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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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KAPSON SENIOR QUARTERS CORP.
(NAME OF SUBJECT COMPANY)
KAPSON SENIOR QUARTERS CORP.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
$2.00 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE
(TITLES OF CLASSES OF SECURITIES)
485624100
485624209
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
GLENN KAPLAN
KAPSON SENIOR QUARTERS CORP.
125 FROEHLICH FARM BOULEVARD
WOODBURY, NEW YORK 11797
(516) 921-8900
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
Copy to:
ARNOLD J. LEVINE, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
(212) 969-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Kapson Senior Quarters Corp., a Delaware
corporation (the 'Company'), and the address of the principal executive offices
of the Company is 125 Froehlich Farm Boulevard, Woodbury, New York 11797. The
titles of the classes of equity securities to which this Statement relates are
the common stock, par value $.01 per share (the 'Common Stock'), of the Company
and the $2.00 Convertible Exchangeable Preferred Stock, par value $.01 per share
(the 'Preferred Stock'), of the Company (the Common Stock and the Preferred
Stock are sometimes collectively referred to herein as the 'Shares').
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by Prometheus Acquisition Corp.,
a Delaware corporation, as bidder (the 'Offeror'), a wholly owned subsidiary of
Prometheus Senior Quarters, LLC, a Delaware limited liability company
('Parent'), and an affiliate of Lazard Freres Real Estate Investors, L.L.C., a
Delaware limited liability company ('LFREI'), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated March 2, 1998 (the 'Schedule 14D-1'), to
purchase all of the outstanding shares of Common Stock, at a price of $14.50 per
share, net to the seller in cash, without interest (the 'Common Stock Offer
Price'), and all of the outstanding shares of Preferred Stock, at a price of
$27.93 per share, net to the seller in cash, without interest (the 'Preferred
Stock Offer Price'), upon the terms and subject to the conditions set forth in
the Offeror's Offer to Purchase, dated March 2, 1998 (the 'Offer to Purchase'),
and the related Letter of Transmittal (which, together with the Offer to
Purchase, constitute the 'Offer' and are contained within the Schedule 14D-1).
As set forth in the Schedule 14D-1, the principal executive offices of
Parent and the Offeror are located at 30 Rockefeller Plaza, New York, New York
10020.
The Offer is being made pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 23, 1998 (the 'Merger Agreement'), among
the Company, Parent and the Offeror, pursuant to which, following the
consummation of the Offer and the satisfaction or waiver of certain conditions
set forth in the Merger Agreement and in accordance with the General Corporation
Law of the State of Delaware (the 'DGCL'), the Offeror will be merged with and
into the Company (the 'Merger'), the separate existence of the Offeror will
cease and the Company will continue as the surviving corporation following the
Merger (the 'Surviving Corporation'). At the effective time of the Merger (the
'Effective Time'), each outstanding Share (other than Shares held in the
treasury of the Company, Shares owned by any subsidiary of the Company, Shares
owned by the Offeror or Parent or Shares with respect to which appraisal rights
are properly exercised under the DGCL (the 'Dissenting Shares')) will be
converted into and represent the right to receive, in the case of the Common
Stock, the Common Stock Offer Price (the 'Common Stock Merger Consideration')
and in the case of the Preferred Stock, the Preferred Stock Offer Price (the
'Preferred Stock Merger Consideration,' together with the Common Stock Merger
Consideration, the 'Merger Consideration'), in each case in cash without
interest. Certain other terms of the Merger Agreement are described in Item
3(b). A copy of the Merger Agreement is filed herewith as Exhibit 1 and is
incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and its executive officers, directors and affiliates are described
on pages 5-16 of the Company's proxy statement relating to the annual meeting of
the Company's stockholders held on July 18, 1997 (the '1997 Proxy Statement') in
the sections, 'Compensation of Directors,' 'Summary Compensation Table,'
'Employment Agreements,' 'Compensation Committee Report,' 'Certain Transactions'
and 'Certain Transactions Regarding Sales of Common Stock.' Pages 5-16 of the
1997 Proxy Statement are filed as Exhibit 2 hereto and are incorporated herein
by reference.
ARRANGEMENTS REGARDING THE OPERATION OF CERTAIN OF THE COMPANY'S FACILITIES
Because of New York law and regulations, Glenn Kaplan, Wayne L. Kaplan and
Evan A. Kaplan (collectively, the 'Kaplans'), directors and executive officers
of the Company who beneficially own approximately 54% of the outstanding Common
Stock, individually currently are, and subsequent to any consummation of the
Offer or the Merger will continue to be, the operators of most of the Company's
assisted
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living facilities located in New York until such time as a successor entity
controlled by one of the Kaplans and an individual associated with LFREI is
approved as a replacement operator in accordance with applicable law. Subsequent
to consummation of the Merger, each operating agreement with a facility that is
wholly owned by the Company will have a term of five years and provide for a
management fee to the operators of $5,000 per month. The form of operating
agreement is filed as Exhibit 3 hereto and is incorporated herein by reference.
