, directly
or indirectly, made any advance, loan, extension of credit or capital
contribution in excess of $100,000 to, or other investment in, any person
(other than the Company or a Subsidiary);
(xii) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any Company
Property;
(xiii) agreement or instrument providing for indemnification
of any person with respect to liabilities relating to any current or
former business of the Company, a Subsidiary or any predecessor person
exclusive of indemnifications
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included in other documents listed in the Company Disclosure Letter or
granted to sellers of real property owned or leased by the Company or its
affiliates; or
(xiv) any other material agreement, contract, management
contract, lease, license, commitment or instrument to which the Company or
any Subsidiary is a party or by or to which it or any of its assets or
business is bound or subject, not covered by any of the categories
specified in clauses (i) through (xiii) above.
Except as set forth in the Company Disclosure Letter, all
agreements, contracts, leases, licenses, commitments or instruments of the
Company or any Subsidiary listed in the Company Disclosure Letter (collectively,
the "Contracts") are valid, binding and in full force and effect and are
enforceable by the Company or the relevant Subsidiary in accordance with its
terms. Except as set forth in the Company Disclosure Letter, the Company and the
Subsidiaries have performed all material obligations required to be performed by
them to date under the Contracts and they are not (with or without the lapse of
time or the giving of notice, or both) in breach or default in any material
respect thereunder and, to the knowledge of the Company and its Subsidiaries, no
other party to any of the Contracts is (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder. Except as set forth in the Company Disclosure Letter there are no
change of control or similar provisions or any obligations arising under any
Contract which are created, accelerated or triggered by the execution, delivery
or performance of this Agreement or the consummation of the transactions
contemplated hereby or thereby.
Section 5.12 Environmental Laws and Regulations. (a) Except as
disclosed in the Company Disclosure Letter, (i) the Company and each of its
Subsidiaries is in compliance with all applicable federal, state and local laws,
statutes, ordinances, rules and regulations, and all amendments thereto relating
to pollution or protection of human health or safety, health or safety of
employees, sanitation, or the environment, emissions, discharges,
disseminations, releases or threatened releases, of Hazardous Materials (as
hereinafter defined) into the air (indoor and outdoor), surface water,
groundwater, soil, land surface or subsurface, buildings, facilities, real or
personal property or fixtures or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Materials (collectively,
"Environmental Laws"), which compliance includes, but is not limited to, the
possession by the Company and its Subsidiaries of all permits, licenses,
registrations, consents and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; except for non-compliance that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company, (ii) neither the Company nor
any of its Subsidiaries has received written notice of, or, to the knowledge of
the Company or any
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of its Subsidiaries, is the subject of, any action, claim, investigation, demand
or notice by any person or entity alleging liability under or non-compliance
with any Environmental Law (an "Environmental Claim") that, individually or in
the aggregate, would have a Material Adverse Effect on the Company; (iii)
neither the Company nor any of its Subsidiaries has received any written notice
or other communication that it is or may be a potentially responsible person or
otherwise liable in connection with any waste disposal site allegedly containing
any Hazardous Materials, or other location used for the disposal of any
Hazardous Materials; and (iv) to the knowledge of the Company and its
Subsidiaries, there are no circumstances that are reasonably likely to prevent
or interfere with the continued compliance of the Company and its Subsidiaries
with all Environmental Laws, or could form the basis of an Environmental Claim,
except for such circumstances which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
(b) Except as disclosed in the Company Disclosure Letter, there are
no Environmental Claims which, individually or in the aggregate, would have a
Material Adverse Effect on the Company that are pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries or, to
the knowledge of the Company or any of its Subsidiaries, against any person or
entity whose liability for an Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(c) Except as disclosed in the Company Disclosure Letter, there has
been no spill, discharge, leak, emission, injection, disposal, escape, dumping
or release of any kind on, beneath, above or into the real property owned,
leased, operated, used or in which any other interest is maintained by the
Company or any of its Subsidiaries or any predecessor entity of the Company or
any of its Subsidiaries, or previously owned by, used by, operated by or leased
to the Company or any of its Subsidiaries or any predecessor entity of the
Company or any of its Subsidiaries (collectively, the "Property"), at any time
and by any person or entity, of any pollutants, contaminants, hazardous
substances, hazardous chemicals, toxic substances, hazardous wastes, infectious
agents or wastes, radioactive materials, pesticides, explosives, flammables,
corrosives, petroleum (including any by-product or any fraction thereof),
asbestos, polychlorinated byphenyls ("PCBs") or solid wastes, including but not
limited to those defined in any Environmental Law (collectively, "Hazardous
Materials"), except such of the foregoing occurrences as will not have a
Material Adverse Effect on the Company.
(d) Except as disclosed in the Company Disclosure Letter, (i) There
has been no past, and there is no current or anticipated storage, disposal,
generation, manufacture, refinement, transportation, production or treatment of
any Hazardous Materials at, upon or from the Property except such Hazardous
Materials that are used
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and maintained in the ordinary course of the Companies and its Subsidiaries
business and are used and maintained in compliance with applicable Environmental
Laws; (ii) no asbestos or asbestos-containing materials or PCBs are on any
Property; and (iii) there are no underground storage tanks ("UST"), incinerators
or surface impoundments on the Property, nor has any UST been removed during the
past 5 years.
Section 5.13 Property and Leases. (a) The Company Disclosure Letter
sets forth a complete and accurate list and the address of all real property and
interests in real property owned in fee by the Company and the Subsidiaries
(individually, an "Owned Property"). The Company Disclosure Letter sets forth a
complete list of all real property and interests in real property leased by the
Company and the Subsidiaries (individually, a "Leased Property"). The Company or
a Subsidiary has (i) good and insurable fee title to all Owned Property and (ii)
good and valid title to the leasehold estates in all Leased Property (an Owned
Property or Leased Property being sometimes referred to herein, individually, as
a "Company Property" and, collectively, as "Company Properties"), in each case
free and clear of all mortgages, liens, security interests, encumbrances,
leases, assignments, subleases, easements, covenants, rights-of-way and other
similar restrictions of any nature whatsoever, except (A) such as are set forth
in the Company Disclosure Letter, (B) exceptions specified in the Title Policies
(as hereinafter defined), (C) Permitted Liens (as hereinafter defined), (D)
financing statements, easements, covenants, rights-of-way and other similar
restrictions of record and (E) (I) zoning, building and other similar
restrictions, (II) mortgages, liens, security interests, encumbrances,
easements, covenants, rights-of-way and other similar restrictions that have
been placed by any developer, landlord or other third party on property over
which the Company or any Subsidiary has easement rights or on any Leased
Property and subordination or similar agreements relating thereto, and (III)
unrecorded easements, covenants, rights-of-way and other similar restrictions,
none of which items set forth in clauses (I), (II) and (III), individually or in
the aggregate, materially impair the continued use and operation of the property
to which they related in the business of the Company and the Subsidiaries, taken
as a whole, as presently conducted. Except as set forth on the Company
Disclosure Letter, to the knowledge of the Company and its Subsidiaries, the
current use by the Company and the Subsidiaries of the offices and other
facilities located on Company Property does not violate any local zoning or
similar land use or government regulations in any material respect. Except as
set forth in the Company Disclosure Letter, title insurance policies (or marked
title insurance commitments having the same force and effect as title insurance
policies) have been issued by national title insurance companies insuring the
fee simple title of the Company or its Subsidiaries, as applicable, to each of
the Owned Properties, subject only to the matters set forth therein (the "Title
Policies"), and, to the knowledge of the Company and its Subsidiaries, the Title
Policies are valid and in full force and effect and no claim has been made under
any such policy. As used in this Agreement, the term "Liens" shall mean all
liens, mortgages,
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deeds of trust, deeds to secure debt, security interests, pledges, claims,
charges, easements and other encumbrances of any nature whatsoever. As used in
this Agreement, the term "Permitted Liens" shall mean (i) Liens for taxes or
other assessments or charges of Governmental Entities that are not yet
delinquent or that are being contested in good faith by appropriate proceedings,
in each case, with respect to which adequate reserves are being maintained by
the Company or its Subsidiaries to the extent required by GAAP, (ii) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
Liens imposed by law and created in the ordinary course of business for amounts
not yet overdue or which are being contested in good faith by appropriate
proceedings, in each case, with respect to which adequate reserves or other
appropriate reserves are being maintained by the Company or its Subsidiaries to
the extent required by GAAP, (iii) easements, rights-of-way, covenants and
restrictions which do not (x) interfere materially with the ordinary conduct of
any Company Property or the business of the Company and its Subsidiaries as a
whole or (y) detract materially from the value or usefulness of the Company
Properties to which they apply and (iv) the other Liens, if any, specified in
the Company Disclosure Letter.
(b) The Company Disclosure Letter sets forth a complete and accurate
list of all material commitments, letters of intent or similar written
understandings made or entered into by the Company or any of its Subsidiaries as
of the date hereof (x) to sell, mortgage, pledge or hypothecate any Owned
Properties, which, individually or in the aggregate, are material, or to
otherwise enter into a material transaction in respect of the ownership or
financing of any Company Property or (y) to purchase or to acquire an option,
right of first refusal or similar right in respect of any real property, which,
individually or in the aggregate, are material. The Company has delivered to
Investor a true and complete copy of each such commitment, letter of intent or
other understanding. The Company Disclosure Letter also sets forth a complete
and accurate list of all agreements to purchase real property to which the
Company or any Subsidiary is a party.
(c) Except as set forth in the Company Disclosure Letter, none of
the Company Properties is subject to any outstanding purchase options nor has
the Company or any of its Subsidiaries entered into any outstanding contracts
with others for the sale, mortgage, pledge, hypothecation, assignment, sublease,
lease or other transfer of all or any part of any Company Property, and no
person has any right or option to acquire, or right of first refusal with
respect to, the Company's or any of its Subsidiaries' interest in any Company
Property or any part thereof. Except as set forth in the Company Disclosure
Letter, none of the Company or any of its Subsidiaries has any outstanding
options or rights of first refusal or has entered into any outstanding contracts
with others for the purchase of any real property.
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(d) The Company will deliver to Investor prior to the Effective Time
a capital expenditure budget and schedule for each Company Property, which
describes the capital expenditures which the Company or any Subsidiary has
budgeted for such Company Property for the period ending December 31, 1997 (the
"Capital Expenditure Budget and Schedule"). Except as set forth in the Capital
Expenditure Budget and Schedule there are no capital expenditure budgets or
projections for periods after December 31, 1996 except for the Company's
financial projections for 1998 and 1999 which have heretofore been furnished to
Investor. The costs and time schedules set forth in the Capital Expenditure
Budget and Schedule are reasonable estimates and projections. Except as set
forth in the Company Disclosure Letter, there are no outstanding or, to the
knowledge of the Company, threatened requirements by any insurance company which
has issued an insurance policy covering any Company Property, or by any board of
fire underwriters or other body exercising similar functions, requiring any
repairs or alterations to be made to any Company Property that would,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect on the Company.
(e) The Company will deliver to Investor prior to the Effective Time
a list of each Company Property which consists of or includes undeveloped land
or which is in the process of being developed or redeveloped (collectively, the
"Development Properties") and a brief description of the development or
redevelopment intended by the Company or any Subsidiary to be carried out or
completed thereon (collectively, the "Projects"), including any budget and
development schedule therefor prepared by or for the Company or any Subsidiary
(collectively, the "Development Budget and Schedule"). The Company Disclosure
Letter sets forth all agreements, permits, licenses, consents and authorizations
which have been entered into or obtained with respect to each Development
Property. To the knowledge of the Company and its Subsidiaries, there are no
material impediments to or constraints on the development or redevelopment of
any Project in all material respects within the time frame and for the cost set
forth in the Development Budget and Schedule applicable thereto. In the case of
each Project the development of which has commenced, to the knowledge of the
Company and its Subsidiaries, the costs and expenses incurred or to be incurred
in connection with such Project and the progress thereof are consistent and in
compliance in all material respects with the Development Budget and Schedule
applicable thereto. The Company has made available to Investor all feasibility
studies, soil tests, due diligence reports and other studies, tests or reports
performed by or for the Company at any time since the Company's initial public
offering, which relate to the Development Properties or the Projects.
(f) The Company and each of its Subsidiaries have good and
sufficient title to all the personal and non-real properties and assets
reflected in their books and
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records as being owned by them, free and clear of all Liens, except for
Permitted Liens which are not, individually or in the aggregate, reasonably
expected to have a Material Adverse Effect on the Company.
Section 5.14 Patents, Trademarks, Copyrights. (a) All patents and
patent applications owned by or licensed to or used by the Company or any of its
Subsidiaries that are listed in the Company Disclosure Letter have been duly
filed in or issued by the United States Patent and Trademark Office or the
corresponding offices of other countries or other jurisdictions to the extent
set forth in the Company Disclosure Letter, and have been properly maintained in
accordance with all applicable provisions of law and administrative regulations
in the United States and each such country or other jurisdictions. Except as set
forth in the Company Disclosure Letter: (i) the use of such patents by the
Company and its Subsidiaries does not require the consent of any third party;
(ii) such patents are freely transferable and are owned exclusively by the
Company and its Subsidiaries free and clear of any attachments, liens,
royalties, encumbrances, adverse claims, licenses or any other ownership or
other interest of any other person whatsoever; (iii) no person has a license
from the Company or any of its Subsidiaries to use any of such patents or any
claim which may arise from the existence of such patent applications; (iv) no
outstanding order, decree, judgment or stipulation, and no proceeding charging
the Company or any of its Subsidiaries with infringement of any adversely held
patent has been served upon the Company or any of its Subsidiaries at any time
during the five-year period prior to and ending on the date hereof or, to the
best of the knowledge of the Company and its Subsidiaries, is threatened to be
filed; (v) the conduct of the business of the Company and its Subsidiaries as
now conducted or proposed to be conducted will not result in the infringement of
any of such patents; and (vi) to the best of the knowledge of the Company and
its Subsidiaries, no person is infringing upon any of such patents.
(b) The Company and its Subsidiaries own or possess all other
adequate licenses or other valid rights to use all other material patents,
patent rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, know-how and other proprietary information used or held for use in
connection with the business of the Company and its Subsidiaries as currently
being conducted and is unaware of any assertions or claims challenging the
validity of any of the foregoing. The conduct of the business of the Company and
its Subsidiaries as now conducted does not conflict with any patents, patent
rights, licenses, trademarks, trademark rights, trade names, trade name rights
or copyrights of others in any material way, which is reasonably likely to have
a Material Adverse Effect on the Company. No material infringement of any
proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries is known to the Company or any of its Subsidiaries.
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Section 5.15 Insurance. The Company and each of its Subsidiaries has
been and is insured by financially sound and reputable insurers unaffiliated
with the Company or any of its Subsidiaries with respect to its property and the
conduct of its business in such amounts and against such risks as are reasonably
adequate to protect its properties and business, including, without limitation,
comprehensive general liability (including, without limitation, automotive,
public risk, property and directors' and officers' liability) and products
liability insurance.
Section 5.16 Takeover Statutes. The Board of Directors of the
Company has taken all appropriate action so that neither Investor nor Sub will
be an "interested stockholder" within the meaning of Section 203 of the Act, by
virtue of the Investor's or Sub's entry into this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereunder and
thereunder.
Section 5.17 Taxes. Except as set forth in the Company Disclosure
Letter, (i) the Company and each of its Subsidiaries has filed all material Tax
Returns (as hereinafter defined) required to have been filed, which returns are
true and complete in all material respects; (ii) the Company and each of its
Subsidiaries has duly paid or made provision on its books for the payment of all
material Taxes (as hereinafter defined) (including material estimated Taxes and
any interest or penalties) which are due and payable (whether or not shown on
any such Tax Returns), and the Company has and each of its Subsidiaries has
withheld or collected and paid over pursuant to applicable law all material
Taxes they are required to withhold and collect, (iii) neither the Company nor
any of its Subsidiaries has waived any statute of limitations in respect of
material Taxes of the Company or any of its Subsidiaries; (iv) no issues that
have been raised in writing by the relevant taxing authority in connection with
the examination of the Tax Returns referred to in clause (i) are currently
pending; and (v) all deficiencies asserted or assessments made as a result of
any examination of the Tax Returns referred to in clause (i) by a taxing
authority have been paid in full. For purposes of this Agreement (a) "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means any federal, state, local
or foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any governmental authority,
and (b) "Tax Return" means any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
Section 5.18 No Change of Control. Except as set forth in the
Company Disclosure Letter, the consummation of the Merger and the transactions
contemplated by
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this Agreement will not constitute a "change of control" or similar event under
any contract or agreement of the Company giving use to a right to terminate or
accelerate or resulting in an event of default thereunder or an increase in the
Company's obligations thereunder. Copies of any such contracts or agreements and
all amendments thereto will be promptly furnished to Investor after the date of
this Agreement.