The current operating agreements with facilities not wholly owned by the Company
generally have a term of at least five years and provide for an operating fee
equal to 5% of gross revenues or the greater of 5% of gross revenues and a
minimum fee (if there is a minimum fee, it is usually set at $150,000 per annum
which, in some instances, will phase out over a period of time) and the Company
may also be entitled to an incentive fee. The Kaplans or the successor entity,
as operators of each of these facilities, will engage a wholly-owned subsidiary
of the Company to provide certain management services in connection with the
day-to-day operations of each facility, in each case pursuant to a separate
management agreement. The Master Management Services Agreement and the Interim
Management Services Agreement are filed as Exhibits 4 and 5 hereto,
respectively, and are incorporated herein by reference. The term of the
management agreements will be five years. The fee payable to the Company's
subsidiary under each management agreement with a facility operated by the
Kaplans or a successor entity and wholly owned by the Company will be $4,000 per
month. The fee payable to the Company's subsidiary under management agreements
related to facilities that are not wholly owned by the Company will be the
greater of (i) 5% of total gross revenues less $1,000 or (ii) $11,500 per month,
but the foregoing fee will be contingent on the operators receiving payment of
said amount from the owner of the facility. To the extent one or more of the
Kaplans retains operating fees, such amounts will be offset against the
Company's payment obligations under their employment agreements with the
Company. The Company has agreed to indemnify the Kaplans from and against any
losses, claims, damages and other liabilities they may sustain as a result of
their serving as operators of any facility owned by the Company or its
affiliates after the Merger or, under certain circumstances, after the Offer.
The letter agreement relating to the indemnification of the Kaplans by the
Company is filed as Exhibit 6 hereto and is incorporated herein by reference.
Pursuant to a letter agreement among the Company, the Kaplans, the Offeror
and Parent, dated February 23, 1998 (the 'Home Health Agency Letter Agreement'),
the Kaplans have agreed, for no monetary consideration, to use their reasonable
best efforts to arrange and obtain regulatory approval for the transfer of
responsibility for the operation of the Kapson Licensed Home Care Services
Agency ('KLHCSA'), which is currently owned and operated by The Kapson Group, a
partnership comprised of the Kaplans, to the Company promptly after the
consummation of the Offer or the Merger. The Kaplans have also agreed to cause
KLHCSA to maintain its existing business arrangements with the Company and its
subsidiaries until the ownership of KLHCSA is transferred to the Company, which
the parties acknowledge may take a considerable period of time due to the need
for regulatory review of the transfer application by the New York Department of
Health. The Home Health Agency Letter Agreement is filed as Exhibit 7 hereto and
is incorporated herein by reference.
The operating agreements, the Interim Management Services Agreement and the
Master Management Services Agreement are in the process of being revised to
conform to comments recently received from the New York State Department of
Health. These revisions will reduce the role of the Company in the operation of
the New York facilities and increase the authority of the operator of the New
York facilities.
THE MERGER AGREEMENT
The Offer
The Offeror commenced the Offer in accordance with the terms of the Merger
Agreement.
The Merger
The Merger Agreement provides that upon the terms and subject to the
conditions therein, and in accordance with the DGCL, at the Effective Time the
Offeror will be merged with and into the Company and the separate corporate
existence of the Offeror will cease and the Company will continue as the
Surviving Corporation. The Certificate of Incorporation and By-laws of the
Company, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation and By-laws of the Surviving Corporation. The
directors of the Offeror immediately prior to the Effective Time and Glenn
Kaplan and Evan A. Kaplan (directors and executive officers of the Company) will
be the directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation as of the Effective Time.
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Conversion of Securities
At the Effective Time, (1) each share of Common Stock issued and
outstanding immediately prior thereto will be converted into the right to
receive the Common Stock Merger Consideration, without interest, and (2) each
share of Preferred Stock issued and outstanding immediately prior thereto will
be converted into the right to receive the Preferred Stock Merger Consideration,
without interest (except in each such case for Shares held by the Company as
treasury shares, Shares owned by Parent or any of its subsidiaries, including
the Offeror, all of which will be canceled and no consideration will be
delivered in exchange therefor, and Dissenting Shares). 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, will 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 Common Stock Merger Consideration over the per share exercise price
of such Option, without interest.
Dissenting Shares
The Merger Agreement provides that, if required by the DGCL, Dissenting
Shares will not be exchangeable for the right to receive the Merger
Consideration and holders of such Dissenting Shares will be entitled to receive
payment of the appraised value of their Dissenting Shares in accordance with the
DGCL unless such holders fail to perfect or withdraw or lose their right to
appraisal and payment under the DGCL. If, after the Effective Time, any holder
fails to perfect or effectively withdraws or loses such right, such Dissenting
Shares will thereupon be treated as if they had been converted into, at the
Effective Time, the right to receive, without interest, the Merger
Consideration.
Merger Without Meeting of Stockholders
If the Offeror, or any other direct or indirect subsidiary of Parent,
acquires at least 90% of the outstanding shares of the Common Stock and at least
90% of the outstanding shares of the Preferred Stock, the parties agree to take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company in accordance with Section 253 of the DGCL.