Section 5.19 Brokers. No broker, investment banker or other person,
other than the Financial Advisor, the fees and expenses of which will be paid by
the Company, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. A copy of the
engagement letter between the Financial Advisor and the Company setting forth
the fees and expenses to be paid by the Company in connection with the
transactions contemplated by this Agreement has been provided to Investor.
Section 5.20 Disclosures. This Agreement and the Company Disclosure
Letter, taken as a whole, do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
Section 5.21 Company Disclosure Letter. All of the provisions of any
agreement, document or other item listed on The Company Disclosure Letter are
deemed set forth in the Company Disclosure Letter.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Investor and Sub jointly and severally represent and warrant to the
Company as follows:
Section 6.1 Organization and Standing. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is wholly owned by Investor and was organized solely for the
purpose of acquiring the Company and engaging in the transactions contemplated
by this Agreement and has not engaged in any business since it was incorporated
which is not in connection with the acquisition of the Company and this
Agreement.
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Section 6.2 Authority; Non-Contravention. Sub has the requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Sub of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and Investor as its sole stockholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of Sub
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by Sub
and (assuming the due authorization, execution and delivery hereof by the
Company) constitutes a valid and binding obligation of Sub enforceable against
Sub in accordance with its terms, except as the enforceability thereof may be
limited by creditors' rights generally or by general principles of equity. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Sub under, any provision
of (i) the Articles of Incorporation or By-Laws of Sub, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Sub or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Sub or any of its properties or assets, other than, in the case of
clauses (ii) or (iii), any such conflicts, violations, defaults, rights, liens,
security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Sub, materially impair
the ability of Sub to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 7.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise expressly contemplated by this Agreement or as set forth in
the Company Disclosure Letter and except as contemplated by the Current
Operating Plan and Budget of the Company and its subsidiaries, attached hereto
as Exhibit A (including the right to substitute projects of substantially
similar characteristics), during the period from the date of this Agreement
through the Effective Time, the Company shall, and shall cause each or its
Subsidiaries to, in all material respects carry on its business in, and not
enter into any material transaction other than in accordance with, the regular
and ordinary course and, to the extent consistent therewith, use its reasonable
best efforts to
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preserve intact its current business organization, keep available the services
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it. Without
limiting the generality of the foregoing, and except as otherwise expressly
contemplated by this Agreement or as set forth in the Company Disclosure Letter,
and except as contemplated by the Current Operating Plan and Budget of the
Company and its Subsidiaries, attached hereto as Exhibit A, and subject to the
provisions of Sections 8.5 and 10.4, the Company shall not, and shall cause each
of its Subsidiaries not to, without the prior written consent of Investor:
(a) other than in connection with (i) the conversion of Exchangeable
Preferred Stock into Common Stock in accordance with their current terms, (ii)
the exercise of options outstanding prior to the date hereof in accordance with
their current terms and (iii) the payment of dividends on the Exchangeable
Preferred Stock in accordance with their current terms, (x) declare, set aside
or pay any dividends on, or make any other actual, constructive or deemed
distributions in respect of, any of its capital stock, or otherwise make any
payments to its stockholders in their capacity as such, other than dividends
declared prior to the date of this Agreement, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (z) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or equity equivalent (other than as specified in clauses (i) through (iii) of
paragraph (a) above);
(c) amend its Certificate of Incorporation or By-Laws;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets that in the aggregate have a value in excess of 1% of the
Company's assets;
(e) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets that in the aggregate have an excess of
1% of the Company's assets;
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(f) amend or otherwise modify, or terminate, any material Contract,
or enter into any joint venture, lease or management agreement or other material
agreement of the Company or any of its Subsidiaries;
(g) incur any additional indebtedness (including for this purpose
any indebtedness evidenced by notes, debentures, bonds, leases or other similar
instruments, or secured by any lien on any property, conditional sale
obligations, obligations under any title retention agreement and obligations
under letters of credit or similar credit transaction) in a single transaction
or a group of related transactions, enter into a guaranty, or engage in any
other financing arrangements having a value in excess of 1% of the Company's
assets, or make any loans, advances or capital contributions to, or investments
in, any other person;
(h) alter through merger, liquidation, reorganization, restructuring
or in any other fashion its corporate structure or ownership;
(i) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(j) revalue any of its assets, including, without limitation,
writing down the value of its inventory or writing off notes or accounts
receivable, other than in the ordinary course of business;
(k) make any tax election, change any annual tax accounting period,
amend any tax return, settle or compromise any income tax liability, enter into
any closing agreement, settle any tax claim or assessment, surrender any right
to claim a tax refund or fail to make the payments or consent to any extension
or waiver of the limitations period applicable to any tax claim or assessment;
(l) except in the ordinary course of business, settle or compromise
any pending or threatened suit, action or claim relating to the transactions
contemplated hereby with a cost of $250,000 or more;
(m) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of the Company or incurred in the ordinary
course of business consistent with past practice;
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(n) increase in any manner the compensation or fringe benefits of
any of its directors, officers and other key employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any such
employees, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee, other than increases in the
compensation of employees who are not officers or directors of the Company or
any of its Subsidiaries made in the ordinary course of business consistent with
past practice, or, except to the extent required by law, voluntarily accelerate
the vesting of any compensation or benefit;
(o) waive, amend or allow to lapse any term or condition of any
confidentiality, "standstill", consulting, advisory or employment agreement to
which the Company is a party;
(p) approve any annual operating budgets for the Company and its
Subsidiaries;
(q) change the Company's dividend policy;
(r) enter into any transaction with affiliates;
(s) enter into any business other than the ownership, management,
operation and development of assisted living facilities and business related
thereto;
(t) pursuant to or within the meaning of any bankruptcy law, (i)
commence a voluntary case, (ii) consent to the entry of an order for relief
against it in an involuntary case, (iii) consent to the appointment of a
custodian of it or for all or substantially all of its property or (iv) make a
general assignment for the benefit of its creditors;
(u) purchase or lease or enter into a binding agreement to purchase
or lease any real property;
(v) enter into any employment agreement with any officer or
employee;
(w) enter into any development agreement, option relating to new
development or any other obligation relating to new development which in the
aggregate would have a cost to the Company in excess of 1% of the Company's
assets;
(x) take, or agree in writing or otherwise to take, any of the
foregoing actions.
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During the period from the date of this Agreement through the
Effective Time, (i) as requested by Investor, the Company shall confer on a
regular basis with one or more representatives of Investor with respect to
material operational matters; (ii) the Company shall, within 30 days following
each fiscal month, deliver to Investor financial statements, including an income
statement and balance sheet for such month; and (iii) upon the knowledge of the
Company or any of its Subsidiaries of any Material Adverse Change to the
Company, any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the breach in any material respect of any representation or
warranty contained herein, the Company shall promptly notify Investor thereof.
Notwithstanding any provision contained in this Agreement, action
taken by the Company and its Subsidiaries which is permitted under this Section
7.1 shall not constitute a misrepresentation or breach of warranty or covenant.
The Company shall have the right to update the Company Disclosure Letter, as it
relates to Section 5.11, between the date hereof and the Effective Time to
reflect actions taken by the Company and its Subsidiaries which are permitted to
be taken pursuant to this Section 7.1.
Section 7.2 Conduct of Business of Sub Pending the Merger. During
the period from the date of this Agreement through the Effective Time, Sub shall
not engage in any activities of any nature except as provided in or contemplated
by this Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Registration Statement/Proxy Statement. The Company
shall promptly prepare and file with the Commission as soon as practicable, a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the Retained Surviving Corporation Shares issuable in the
Merger, portions of which Registration Statement shall also serve as the proxy
statement of the Company with respect to the Special Meeting (the "Proxy
Statement/Prospectus"); provided that, at the Company's election, the Proxy
Statement/Prospectus shall be filed as confidential proxy material and the
filing of the Form S-4 shall be made at such later date prior to the clearance
by the United States Securities and Exchange Commission (the "SEC") of the Proxy
Statement/Prospectus as Investor shall determine. The Company will cause the
Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. The Company shall use all reasonable
efforts to have the Form S-4 declared effective by the SEC as promptly as
practicable after the filing thereof (including, without limitation, responding
to any comments received from the
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Commission with respect thereto) and to keep the Form S-4 effective as long as
is necessary to consummate the Merger. The Company shall, as promptly as
practicable, provide to Investor copies of any written comments received from
the SEC with respect to the Proxy Statement/Prospectus or the Form S-4 and
advise Investor of any oral comments with respect to the Proxy
Statement/Prospectus or the Form S-4 received from the SEC. Investor will
cooperate with the Company in preparing the Proxy Statement/Prospectus and
provide the Company with the information required to be provided by the Investor
in the Proxy Statement/Prospectus. The Company shall use its best efforts to
obtain, prior to the effective date of the Form S-4, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by the Merger Agreement and will pay all expenses
incident thereto. Investor agrees that none of the information supplied or to be
supplied by Investor for inclusion or incorporation by reference in the Form S-4
or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Special Meeting, or (ii) in the case of
the Form S-4 and each amendment or supplement thereto, at the time it is filed
or becomes effective, will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company agrees that none of the information supplied
or to be supplied by the Company for inclusion or incorporation by reference in
the Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Special Meeting, or, (ii) in the case of
the Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, will contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to Investor or Sub will be deemed to have been
supplied by Investor and information concerning or related to the Company shall
be deemed to have been supplied by the Company. No amendment or supplement to
the Proxy Statement/Prospectus will be made by the Company without the approval
of Investor which will not be unreasonably withheld. The Company will advise
Investor promptly after it receives notice thereof, of the time when the Form
S-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, or the suspension of the qualification of the
Retained Surviving Corporation Shares issuable in connection with the Merger for
offering or sale in any jurisdiction.