Representations and Warranties
The Merger Agreement contains customary representations and warranties of
the Company and its subsidiaries relating to: (a) organization, standing and
power; (b) capital structure; (c) subsidiaries; (d) authority and
non-contravention; (e) documents filed by the Company with the Securities and
Exchange Commission (the 'Commission'); (f) absence of certain events; (g)
litigation; (h) compliance with law; (i) employee plans; (j) employment
relations and agreements; (k) contracts; (l) environmental laws and regulations;
(m) property and leases; (n) patents, trademarks and copyrights; (o) insurance;
(p) takeover statutes; (q) taxes; (r) absence of change of control; (s) brokers;
and (t) disclosures.
The Merger Agreement also contains customary representations and warranties
of Parent relating to: (a) organization, standing and power; (b) authority and
non-contravention; (c) financing; and (d) brokers. In addition, the Merger
Agreement contains representations and warranties of the Offeror relating to:
(a) organization and standing; and (b) authority and non-contravention.
Conduct of Business
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, the Company will, and will cause each of 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 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
the Merger Agreement, the Merger Agreement provides that the Company will not,
and will cause each of its subsidiaries not to, without the prior written
consent of Parent: (a) other than in connection with (i) the conversion of
Preferred Stock into Common Stock in accordance with its terms, (ii) the
exercise of options outstanding prior to the date hereof in accordance with
their terms and (iii) the payment of dividends on the Preferred Stock in
accordance with its 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,
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or otherwise make any payments to its stockholders in their capacity as such,
(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) and (ii) 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 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; (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 by the Merger
Agreement 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; (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; or (x) take, or agree in writing or
otherwise to take, any of the foregoing actions.
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The Merger Agreement also provides that, prior to the Effective Time, as
requested by Parent, (i) the Company will confer on a regular basis with one or
more representatives of Parent with respect to material operational matters;
(ii) the Company will, within 30 days following each fiscal month, deliver to
Parent 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 (as defined in the Merger Agreement)
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 therein, the Company will promptly notify Parent thereof.
Alternative Proposal
Pursuant to the Merger Agreement, the Company agrees (a) that neither it
nor any of its subsidiaries will, nor will 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 stockholders after 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 prior to the execution of
the Merger Agreement 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 described in this paragraph; provided, however, that the Company or
its Board of Directors may take and disclose to the Company's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) promulgated under the Securities Exchange Act of 1934 (the
'Exchange Act') or may make 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. The Merger Agreement
provides that the Company will immediately advise Parent in writing of the
receipt, directly or indirectly, of any inquiry, discussion, negotiation or
proposal relating to an Alternative Proposal (including the specific terms
thereof and the identity of the other party or parties involved) and furnish to
Parent 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
Merger Agreement provides that the Company will immediately advise Parent, in
writing, if the Board of Directors of the Company makes any determination as to
any Alternative Proposal.
Company Stockholder Approval; Proxy Statement
The Merger Agreement provides that if approval or action in respect of the
Merger by the stockholders of the Company is required by applicable law, the
Company will, if appropriate, call a meeting of its stockholders (the
'Stockholder Meeting') for the purpose of voting upon the Merger and will use
its reasonable best efforts to obtain stockholders' approval of the Merger. The
Merger Agreement provides that the Stockholder Meeting will be held as soon as
practicable following the purchase of Shares pursuant to the Offer and the
Company will, through its Board of Directors but subject to the fiduciary duties
of its Board of Directors under applicable law as determined by the Board of
Directors in good faith after consultation with the Company's outside counsel,
recommend to its stockholders the approval of the Merger and not rescind its
declaration that the Merger is advisable. The record date for the Stockholder
Meeting will be a date subsequent to the date Parent or the Offeror becomes a
record holder of Shares purchased pursuant to the Offer. The Merger Agreement
also provides that if required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary proxy statement or, if applicable, an information statement with the
Commission with respect to the Stockholder Meeting and will use its reasonable
best efforts to respond to any comments of the Commission or its staff and to
cause such proxy statement or information statement to be cleared by the
Commission. As promptly as practicable after the proxy statement or, if
applicable, the information statement has
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been cleared by the Commission, the Company will mail the proxy statement or, if
applicable, the information statement to the stockholders of the Company.
The Merger Agreement provides that the Company will use its reasonable best
efforts to obtain any necessary approvals by its stockholders of the Merger, the
Merger Agreement and the transactions contemplated thereby and that Parent will
cause all Shares purchased pursuant to the Offer and all other Shares owned by
the Offeror or any other subsidiary of Parent to be voted in favor of the
approval of the Merger.
Indemnification and Insurance
The Merger Agreement provides that Parent will cause the Surviving
Corporation to keep in effect provisions in its Certificate of Incorporation and
By-laws 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
of the Merger Agreement been entitled to the benefit of the indemnification
provisions set forth in the Company's Certificate of Incorporation and By-laws
(the 'Indemnified Parties'), to the fullest extent now or hereafter permitted
under the DGCL, which provisions will 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. Pursuant to the Merger Agreement,
the Surviving Corporation will pay all expenses, including attorneys' fees, that
may be incurred by any Indemnified Parties in enforcing the indemnity
obligations provided for in this paragraph. The Merger Agreement provides that
the rights of each Indemnified Party thereunder will be in addition to any other
rights such Indemnified Party may have under the Certificate of Incorporation or
By-laws of the Company, under the DGCL or otherwise. Further, the Merger
Agreement provides that for the period from the time the Offeror first purchases
Shares pursuant to the Offer through the Effective Time, Parent will not permit
the Company to amend the provisions in its Certificate of Incorporation or
By-laws providing for exculpation of directors' and officers' liability and
indemnification of the Indemnified Parties.