Section 8.2 Compliance with the Securities Act. At least 30 days
prior to the Effective Time, the Company shall deliver to Investor a list of
names and addresses of those persons who were, in the Company's reasonable
judgment, at the record date for
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the Company Meeting, "affiliates" (each such person, an "Affiliate") of the
Company within the meaning of Rule 145 of the rules and regulations promulgated
under the Securities Act. The Company shall use all reasonable efforts to
deliver or cause to be delivered to Investor, prior to the Effective Time, from
each of the Affiliates of the Company identified in the foregoing list, an
Affiliate Letter in the form attached hereto as Exhibit B (an "Affiliate
Letter"). Investor shall be entitled to place legends as specified in such
Affiliate Letters on the certificates evidencing any Retained Surviving
Corporation Shares to be received by such Affiliates pursuant to the terms of
the Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Retained Surviving Corporation Shares, consistent with
the terms of such Affiliate Letters.
Section 8.3 Indemnification. (a) Investor shall cause the Surviving
Corporation to keep in effect provisions in its Certificate of Incorporation and
Bylaws providing for exculpation of director and officer liability and
indemnification of each person who is now or has at any time prior to the date
hereof been entitled to the benefit of the indemnification provisions set forth
in the Company's Certificate of Incorporation and Bylaws (the "Indemnified
Parties"), to the fullest extent now or hereafter permitted under the Act, which
provisions shall not be amended except as required by applicable law or except
to make changes permitted by law that would enlarge the Indemnified Parties'
right of indemnification.
(b) The Surviving Corporation shall pay all expenses, including
attorneys' fees, that may be incurred by any Indemnified Parties in enforcing
the indemnity obligations provided for in this Section 8.3.
(c) The rights of each Indemnified Party hereunder shall be in
addition to any other rights such Indemnified Party may have under the
Certificate of Incorporation or Bylaws of the Company, under the DGCL or
otherwise. The provisions of this Section shall survive the consummation of the
Merger and are expressly intended to benefit each of the Indemnified Parties.
(d) The Surviving Corporation shall maintain in effect for not less
than three years after the Effective Time the current policies of directors, and
officers' liability insurance maintained by the Company with respect to matters
occurring on or prior to the Effective Time; provided, however, that the
Surviving Corporation may substitute therefor policies of at least the same
coverage (with carriers comparable to the Company's existing carriers)
containing terms and conditions which are no less advantageous to the
Indemnified Parties; provided, however, that the Surviving Corporation shall not
be required in order to maintain or procure such coverage to pay an annual
premium in excess of 150% of the current annual premium paid by the Company
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for its coverage (the "Cap"); and provided, further, that if equivalent coverage
cannot be obtained, or can be obtained only by paying an annual premium in
excess of the Cap, the Surviving Corporation shall only be required to obtain as
much coverage as can be obtained by paying an annual premium equal to the Cap.
Section 8.4 Additional Agreements. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using all commercially
reasonable efforts to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings and to lift any injunction to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible).
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Investor, the Company and the Surviving
Corporation shall take all such necessary action.
(c) At the request and expense of Investor, the Company will take
all action reasonably requested by Investor to assist the Investor in obtaining
the necessary financing for the Surviving Corporation to enable the Investor to
cause the Company to consummate the transactions contemplated hereby.
(d) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
Section 8.5 No Shop. The Company agrees (a) that neither it nor any
of its subsidiaries shall, nor shall its or any of its Subsidiaries' officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
subsidiaries) initiate, solicit or encourage, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or equity securities
of, the Company or any of its subsidiaries (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or except as may be
required in the exercise of the fiduciary duties of the Company's directors to
the Company or its shareholders after
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receiving advice from outside counsel, engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person relating to an Alternative Proposal, or release any third party from
any obligations under any existing standstill agreement or arrangement, or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and it will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in this Section 8.5; provided, however, that nothing contained in
this Section 8.5 shall prohibit the Company or its Board of Directors from
taking and disclosing to the Company's stockholders a position with respect to a
tender offer by a third party pursuant to Rule 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making such disclosure to the Company's
stockholders which, in the judgment of the Board of Directors of the Company
after receiving advice of outside counsel, may be required under applicable law.
From and after the execution of this Agreement, the Company shall immediately
advise Investor in writing of the receipt, directly or indirectly, of any
inquiries, discussions, negotiations, or proposals relating to an Alternative
Proposal (including the specific terms thereof and the identity of the other
party or parties involved) and furnish to Investor within 24 hours of such
receipt an accurate description of all material terms (including any changes or
adjustments to such terms as a result of negotiations or otherwise) of any such
written proposal in addition to any information provided to any third party
relating thereto. In addition, the Company shall immediately advise Investor, in
writing, if the Board of Directors of the Company shall make any determination
as to any Alternative Proposal.
Section 8.6 Advice of Changes; SEC Filings. The Company shall confer
on a regular basis with Investor on operational matters and provide Investor
with data with respect to the Investor and its Subsidiaries and access to the
personnel of the Company and its Subsidiaries, in each case, as Investor shall
reasonably request. Investor and the Company shall promptly advise each other
orally and in writing of any change or event that has had, or could reasonably
be expected to have, a Material Adverse Effect on Investor or the Company, as
the case may be. The Company and Investor shall promptly provide each other (or
their respective counsel) copies of all filings made by such party with the SEC
or any other Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 8.7 Registration Rights Agreement. Prior to the Effective
Time, the Company shall execute and deliver to Investor a registration rights
agreement (the "Registration Rights Agreement") in a form mutually acceptable to
Investor and the Company which will be effective as of the Effective Time, such
agreement to provide
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Investor with five demand registration rights unlimited piggyback and S-3
registration rights for its Shares all subject to customary terms and
provisions.
Section 8.8 Directors. At the Effective Time, the Company will
obtain a resignation of each director not specified in Schedule 2.3.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the holders of the
Common Stock.
(b) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness of
the Form S-4 shall have been issued by the Commission and remain in effect and
all necessary approvals under state securities laws relating to the issuance or
trading of the Retained Surviving Corporation Shares to be issued to
stockholders of the Company in connection with the Merger shall have been
obtained.
(c) No preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction which
prevents the consummation of the Merger shall have been issued and remain in
effect (each party agreeing to use all commercially reasonable efforts to have
any such injunction lifted).
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Investor and Sub shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Effective Time, and the representations and warranties of Investor
and Sub contained in this Agreement (i) shall be true in all material respects
and (ii) shall not, individually or in the aggregate, contain any untrue
statement(s) which has had, or is reasonably likely to have, a Investor Material
Adverse Effect, in each case, when made and on and as of the Effective Time as
if made on and as of such date (except to the extent they relate to a
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particular date), except as expressly contemplated or permitted by this
Agreement, and the Company shall have received a certificate of the Chief
Executive Officer of Investor and Sub to that effect.
Section 9.3 Conditions to Obligations of Investor and Sub to Effect
the Merger. The obligations of Investor and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by Investor:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, and the representations and warranties of the Company
contained in this Agreement shall not, individually or in the aggregate, contain
any untrue statement(s) which has had, or is reasonably likely to have, a
Material Adverse Effect on the Company, in each case, when made and on and as of
the Effective Time as if made on and as of such date (except to the extent they
relate to a particular date), except as expressly contemplated or permitted by
this Agreement, and Investor and Sub shall have received a certificate of the
Chief Executive Officer of the Company to that effect.
(b) All filings required to be made prior to the Effective Time
with, and all material consents, approvals, authorizations and Permits required
to be obtained prior to the Effective Time from, any Governmental Entity in
connection with the consummation of the Merger, shall have been made and/or
obtained.