Under the Merger Agreement, the Surviving Corporation will 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 will not be required to maintain or procure such coverage to pay an
annual premium in excess of 150% of the current annual premium paid by the
Company 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 will be required to obtain only
as much coverage as can be obtained by paying an annual premium equal to the
Cap.
Board Representation; Directors
Pursuant to the Merger Agreement, promptly upon the purchase of shares of
Common Stock pursuant to the Offer, Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Parent, subject to compliance with Section
14(f) of the Exchange Act, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Parent
bears to the number of shares of Common Stock outstanding, and the Company will,
upon request by Parent, promptly increase the size of the Board of Directors
and/or exercise its reasonable best efforts to secure the resignations of such
number of directors as is necessary to enable Parent's designees to be elected
to the Board of Directors and will cause Parent's designees to be so elected.
The Merger Agreement provides that the Company will take, at its expense, all
action required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
thereunder in order to fulfill its obligations under this paragraph and will
include in the Schedule 14D-9 or otherwise timely mail to its stockholders such
information with respect to the Company and its officers and directors as is
required by such Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this paragraph. Parent will supply to the Company in writing
and be solely responsible for any information with respect to itself and its
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1. A copy of the information statement is filed as Schedule I hereto
and is incorporated herein by reference.
Fees and Expenses
The Merger Agreement provides that whether or not the Merger, the Offer or
the other transactions contemplated by the Merger Agreement are consummated,
except as described below under 'Effect of
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Termination and Abandonment,' all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses.
Conditions to Each Party's Obligation to Effect the Merger
The respective obligations of each party to effect the Merger will be
subject to the fulfillment at or prior to the Effective Time of the following
conditions: (a) if approval of the Merger by the holders of the Common Stock is
required by applicable law, the Merger will have been approved by the requisite
vote of such holders; and (b) 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 will have been issued
and remain in effect (each party agreeing to use all commercially reasonable
efforts to have any such injunction lifted).
Termination by Mutual Consent
The Merger Agreement provides that it may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after any
approval by the stockholders of the Company, by the mutual consent of Parent and
the Company prior to the purchase of the Shares pursuant to the Offer.
Termination by Either Parent or the Company
The Merger Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of the Company or by Parent if: (a) the Merger
has not been consummated by December 31, 1998; provided, however, that the right
to terminate the Merger Agreement pursuant to this clause will not be available
(i) to Parent, if the Offeror or any affiliate of the Offeror acquires Shares
pursuant to the Offer, or (ii) to any party whose failure to fulfill any
obligation of the Merger Agreement has been the cause of, or resulted in, the
failure of the Merger to have occurred on or prior to the aforesaid date; or (b)
upon a vote at a duly held meeting or upon any adjournment thereof, the
stockholders of the Company have failed to give any approval required by
applicable law; 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 has issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action has become final and non-appealable;
provided that the party seeking to terminate the Merger Agreement pursuant to
this clause has used all commercially reasonable efforts to remove such
injunction, order or decree; or (d) as the result of the failure of any of the
conditions to the Offer or otherwise, the Offer has terminated or expired in
accordance with its terms without the Offeror having purchased any Shares
pursuant to the Offer; provided, however, that the right to terminate the Merger
Agreement pursuant to this clause (d) will not be available to any party whose
failure to fulfill any of its obligations under the Merger Agreement results in
the failure of any such condition; or (e) Parent has reasonably determined that
any condition to the Offer (other than the condition that a minimum number of
Shares be tendered in the Offer) is not capable of being satisfied at any time
in the future and the Offeror has not purchased Shares pursuant to the Offer;
provided, however, that the right to terminate the Merger Agreement pursuant to
this clause (e) will not be available to any party whose failure to fulfill any
obligation of the Merger Agreement has been the cause of, or resulted in, such
Offer condition being incapable of satisfaction.
Termination by Parent
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time by Parent if the Board of Directors of the
Company has failed to recommend, or has withdrawn, modified or amended in any
material respect its approval or recommendations of the Offer or the Merger or
has resolved to do any of the foregoing, or has recommended an Alternative
Proposal to the Company's stockholders.
Termination by the Company
The Merger 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, 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 the Merger 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 the
Merger Agreement pursuant to this paragraph will not be available (i) if the
Company has breached in any material respect its obligations under the Merger
Agreement or
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(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 can be financed. The Company will provide Parent with two
days' written notice of its intention to so terminate the Merger Agreement.