(c) All material, individually or in the aggregate, notices required
to be given by the Company and its subsidiaries prior to the Effective Time
with, and all material, individually or in the aggregate, consents, approvals,
authorizations, waivers and amendments required to be obtained by the Company
and its subsidiaries prior to the Effective Time from, any third party in
connection with the consummation of the Merger, including, without limitation,
the notices, consents, approvals, authorizations, waivers and amendments
specified in Schedule 9.3(c), shall have been made and/or obtained without the
Company incurring unreasonable costs.
(d) No change, event or circumstances (other than changes, events or
circumstances affecting general economic conditions or affecting the industry in
which the Company operates) shall have occurred since the date of this Agreement
which, either individually or in the aggregate, is reasonably likely to be
materially adverse to the business, assets, prospects, liabilities, properties
or financial condition of the Company and its Subsidiaries taken as a whole or
the results of operations of the stabilized properties of the Company and its
Subsidiaries taken as a whole.
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(e) The Company shall have delivered to Investor the Capital
Expenditure Budget and Schedule and the Development Budget and Schedule (the
"Budgets"), and the Budgets shall reasonably support the projections included in
the Project Face-Off - Kapson Financial Overview, prepared by Salomon Inc. (the
"Salomon Brothers Book").
(f) The Company shall have delivered to Investor legal, valid and
binding agreements relating to the items specified in Schedule 9.3 (f) (the
"Section 9.3 Agreements"), and the Section 9.3 Agreements together with other
agreements set forth in the Company Disclosure Letter shall reasonably support
the projections specified in the Salomon Brothers Book.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval of this Agreement by the stockholders of the
Company, by the mutual consent of Investor and the Company.
Section 10.2 Termination by Either Investor or the Company. This
Agreement may be terminated and the Merger may be abandoned by action of the
Board of Directors of the Company or by the Investor if (a) the Merger shall not
have been consummated by March 31, 1998 (the "Termination Date"), (b) the
approval of the Company's stockholders shall not have been obtained at the
Special Meeting or at any adjournment or postponement thereof which shall in any
event take place prior to March 31, 1998, or (c) a United States federal or
state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to clause (c) above shall have used all commercially
reasonable efforts to remove such injunction, order or decree; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger.
Section 10.3 Termination by Investor. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by the Investor, if (i) the Board of Directors of the Company shall have
withdrawn or
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modified in a manner adverse to Investor its approval or recommendation of this
Agreement or the Merger or shall have recommended an Alternative Proposal to the
Company's stockholders or (ii) any of the conditions specified in Sections 9.1
and 9.3 shall have not been met or waived by Investor at such time as such
condition can no longer be satisfied (provided that the right of Investor to
terminate this Agreement pursuant to this clause (ii) shall not be available to
Investor if Investor's failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of any such condition).
Section 10.4 Termination by the Company. (a) This Agreement may be
terminated and the Merger abandoned by the Company at any time prior to the
approval of the Merger by the stockholders of the Company in accordance with
applicable law, if there is an Alternative Proposal which the Board of Directors
of the Company in good faith determines represents a superior transaction for
the stockholders of the Company as compared to the Merger, and the Board of
Directors of the Company determines, after consultation with counsel, that
failure to terminate this Agreement would be inconsistent with the compliance by
the Board of Directors of the Company with its fiduciary duties to stockholders
imposed by law; provided, however, that the right to terminate this Agreement
pursuant to this Section 10.4(a) shall not be available (i) if the Company has
breached in any material respect its obligations under Section 8.5, (ii) if the
Alternative Proposal is subject to a financing condition, unless the Board of
Directors of the Company is of the opinion, after receiving a written opinion
from a nationally recognized investment banking firm, that the Alternative
Proposal is financeable. The Company will provide Investor with two days'
written notice of its intention to so terminate the Agreement.
(b) This Agreement may be terminated and the Merger abandoned by the
Company if any of the conditions specified in Sections 9.1 and 9.2 shall not
have been met or waived by the Company at such time as such condition can no
longer be satisfied (provided that the right of the Company to terminate this
Agreement pursuant to this paragraph (b) shall not be available to the Company
if the Company's failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of any such condition).
Section 10.5 Effect of Termination and Abandonment. (a) In the event
that (w) this Agreement is terminated by either party pursuant to Section
10.2(b), (x) the Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to Investor its approval or recommendation of this
Agreement or the Merger or shall have recommended an Alternative Proposal to the
Company's stockholders and Investor shall have terminated this Agreement
pursuant to Section 10.3(i), (y) this Agreement shall have been terminated by
the Company pursuant to Section 10.4(a) or (z)
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any person shall have made an Alternative Proposal at $15.00 per share of Common
Stock or more for 75% or more of the Common Stock and thereafter this Agreement
is terminated for any reason other than those set forth in clauses (w), (x) or
(y) above and within 6 months thereafter the Company shall have entered into an
agreement with respect to an Alternative Proposal at $15.00 per share of Common
Stock or more for 75% or more of the Common Stock, then the Company shall
promptly, but in no event later than two days after such termination, pay
Investor a fee of $6,000,000 (a "Termination Fee"). In the event this Agreement
is terminated as a result of the failure of the conditions specified in Sections
9.3(a), (b), (c), (d), (e) or (f) then the Company shall promptly reimburse
Investor for all out-of-pocket costs and expenses incurred by Investor in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, costs and expenses of accountants, attorneys and
financial advisors in an amount not to exceed $1,000,000. The Company
acknowledges that the agreements contained in this Section 10.5(a) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Investor and Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the termination fee pursuant
to this Section 10.5(a), and, in order to obtain such payment, Investor or Sub
commences a suit which results in a judgment against the Company for the fee and
expenses set forth in this Section 10.5(a), the Company shall pay to Investor
its costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of such fee and expenses at the rate of 10%
per annum compounded quarterly (but in no event at a rate in excess of the rate
permitted by Delaware law). In addition, in the event of termination of this
Agreement and the abandonment of the Merger for any reason, the parties will
cooperate to cause the prompt withdrawal of any applications for licenses,
permits or other consents or approvals submitted by the Company in anticipation
of effectuating the Merger. The sole rights and remedies of Investor and Sub for
any misrepresentation or breach of warranty or covenant arising under this
Agreement shall be limited to the specific rights and remedies set forth in this
Section 10.5.
(b) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article X, all obligations of the
parties hereto shall terminate, except the obligations of the parties pursuant
to this Section 10.5 and Section 11.3.
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Non-Survival of Representations, Warranties and
Agreements. All representations and warranties set forth in this Agreement shall
terminate at the Effective Time.
Section 11.2 Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Investor:
Prometheus Senior Quarters LLC
c/o Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, New York 10020
Attention: Robert P. Freeman and Murry N. Gunty
Facsimile: (212) 332-5980
Telephone: (212) 632-6026
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jonathan L. Mechanic, Esq.
Facsimile: (212) 859-4000
Telephone: (212) 859-8000
If to the Company:
Glenn Kaplan
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Facsimile: (516) 921-8367
Telephone: (516) 921-8900
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with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Arnold J. Levine, Esq.
Facsimile: (212) 969-2900
Telephone: (212) 969-3000
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the Merger is
consummated, except as provided in Section 10.5, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses, whether or not the
Merger is consummated except as expressly provided herein.
Section 11.4 Publicity. So long as this Agreement is in effect,
Investor, Sub and the Company agree to consult with each other in issuing any
press release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of them shall issue any
press release or make any public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
any national securities exchange.
Section 11.5 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 11.6 Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided, however, that Investor
shall have the right to assign any of its rights or obligations hereunder to any
affiliate of Investor so long as Investor shall not be released from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
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Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement; provided that the Indemnified
Parties shall be third-party beneficiaries of Investor's agreement contained in
Section 8.6 hereof.
Section 11.7 Entire Agreement. This Agreement, the Exhibits hereto,
the Company Disclosure Letter, the Confidentiality Agreement dated September 12,
1997, between the Company and Investor and any documents delivered by the
parties in connection herewith and therewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
Section 11.8 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of matters presented in connection
with the Mergers by the stockholders of the Company, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 11.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO ITS RULES OF CONFLICT OF LAWS.
Section 11.10 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
Section 11.11 Headings and Table of Contents. Headings of the
Articles and Sections of this Agreement and the Table of Contents are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
Section 11.12 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and
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vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
Section 11.13 Waivers. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party. Except as provided in this
Agreement, no action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereunder
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provision hereunder.
Section 11.14 Incorporation of Exhibits. The Company Disclosure
Letter and all Exhibits attached hereto and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
Section 11.15 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 11.16 Subsidiaries. As used in this Agreement, the word
"subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner. It being understood and agreed that each of Senior
Quarters at Forsgate L.L.C. and Senior Quarters at Glen Riddle L.P. shall be
deemed Subsidiaries of the Company for the purpose of this Agreement. As used in
this Agreement, the term "knowledge," with respect to the Company and its
Subsidiaries, shall mean the actual knowledge of Messrs. Glenn Kaplan, Wayne
Kaplan, Evan Kaplan or Raymond DioGuardi.
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IN WITNESS WHEREOF, Investor, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
PROMETHEUS SENIOR QUARTERS LLC
By: LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.
By: /s/ Robert P. Freeman
---------------------------------
Robert P. Freeman
President
PROMETHEUS ACQUISITION CORP.
By: /s/ Robert P. Freeman
---------------------------------
Robert P. Freeman
President
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
---------------------------------
Glenn Kaplan
Chairman and Chief Executive Officer
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Lazard Freres Real Estate Investors LLC ("LFRE") hereby irrevocably,
unconditionally and completely guarantees and ensures the full and timely
payment and performance of all of Investor's and Sub's obligations and
liabilities under this Agreement and any agreements, documents or instruments
executed or to be executed by either of them in connection herewith, including,
without limitation, causing Sub to comply with Section 3.4(b) and Investor to
comply with Section 3.5(a) hereof. The obligations and liabilities under this
guaranty constitute primary obligations and liabilities of LFRE and shall not be
affected by the absence of an action to enforce obligations of, or any
proceedings first against, Investor or Sub, any defense, offset, claim, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of LFRE as a surety or guarantor. LFRE represents and
warrants that it is the sole member of Investor.
LAZARD FRERES REAL ESTATE
INVESTORS LLC
By: /s/ Robert P. Freeman
-------------------------------
Robert P. Freeman
President
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EXECUTION COPY
STOCKHOLDERS AGREEMENT
Stockholders Agreement (this "Agreement"), dated as of September 30,
1997, between Prometheus Senior Quarters LLC, a Delaware limited liability
company or an affiliate thereof ("Investor"), and Glenn Kaplan, Wayne L. Kaplan
and Evan A. Kaplan (each a "Stockholder" and, collectively, the "Stockholders")
WHEREAS, each Stockholder owns (both beneficially and of record) the
number of shares of Common Stock ("Common Stock") of Kapson Senior Quarters
Corp., a Delaware Corporation (the "Company") specified in Exhibit A hereto (the
"Shares");
WHEREAS, concurrently herewith, Investor and a wholly owned
subsidiary of Investor ("Sub") are entering into an agreement and plan of merger
with the Company, dated as of September 30, 1997 (the "Merger Agreement"),
pursuant to which Sub will merger with and into the Company (the "Merger"); and
WHEREAS, as a condition to the willingness of Investor to enter into
the Merger Agreement, Investor has required that the Stockholders agree, and in
order to induce Investor to enter into the Merger Agreement, the Stockholders
have agreed, among other things, (i) to grant Investor the option to purchase
the Shares, (ii) to appoint Investor as Stockholders' proxy to vote the Shares,
and (iii) with respect to certain questions put to stockholders of the Company
for a vote, to vote the Shares, in each case, in accordance with the terms and
conditions of this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
adequacy of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Stock Option.
1.1 Grant of Stock Option. The Stockholders hereby grant to Investor
an irrevocable option (the "Stock Option") to purchase all, but not less than
all of the Shares at such time as Investor may exercise the Stock Option at a
per share purchase price equal to $16.00 per share of Common Stock.
1.2 Exercise of Stock Option. (a) The Stock Option may be exercised
by Investor at any time prior to the termination of this Agreement prior to the
earlier to occur (the "Expiration Date") of (i) one year after the date hereof,
(ii) if the Merger Agreement is terminated by Investor, or the Investor provides
written or oral notice to the Company that it elects not to close the
transactions contemplated by the Merger Agreement, as a result of the failure of
any of the conditions specified in Section 9.3 and at the time of such
termination or notice there shall not exist any Alternative Proposal (as such
term is defined in the Merger Agreement) at $15.00 or more per share of Common
Stock for 75% or more of the outstanding Common Stock of the Company, the
termination of the Merger Agreement and (iii) if the Merger Agreement is
terminated by Investor, or the Investor provides written or oral notice to the
Company that it elects not to close the transactions contemplated by the Merger
Agreements, as a result of the failure of any of the conditions specified in
Section 9.3 and at the time of such termination or notice there shall exist any
Alternative Proposal at $15.00 or more per share of Common Stock for 75% or more
of the outstanding Common Stock of the Company, the sixth monthly
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anniversary of the termination of the Merger Agreement; provided, however, that
if a tender offer shall be commenced by any party or entity other than investor
and its affiliates with respect to the Common Stock, then, notwithstanding any
provision of this Agreement, the Stockholders may tender all or any of the
Shares into the tender offer on or before the time 48 hours before the
expiration of the offer. The Stockholders shall give prompt notice to Investors
of any such tender by Stockholders, and each of the Stockholders agree to give
notice of revocation of the tender promptly after actual receipt by such
Stockholders of an irrevocable Exercise Notice from Investor; provided however,
that if the Investor provides an Exercise Notice as contemplated by clause (a)
above, the Investor shall not be obligated to purchase the shares at the
applicable Stock Option Closing if the Merger Agreement has not been terminated
in accordance with its terms and if the applicable Tender Offer is withdrawn
without being consummated prior to the applicable Stock Option Closing.
(b) In the event Investor wishes to exercise the Stock Option,
Investor shall send a written notice (an "Exercise Notice") to the Stockholders
specifying the date, which shall be a Business Day not more than ten days, 30
days in the case of an Exercise Notice delivered as contemplated by clause (a)
above, after the date of the Exercise Notice and a place for the closing of such
purchase (a "Stock Option Closing").
(c) Upon receipt of an Exercise Notice, the Stockholders shall
be jointly and severally obligated to deliver to Investor a certificate or
certificates representing the number of Shares specified in such Exercise
Notice, in accordance with the terms of this Agreement, on the date specified in
such Exercise Notice. The date specified in such Exercise Notice may be as early
as two Business Days after the date of such Exercise Notice.
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(d) For the purposes of this Agreement, the term "Business
Day" shall mean a day on which banks are not required or authorized to be closed
in the City of New York.
1.3 Condition to Delivery of the Shares. The obligation of
Stockholders to deliver the Shares upon any exercise of a Stock Option is
subject to the following condition: There shall be no preliminary or permanent
injunction or other order by any court of competent jurisdiction restricting,
preventing or prohibiting such exercise of such Stock Option or the delivery of
the Shares subject to such Stock Option in respect of such exercise.
1.4 Stock Option Closing. At the Stock Option Closing, the
Stockholders will deliver to Investor a certificate or certificates evidencing
all of the Shares, each such certificate being duly endorsed in blank and
accompanied by such stock powers and such other documents as may be necessary in
Investor's judgment to transfer record ownership of the Shares into Investor's
name on the stock transfer books of the Company and Investor will purchase the
delivered Shares at a purchase price equal to $16.00 per share of Common Stock.
All payments made by Investor to Stockholders pursuant to this Section 1.4 shall
be made by wire transfer of immediately available funds to an account designated
by the Stockholders or by certified bank check payable to the Stockholders, in
an amount equal to the sum of the product of (a) $16.00 and (b) the total number
of shares of Common Stock delivered at the Stock Option Closing.
1.5 Adjustments Upon Changes in Capitalization. In the event of any
change in the number of issued and outstanding shares of Common Stock by reason
of any stock dividend, subdivision, merger, recapitalization, combination,
conversion or exchange of shares, or any other change in the corporate or
capital structure of the Company (including, without limitation, the declaration
or payment of an extraordinary dividend of cash or securities) which
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would have the effect of diluting or otherwise adversely affecting Investor's
rights and privileges under this Agreement, the number and kind of the Shares
and the consideration payable in respect of the Shares shall be appropriately
and equitably adjusted to restore to Investor its rights and privileges under
this Agreement. Without limiting the scope of the foregoing, in any such event,
at the option of Investor, the Stock Option shall represent the right to
purchase, in addition to the number and kind of Shares which Investor would be
entitled to purchase pursuant to the immediately preceding sentence, whatever
securities, cash or other property the Shares subject to the Stock Option shall
have been converted into or otherwise exchanged for, together with any
securities, cash or other property which shall have been distributed with
respect to such Shares.