Effect of Termination and Abandonment
(a) If (w) the Merger Agreement is terminated by either party pursuant to
clause (b) under the paragraph above, 'Termination by Either Parent or the
Company,' (x) the Board of Directors of the Company withdraws or modifies in a
manner adverse to Parent its approval or recommendation of the Offer or the
Merger or recommends an Alternative Proposal to the Company's stockholders and
Parent terminates the Merger Agreement pursuant to the paragraph above,
'Termination by Parent,' (y) the Merger Agreement is terminated by the Company
pursuant to the paragraph above, 'Termination by the Company,' or (z) any person
makes an Alternative Proposal at $14.50 per share of Common Stock or more for
75% or more of the Common Stock and thereafter the Merger Agreement is
terminated for any reason other than those set forth in clause (w), (x) or (y)
above and within six months thereafter the Company enters into an agreement with
respect to an Alternative Proposal at $14.50 per share of Common Stock or more
for 75% or more of the Common Stock, then the Merger Agreement provides that the
Company will pay Parent $6,000,000. The Merger Agreement further provides that
if the Merger Agreement is terminated as a result of the failure of the
conditions specified in Exhibit A thereto, then the Company will promptly
reimburse Parent for all out-of-pocket costs and expenses incurred by Parent in
connection with the Offer, the Merger Agreement and the transactions
contemplated thereby, including costs and expenses of accountants, attorneys and
financial advisors in an amount not to exceed $1,000,000. The Merger Agreement
is filed as Exhibit 1 hereto and is incorporated herein by reference.
THE STOCKHOLDER AGREEMENT
Pursuant to a Second Amended and Restated Stockholders Agreement, dated as
of February 23, 1998 (the 'Stockholder Agreement'), among the Kaplans and
Parent, the Kaplans, who beneficially own in the aggregate approximately 54% of
the outstanding shares of Common Stock, have agreed to tender and sell to Parent
pursuant to the Offer all the Common Stock held by them and not to withdraw any
Common Stock tendered in the Offer.
Each of the Kaplans has further agreed to: (1) vote all of the shares of
Common Stock beneficially owned by him in favor of the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement; (2) vote
the shares of Common Stock beneficially owned by him against any action or
agreement involving a sale of such 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 (3)
vote the shares of Common Stock beneficially owned by him against any action or
agreement that would reasonably be expected to impede, interfere with, delay or
attempt to discourage the Merger. If any of the Kaplans fails to comply with the
foregoing, as determined by Parent in its sole discretion, such failure will
result in the automatic, irrevocable appointment of Parent as the attorney and
proxy of such Kaplan, with full power of substitution, to vote, and otherwise
act with respect to, all shares of Common Stock that such Kaplan is entitled to
vote on any of the foregoing matters.
The Kaplans also have granted to Parent an irrevocable option (the 'Stock
Option') to purchase for $14.50 per share (i) all, but not less than all, of the
shares of Common Stock beneficially owned by the Kaplans and (ii) any additional
shares of Common Stock acquired by the Kaplans during the term of the
Stockholder Agreement. The Stockholder Agreement sets no limitation on the
number of shares of Common Stock the Kaplans can own. The Stock Option may be
exercised by Parent at any time prior to the termination of the Stockholder
Agreement and prior to the earliest to occur of (i) the first anniversary of the
date of the Stockholder Agreement, (ii) if the Merger Agreement is terminated,
or Parent provides written or oral notice to the Company that it elects not to
consummate the Offer or close the transactions contemplated by the Merger
Agreement, as a result of the failure of any of the conditions specified in
Exhibit A to the Merger Agreement, and at the time of such termination or notice
there does not exist any Alternative Proposal at $14.50 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, or Parent provides written or oral notice to the Company that it
elects not to consummate the Offer or close the transactions contemplated by the
Merger
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Agreement, as a result of the failure of any of the conditions specified in
Exhibit A to the Merger Agreement, and at the time of such termination or notice
there exists any Alternative Proposal at $14.50 or more per share of Common
Stock for 75% or more of the outstanding Common Stock of the Company, the date
six months after the date of the termination of the Merger Agreement; provided,
however, that if a tender offer is commenced by any party or entity other than
Parent and its affiliates with respect to the Common Stock, then,
notwithstanding any provision of the Stockholder Agreement, the Kaplans may
tender all or any of their shares of Common Stock into such tender offer on or
before the time 48 hours before the expiration of such offer.
Each of the Kaplans has also made certain covenants with respect to the
disposition or encumbrance of the shares of Common Stock beneficially owned by
him, the acquisition of additional shares and the solicitation of transactions
relating to the shares of Common Stock beneficially owned by him. Each of the
Kaplans has further agreed that, in the event of any change in the
capitalization of the Company, he will adjust the number and kind of the shares
of Common Stock beneficially owned by him and the consideration payable in
respect of such shares so as to restore to Parent its rights and privileges
under the Stockholder Agreement.
The Stockholder Agreement is filed as Exhibit 8 hereto and is incorporated
herein by reference.
THE EMPLOYMENT AGREEMENTS
In connection with the execution of the Merger Agreement, the Company has
entered into an amended and restated employment agreement with each of the
following employees: (1) Glenn Kaplan as Chief Executive Officer; (2) Evan A.
Kaplan as Chief Operating Officer; (3) Wayne L. Kaplan as Senior Executive Vice
President, Secretary or General Counsel; and (4) Raymond DioGuardi as Chief
Financial Officer. Base compensation under the employment agreements will be not
less than $250,000 per year for Glenn Kaplan, not less than $225,000 per year
for Evan A. Kaplan, not less than $200,000 per year for Wayne L. Kaplan, and not
less than $175,000 per year for Mr. DioGuardi. In addition, each of the
employees will be entitled to receive a target bonus, based upon the Company's
achievement of certain operating and/or financial goals, equal to a specified
percentage of each employee's then current annual base salary (up to 75% in the
case of Glenn Kaplan and Wayne L. Kaplan, up to 100% in the case of Evan A.