2. Representations and Warranties of the Stockholders. The
Stockholders hereby jointly and severally represent and warrant to Investor as
follows:
2.1 Title to the Shares. Each of the Stockholders is the owner (both
beneficially and of record) of the number of shares of Common Stock specified
opposite such Stockholder's name on Exhibit A hereto and the Stockholders do not
have any other rights of any nature to acquire any additional shares of Common
Stock or any other shares of capital stock of the Company. Each of the
Stockholders owns that number of shares of Common Stock specified opposite such
Stockholder's name on Exhibit A hereto free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Stockholder's voting rights, charges and other encumbrances of
any nature whatsoever, and, except as provided in this Agreement, no Stockholder
has appointed or granted any proxy, which appointment or grant is still
effective, with respect to any of the Shares. Upon the exercise of the Stock
Option and the delivery to Investor by the Stockholders of a certificate or
certificates evidencing the
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Shares, Investor will receive good, valid and marketable title to the Shares,
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Investor's voting rights,
charges and other encumbrances of any nature whatsoever.
2.2 Authority Relative to This Agreement. Each Stockholder has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by each
Stockholder and, assuming the due authorization, execution and delivery by
Investor, constitutes a legal, valid and binding obligation of each Stockholder,
enforceable against each Stockholder in accordance with its terms.
2.3 No Conflict. The execution and delivery of this Agreement by
each Stockholder does not, and the performance of this Agreement each
Stockholder will not, conflict with, violate or result in any breach of or
constitute a default under (or an event which with notice or lapse of time or
both would become a default under) any agreement, judgment, injunction, order,
law, regulation or arrangement to which any Stockholder is a party or is bound,
except in each case to the extent any such breach or default, whether taken
singly or in the aggregate, would not have a material adverse effect on the
ability of the Stockholders to vote the Shares, perform their respective
obligations hereunder, and consummate the transactions contemplated hereby.
2.4 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Stockholders.
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3. Representations and Warranties of Investor. Investor hereby
represents and warrants to the Stockholders as follows:
3.1 Authority Relative to This Agreement. Investor has all necessary
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Investor and the consummation by
Investor of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Investor. This
Agreement has been duly and validly executed and delivered by Investor and,
assuming the due authorization, execution and delivery by the Stockholders,
constitutes a legal, valid and binding obligation of Investor, enforceable
against Investor in accordance with its terms.
3.2 Investment Intent. Investor hereby represents that any
securities it purchases pursuant to this Agreement are being purchased for its
own account for investment and not with a view to, or for sale in connection
with, any public distribution thereof.
4. Covenants of Stockholder.
4.1 No Disposition or Encumbrance of Shares; No Conversion of
Shares; Acquisition of Additional Shares; No Exercise of Warrants. (a) Each
Stockholder hereby covenants and agrees that, except as contemplated by this
Agreement, each Stockholder shall not, and shall not offer or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, or create or
permit to exist any security interest, lien, claim, pledge, option, right of
first refusal, agreement, limitation on such Stockholder's voting rights, charge
or other encumbrance of any
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nature whatsoever with respect to the Shares now owned or that may hereafter be
acquired by such Stockholder.
(b) Each Stockholder hereby covenants and agrees that any
additional shares of capital stock of the Company acquired by each Stockholder
after the date hereof shall be subject to this Agreement and shall, for all
purposes of this Agreement, be deemed to be "Shares".
4.2 No Solicitation of Transactions. Each Stockholder shall not,
directly or indirectly, through any agent or representative or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
individual, corporation, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in section 13(d)(3) of the
Securities Exchange Act of 1934, as amended), trust, association or entity or
government, political subdivision, agency or instrumentality of a government
(collectively, other than Investor, a "Person") relating to (i) any acquisition
or purchase of all or any of the Shares or (ii) any acquisition or purchase of
all or (other than in the ordinary course of business) any portion of the assets
of, or any equity interest in, the Company or any business combination, whether
by merger, consolidation, or otherwise, with the Company or participate in any
negotiations regarding, or furnish to any Person any information with respect
to, or otherwise cooperate in any way with, or assist or participate in or
facilitate or encourage, any effort or attempt by any Person to do or seek any
of the foregoing. Each Stockholder hereby represents that neither it nor its
agents or representatives is now engaged in any discussions or negotiations with
any Person with respect to any of the foregoing.
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4.3 Compliance of Stockholder with This Agreement. Each Stockholder
shall take all actions and forbear from all actions, in each case, necessary in
order that (a) all of such Stockholder's representations and warranties
hereunder are true and correct and (b) such Stockholder fulfills all of its
obligations hereunder.
5. Voting Agreement; Proxy of Stockholder.
5.1 Voting Agreement. Each Stockholder hereby agrees that, during
the time this Agreement is in effect, at any meeting of the stockholders of the
Company, however called, and in any action by written consent of the
stockholders of the Company, each Stockholder shall, to the extent applicable,
(a) vote (or execute a consent in respect of) all of the Shares in favor of the
Merger, the Merger Agreement (as amended from time to time) and any of the
transactions contemplated by the Merger Agreement; (b) vote (or execute a
consent in respect of) the Shares against any action or agreement involving a
sale of the Shares, merger, or sale of substantially all of the assets of the
Company that would result in a breach in any material respect of any obligation
of the Company under the Merger Agreement; and (c) vote (or execute a consent in
respect of) the Shares against any action or agreement that would reasonably be
expected to impede, interfere with, delay or attempt to discourage the Merger.
5.2 Irrevocable Proxy. Each Stockholder agrees that, in the event
such Stockholder shall fail to comply with the provisions of Section 5.1 hereof
as determined by Investor in its sole discretion, such failure shall result,
without any further action by such Stockholder, in the irrevocable appointment
of Investor as the attorney and proxy of such Stockholder pursuant to the
provisions of Delaware General Corporation Law, with full power of substitution,
to vote, and otherwise act (by written consent or otherwise) with respect to all
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shares of Common Stock, including the Shares owned by such Stockholder, that
such Stockholder is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned or postponed
meeting) or consent in lieu of any such meeting or otherwise, on the matters and
in the manner specified in Section 5.1 hereof. THIS PROXY AND POWER OF ATTORNEY
IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Each Stockholder hereby revokes,
effective upon the execution and delivery of the Merger Agreement by the parties
thereto, all other proxies and powers of attorney with respect to the Shares
that such Stockholder may have heretofore appointed or granted, and no
subsequent proxy or power of attorney (except in furtherance of such
Stockholder's obligations under Section 5.1 hereof) shall be given or written
consent executed (and if given or executed, shall not be effective) by such
Stockholder with respect thereto so long as this Agreement remains in effect.
6. Termination. This Agreement shall terminate on the date (the
"Termination Date") that is the earliest of (i) the date upon which the Merger
is consummated, (ii) one year after the date hereof, (iii) the Expiration Date,
or (iv) a breach by Investor and/or Sub of its obligations to fund and close the
Merger.
7. Election. Each Shareholder agrees that it will elect, at a
minimum, to retain shares in the Surviving Corporation (as such term is defined
in the Merger Agreement) with respect to that number of shares equal to 9.740%
of the shares owned by him.
8. Miscellaneous.
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8.1 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
8.2 Further Assurances. Each Stockholder and Investor shall execute
and deliver all such further documents and instruments and take all such further
action as may be necessary in order to consummate the transactions contemplated
hereby.
8.3 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
8.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholders with respect to the
subject matter hereof.
8.5 Assignment. This Agreement shall not be assigned by operation of
law or otherwise, except that Investor may assign all or any of its rights and
obligations hereunder to any affiliate of Investor, provided that no such
assignment shall relieve Investor of its obligations hereunder if such assignee
does not perform such obligations.
8.6 Parties in Interest. This Agreement shall be binding upon, inure
solely to the benefit of, and be enforceable by, the parties hereto and their
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to or shall confer upon any
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other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
8.7 Amendment; Waiver. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto. Any party hereto may (a)
extend the time for the performance of any obligation or other act of any other
party hereto, (b) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
this Agreement is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the terms of
this Agreement remain as originally contemplated to the fullest extent possible.
8.9 Notices. Except as otherwise provided herein, all notices,
requests, claims, demands and other communications hereunder shall be in writing
and shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by cable, facsimile transmission, telegram or telex or by
registered or certified mail (postage prepaid, return receipt
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requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 8.9):
if to Investor:
Prometheus Senior Quarters LLC
c/o Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, New York 10020
Attention: Robert P. Freeman and Murry N. Gunty
Facsimile: (212) 332-5980
Telephone: (212) 632-6026
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jonathan L. Mechanic, Esq.
Facsimile: (212) 859-4000
Telephone: (212) 859-8000
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if to the Stockholders:
Glenn Kaplan
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Facsimile: (516) 921-8367
Telephone: (516) 921-8900
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Arnold J. Levine, Esq.
Facsimile: (212) 969-2900
Telephone: (212) 969-3000
8.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in Delaware without regard to any
principles of choice of law or conflicts of law of such State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in Delaware.
8.11 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.12 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first written above.
By: /s/ Glenn Kaplan
-------------------------------
Glenn Kaplan
By: /s/ Wayne L. Kaplan
-------------------------------
Wayne L. Kaplan
By: /s/ Evan A. Kaplan
-------------------------------
Evan A. Kaplan
PROMETHEUS SENIOR QUARTERS LLC
By: LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.
By: /s/ Robert P. Freeman
-------------------------------
Robert P. Freeman
President
<PAGE>
Lazard Freres Real Estate Investors LLC ("LFRE") hereby irrevocably,
unconditionally and completely guarantees and ensures the full and timely
payment and performance of all of Investor's and Sub's obligations and
liabilities under this Agreement and any agreements, documents or instruments
executed or to be executed by either of them in connection herewith. The
obligations and liabilities under this guaranty constitute primary obligations
and liabilities of LFRE and shall not be affected by the absence of an action to
enforce obligations of, or any proceedings first against, Investor or Sub, any
defense, offset, claim, or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of LFRE as a surety or
guarantor. LFRE represents and warrants that it is the sole member of Investor.
LAZARD FRERES REAL ESTATE
INVESTORS LLC
By: /s/ Robert P. Freeman
-------------------------------
Name: Robert P. Freeman
Title: President
FOR IMMEDIATE RELEASE Contact: Owen Blicksilver
Principal Communications
212-303-7603
LAZARD FRERES AFFILIATE TO ACQUIRE MAJORITY STAKE
IN KAPSON SENIOR QUARTERS FOR $250 MILLION
-- Strategic Alliance with ARV Assisted Living, Inc. Proposed --
NEW YORK, October 2 -- Kapson Senior Quarters Corp. (NASDAQ:KPSQ), the largest
public operator of assisted living facilities in the Northeast, and Prometheus
Senior Quarters LLC, an affiliate of Lazard Freres Real Estate Investors LLC
(LFREI), today announced that Prometheus has entered into a definitive agreement
to acquire substantially all of the outstanding shares of Kapson in a
transaction valued at approximately $250 million, including the assumption of
debt.
Under terms of the agreement, Prometheus will offer $16 a share for
approximately 92% of Kapson's 7.8 million outstanding common shares, a 9.4%
premium over Wednesday's closing price of $14.625. In addition, Prometheus will
offer $30.82 a share for all of the company's 2.4 million outstanding
convertible preferred shares. The acquisition will be treated as a
recapitalization for accounting purposes and shares will be acquired on a pro
rata basis.
The transaction is contingent upon certain regulatory approvals and a favorable
vote by Kapson's stockholders.
In July, a separate LFREI affiliate announced a plan to invest $135 million,
over time, in ARV Assisted Living, Inc. (NASDAQ: ARVI) of Costa Mesa, Calif.,
one of the largest operators of assisted living facilities in the nation. That
affiliate, Prometheus Assisted Living, LLC, is already the largest shareholder
of ARV, owning approximately a 17% stake in the company. Subject to shareholder
approval, the LFREI affiliate will ultimately hold a 49.9% stake in ARV.
Assuming ARV shareholder approval, LFREI will offer ARV the option to purchase
up to a 19.9% interest (at LFREI's cost) in Kapson out of the Prometheus stake,
once the recapitalization has closed. If ARV chooses to invest in Kapson, the
decision will be made by those directors not affiliated with LFREI.
Assuming that ARV's shareholders approve the Prometheus Assisted Living, LLC
investment, LFREI will propose that ARV establish a relationship with Kapson
structured as a strategic alliance, with the two companies remaining
independent. The companies will explore opportunities for creating economies of
scale, especially in the development of new facilities. ARV will have the right
to manage and/or lease existing Kapson facilities as well as manage, purchase
and/or lease new facilities developed by Kapson at fair market value.
<PAGE>
Transactions between ARV and Kapson will require approval from the directors of
both companies who are not affiliated with LFREI. The arrangement should be
immediately accretive to ARV earnings and will significantly strengthen its
presence in the Northeast. Together, the companies will own, manage and operate
more than 69 assisted living facilities with approximately 8,500 total units, in
addition to 19 facilities under construction with approximately 2,400 units, and
24 facilities under development with 3,200 total units, for a total of 112
facilities with approximately 14,100 units, making such an alliance the largest
owner/operator of assisted living facilities nationwide.
Lazard is expected to take a controlling position on Kapson's Board of
Directors. Management at Kapson is expected to remain essentially unchanged
under the direction of Glenn Kaplan, Chief Executive Officer; Evan Kaplan,
President and Chief Operating Officer; Wayne Kaplan, Senior Executive Vice
President and General Counsel; and Raymond DioGuardi, Chief Financial Officer.
Glenn and Evan Kaplan will also serve on the Board of Directors.
"Our investment in Kapson dramatically expands our presence in the assisted
living industry and demonstrates our commitment to one of the fastest growing
segments of the health care industry," said Arthur P. Solomon, Chairman of LFREI
and Senior Managing Director of Real Estate at Lazard Freres and Co. LLC.
"Assuming the alliance with ARV is established, the two companies will become
the largest owners and operators of assisted living facilities in the country."
"We are pleased to offer our shareholders an investor that has demonstrated a
commitment to our business and is willing to offer our shareholders a
substantial premium over the market value in our stock," said Glenn Kaplan. "The
investment places Kapson at the leading edge of an industry consolidation, while
allowing us to continue to expand our business to the next level."
"This announcement demonstrates Lazard's commitment to making ARV the premier
assisted living provider in the nation, and is another reason why our
shareholders should be excited about the Lazard investment in ARV," said ARV
Chairman and Chief Executive Officer Gary L. Davidson. "Assuming the strategic
alliance is established, the Kapson investment will also significantly improve
our position in the Northeast and will provide us with greater opportunities to
develop new facilities and expand into more markets."
Kapson Senior Quarters Corp., founded in 1972, owns, manages and/or operates 20
assisted living facilities with 2,200 units in Connecticut, New Jersey, New
York, and Pennsylvania. The company, based in Woodbury, Long Island, currently
has another 13 facilities under construction with 1,740 units and 11 facilities
under development with 1,400 units in its current markets as well as in North
Carolina and South Carolina. The company's initial public offering occurred in
September 1996 at $10.00 a share. Salomon Brothers Inc was the lead underwriter
and is also advising the company on this transaction.
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ARV Assisted Living, Inc., formerly American Retirement Villas, founded in 1980,
is one of the largest operators of assisted living facilities in the nation
operating 49 facilities with approximately 6,300 units in 11 states (with heavy
concentrations in California, Florida and the Midwest), in addition to six
facilities under construction with approximately 650 units, and 13 facilities
under development with approximately 1,825 units.
Lazard Freres Real Estate Investors LLC (LFREI) is the real estate investment
affiliate of Lazard Freres & Co. LLC, a leading global investment bank. LFREI
manages several real estate investment funds including the LF Strategic Realty
Investors' funds, a strategic investment program capitalized with more than $1
billion in equity capital. Since its inception, LFREI has acquired sizable
investment stakes in a select group of leading real estate-related operating
companies, including Alexander Haagen Properties, Inc.; American Apartment
Communities; ARV Assisted Living, Inc.; Bell Atlantic Properties (renamed
Atlantic American Properties Trust); Dermody Properties; The Fortress Group; and
RF&P Corporation (renamed Commonwealth Atlantic Properties).
The forward-looking statements in this release concerning development and future
results are subject to certain risks and uncertainties that could cause actual
results to differ materially from expectations. These include, without
limitation, the negotiation and execution of definitive documentation regarding
the ARV-Kapson strategic alliance, the Kapson shareholder approval of the
acquisition by the LFREI affiliate, ARV shareholder approval of the investment
by the LFREI affiliate, as well as licensing, permitting, constructions delays,
cost increases, changes in business conditions, meeting all completion
requirements including licensure and the availability of financing for
developments. These and other risks are set forth in Kapson's Form 10-K as filed
with the Securities and Exchange Commission for the year ended December 31,
1996, and ARV's Form 10-K/A for the fiscal year ended March 31, 1997 and ARV's
Form 8-K relating to the LFREI investment in ARV, each as filed with the SEC.
3