Kaplan, and up to 50% in the case of Mr. DioGuardi). With respect to each of
Glenn Kaplan, Evan A. Kaplan and Wayne L. Kaplan, any bonus payable in respect
of the fiscal year beginning January 1, 1998 shall be payable, with interest at
an annual rate equal to 4%, within five days following the end of fiscal year
1999; provided, however, that no bonus shall be payable for such fiscal year in
the event the employee's employment with the Company shall have been terminated
by the Company for 'Cause' (as defined in such employee's employment agreement)
or voluntarily by the employee without 'Good Reason' (as defined in such
employee's employment agreement) on or prior to December 31, 1999. The Board of
Directors may increase an employee's bonus for any fiscal year to an amount
greater than the percentages specified above; provided, however, that the
Company has attained no less than 95% of the applicable operating or financial
goals for such fiscal year. Each of the employees shall be eligible to
participate in all benefit plans and receive all fringe benefits available to
similarly situated employees which, in the aggregate, shall be no less favorable
than those provided to any other employee of the Company determined as of the
date of the employment agreements.
The term of each employment agreement is for two years commencing at the
Effective Time, which term will be automatically renewed for successive one-year
terms unless either party gives written notice no less than six months prior to
the then applicable term that the term will not be so extended. The Company may
terminate the employees at any time and for any reason, but the employees may
resign only for Good Reason. If an employee's employment with the Company is
terminated: (i) by the Company other than for Cause, death or disability; or
(ii) voluntarily by the employee with Good Reason, the employment agreement
provides that the Company will continue to pay such employee an amount equal to
his then current annual base salary for the remainder of the then applicable
employment term, and the Company will continue such employee's then current
medical coverage for a period of two years following the termination of the
employee's employment.
Pursuant to non-competition covenants contained in the employment
agreements, each of the employees has agreed that he will not, during the term
of his employment and for a period of three years after the date of his
termination (five years if he is terminated for Cause), directly or indirectly
own, manage, operate, join, control, be employed by or participate in the
ownership, management, operation or control of, or be connected in any manner,
including, but not limited to, holding the positions of stockholder, director,
officer, consultant, independent contractor, employee, partner or investor, with
any person or entity engaged in the business of
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providing assisted living, independent living, skilled nursing facilities or
continuing care retirement centers (containing assisted living, independent
living and skilled nursing facilities in one campus) (each a 'Competitive
Business') within a 25-mile radius of any such business operated or in the
pipeline to be operated (to the extent the employee has knowledge thereof after
due inquiry) by the Company, LFREI or any affiliate of LFREI (a 'Competing
Enterprise'); provided, however, that if Mr. DioGuardi's employment with the
Company shall be terminated by his giving notice of his intention not to extend
his employment past the second anniversary of the effective date of his
employment agreement (the 'Initial Term'), he shall not be precluded from
accepting the position of chief financial officer with any Competing Enterprise;
and provided, further, that if Mr. DioGuardi's employment is terminated by the
Company giving notice of its intention not to extend his employment beyond the
Initial Term (a 'Limited DioGuardi Termination'), Mr. DioGuardi shall have no
restriction on his employment after the Initial Term.
In addition, during the term of his employment and for a period of two
years thereafter, each of the employees has agreed not to interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the employee's term of employment was an employee
or customer of the Company or otherwise had a material business relationship
with the Company. With respect to each of Glenn Kaplan, Evan A. Kaplan and Wayne
L. Kaplan, the foregoing shall not apply with respect to Mr. DioGuardi if (i)
Mr. DioGuardi's employment shall have terminated pursuant to a Limited DioGuardi
Termination; and (ii) Mr. DioGuardi shall not be employed in any Competitive
Business.
The employment agreements between the Company and each of Glenn Kaplan,
Wayne L. Kaplan, Evan A. Kaplan and Raymond DioGuardi are filed as Exhibits 9,
10, 11 and 12 hereto, respectively, and are incorporated herein by reference.
THE ESCROW AGREEMENT
Pursuant to an Escrow Agreement, dated as of February 23, 1998, among the
Kaplans, the Company, the Offeror and Parent and a letter agreement among the
same parties dated as of the same date (the 'Escrow Agreement'), the Kaplans
have agreed that $6,000,000 of the proceeds from the shares tendered by them in
the Offer or sold by the Kaplans to Parent pursuant to the Stockholder Agreement
will be placed in escrow. The escrowed funds will be delivered to the Company if
the Kaplans or any of the Kaplans licensed to operate certain of the Company's
facilities loses any such operating certificate or if the Kaplans cause any such
facility to be without a licensed operator as a result of the breach by the
Kaplans of their obligations under certain agreements between the Kaplans and
the Company (a 'License Loss Breach') to the extent that such License Loss
Breach damages the Company. The escrowed funds will be delivered to the Kaplans
upon (i) the retention by the Kaplans of such operating certificates for a given
period of time, (ii) the issuance of such operating certificates for all such
facilities to a Replacement Operator (as defined in the Escrow Agreement), or
(iii) the satisfaction of certain other conditions. The Escrow Agreement is
filed as Exhibit 13 hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) At a meeting of the Board of Directors held on February 23, 1998, the
Board of Directors, based upon and subject to the terms and conditions set forth
in the Merger Agreement, unanimously approved and adopted the Merger Agreement,
the Merger and the Offer; and recommended that the stockholders of the Company
accept the Offer (and tender their Shares pursuant thereto)and adopt the Merger
Agreement and the transactions contemplated thereby. The events preceding this
action are described below in this Item 4(a).
The Company completed its initial public offering of Common Stock in
October 1996. Subsequent thereto, the Company expanded its business
significantly and entered into a number of negotiations relating to the
acquisition and development of assisted living facilities.
During the fourth quarter of 1996 and the first quarter of 1997, the
Company began to experience increased competition in the acquisition and
development of assisted living facilities in its core markets, principally from
other large companies, many of which have considerably greater financial
resources and a lower cost of capital than the Company. Because of such
competition, the continued expansion of the Company's business and its plans for
future expansion, the Company determined that it needed to increase its
financial resources. Beginning in early 1997, the Company evaluated the amount
of capital it would need to continue its acquisition and development program,
lower the cost of its indebtedness and improve its balance sheet. Among the
alternatives
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that were considered by the Company were (i) continuing to operate without a
capital infusion, (ii) undertaking a public or private offering of equity or
equity-linked securities or (iii) obtaining a strategic or financial investment
in the Company. The Company had preliminary discussions with potential strategic
and financial investors to evaluate the capital-raising alternatives available,
including an investment in the Company and a potential merger with the Company.
Most of these discussions did not progress beyond a preliminary stage. The
discussions with two such potential investors, both assisted living companies,
were terminated when the parties were unable to agree on the terms of investment
in the Company.
In August 1997, Salomon Brothers Inc ('Salomon Brothers'), a predecessor to
Salomon Smith Barney ('Salomon'), introduced the Company to a publicly traded
assisted living company with a market capitalization approximately twice that of
the Company ('Public Strategic Investor') that was interested in discussing a
possible business combination with the Company. After having conducted
preliminary negotiations with the Company, Public Strategic Investor made a
preliminary proposal to the Company to acquire 100% of the Common Stock for
$16.00 per share in cash, to redeem all the issued and outstanding Preferred
Stock and to assume the debt of the Company.
Also in August 1997, the Company received an indication of interest from a
private assisted living company ('Private Strategic Investor') to discuss the
potential acquisition of the Company by Private Strategic Investor for cash. The
Company met with Private Strategic Investor to discuss the terms of a potential
transaction. These negotiations continued into early September.
On September 11, 1997, Public Strategic Investor indicated, based on its
financial analysis of the Company, that its proposed offer would be dilutive to
Public Strategic Investor's current stockholders, and proposed in the
alternative that the parties commence discussions regarding a stock-for-stock
exchange. In the opinion of the Company, the terms of the proposed exchange were
not attractive because they would not be approved by the controlling
stockholders of the Company, who were interested in pursuing a cash transaction.
The Company reiterated its interest in a transaction involving cash. Based on
their inability to agree on a mutually acceptable merger consideration, the
Company and Public Strategic Investor mutually agreed to terminate discussions.
In mid September 1997, Salomon Brothers contacted Private Strategic
Investor in order to reopen discussions between the Company and Private
Strategic Investor. The Company renewed negotiations with Private Strategic
Investor, which negotiations continued through the end of September, during
which time Private Strategic Investor conducted due diligence.
On September 12, 1997, Salomon Brothers introduced LFREI to the Company and
the parties conducted preliminary discussions regarding a possible transaction.
On September 15, 1997, LFREI made a proposal to the Company to acquire 100% of
the Common Stock at a price of $16 per share and 100% of the Preferred Stock at
a price of $30.82 per share (which represents the number of shares of Common
Stock into which the Preferred Stock is convertible, multiplied by $16.00),
subject to the execution of a definitive agreement and the completion of
customary due diligence. On September 17, 1997, the Company and LFREI commenced
negotiations to discuss the terms and structure of a potential transaction,
which negotiations continued over the course of that week. On September 24,
1997, due to certain accounting considerations, LFREI withdrew its all cash
offer and offered instead a cash and stock proposal along the lines of a draft
of the Agreement and Plan of Merger among the Company, Parent and the Offeror
(the 'Original Merger Agreement,' and the merger contemplated therein, the
'Original Merger'), under which, among other things, each share of Common Stock
would be converted into the right to receive $16.00 in cash (the 'Original
Common Stock Consideration') and each share of Preferred Stock would be
converted into the right to receive $30.82 in cash (the 'Original Preferred
Stock Consideration' and, together with the Original Common Stock Consideration,
the 'Original Merger Consideration'), provided that holders of Common Stock
would have been required to retain, in the aggregate, an approximately 11%
equity interest in the Company (in lieu of cash) after the transaction. During
September, LFREI and its legal, accounting and other advisors conducted a
detailed due diligence review of the Company on a non-exclusive basis. During
this same period, the Company and LFREI, through their respective counsel,
exchanged drafts of the Original Merger Agreement and related documents,
including draft employment agreements for each of the Kaplans and Raymond
DioGuardi, Chief Financial Officer of the Company, and a draft stockholder
agreement, pursuant to which the Kaplans would agree to vote their shares of
Common Stock in favor of the proposed Original Merger and to grant Parent an
option to acquire their shares. With regard to the employment agreements, it was
agreed that the terms and conditions would be identical to the Kaplans' existing
agreements, with the
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exception of compensation, which would be lower on an overall basis when
compared to the Kaplans' then current overall compensation, and more heavily
weighted towards incentives, rather than straight, guaranteed salary. The
provisions in the stockholder agreement were standard and customary conditions
found in other merger transactions involving companies with significant
stockholders and were required by LFREI as a condition to entering into the
Original Merger Agreement. LFREI insisted that the Kaplans retain a substantial
number of shares in the Company so that their interests would continue to be
closely aligned with those of other stockholders, including LFREI.
On September 30, 1997, a special meeting of the Board of Directors of the
Company was called to discuss the proposed Original Merger Agreement and to
receive a report from Salomon Brothers concerning the proposed Original Merger.
The Chairman of the Board, Glenn Kaplan, summarized for the Board of Directors
the terms of the Original Merger, the strategic advantages of the Original
Merger and the status of the Original Merger Agreement. The Board also discussed
the status of the negotiations with, and the due diligence investigation being
conducted by, Private Strategic Investor. Private Strategic Investor had
previously indicated to the Company that it needed to conduct further due
diligence prior to making a firm offer to acquire the Company, that it needed to
reconsider the structure of such an acquisition and, further, that it was
unlikely that any such offer would equal or exceed the value of the
consideration offered by LFREI. In light of the foregoing and the existing firm
offer from LFREI, the Board determined that discussions with Private Strategic
Investor should be terminated.
Salomon Brothers then distributed a report to the Board of Directors
describing the current financial and strategic situation of the Company and the
transaction with LFREI. Salomon Brothers discussed the analysis it had performed
to arrive at its opinion as to fairness. Salomon Brothers then rendered its
written opinion to the Board that, as of such date, the consideration to be
received and retained by the stockholders of the Company in the proposed
Original Merger was fair, from a financial point of view, to such stockholders.
After a full discussion of the proposed terms of the Original Merger, the
Kaplans left the meeting and the independent directors of the Company, Joseph G.
Beck, Bernard J. Korman, Risa Lavizzo-Mourey, M.D. and Gerald Schuster,
discussed the proposed Original Merger, as well as the stockholder agreement and
related employment agreements, among themselves. The independent directors
unanimously approved the execution and delivery of the Original Merger Agreement
and related definitive documentation. Because it was the sense of the
independent directors that the Board's approval would be unanimous, the
independent directors did not engage in any formal separate analysis or make a
separate presentation to the entire Board. The Kaplans rejoined the meeting and
the full Board of Directors of the Company thereupon unanimously approved the
Original Merger Agreement and related documents.
On September 30, 1997, the parties executed the Original Merger Agreement
and Parent and the Kaplans executed a stockholder agreement. On October 2, 1997,
the parties issued a press release announcing the Original Merger.
Subsequent to the execution of the Original Merger Agreement, the Company,
the Offeror and Parent worked together to satisfy the conditions to the
consummation of the Original Merger. Toward the end of January, the Company, the
Offeror and Parent separately began to be concerned about the possibility that
the conditions to the consummation of the Original Merger would not be satisfied
prior to March 31, 1998, the date on which either Parent or the Company would
have the right to terminate the Original Merger Agreement in accordance with its
terms. In particular, the Company was concerned that further delays in
consummating the Original Merger Agreement might adversely affect the Company's
business, including the Company's ability to effect acquisitions, develop new
facilities, obtain financing on competitive terms, retain and attract key
employees or otherwise make long-range plans. Parent and the Offeror were
concerned that the Company would not be able to satisfy certain conditions to
the closing of the Original Merger Agreement as specified therein relating to
the Company's delivery to Parent and the Offeror of certain information which
would support the projections provided by the Company to the Offeror and Parent
prior to the execution of the Original Merger Agreement, which projections, were
in part, the basis for the Original Merger Consideration.
On February 2, 1998, the Offeror and Parent met with the Company to discuss
the status of the transaction and express their respective concerns. At the
meeting, the parties discussed three possible alternatives. The first
alternative was an extension of the termination date specified in the Original
Merger Agreement. The second alternative was to make no change to the Original
Merger Agreement and to wait until March 31, 1998 to
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determine whether or not the conditions to the Original Merger were met, and if
they were not, the parties would at that time determine whether to amend, extend
or terminate the Original Merger Agreement. However, in each case,
representatives of the Company expressed the concern that any continued delay in
consummating the Original Merger would adversely affect the Company for the
reasons described in the preceding paragraph.
The third alternative discussed was to restructure the transaction as an
all-cash tender offer by the Offeror for all of the outstanding capital stock of
the Company. All of the participants at the meeting agreed that this alternative
would be in the best interest of all parties, since a successful cash tender
offer would allow the transaction to be consummated on an expedited basis.
However, representatives of the Offeror and Parent indicated that the
consideration per share of Common Stock to be offered in an all-cash tender
offer would have to be reduced to $14.50 from $16.00 (the value as provided in
the Original Merger Agreement). The Offeror and Parent believed that such
reduction was necessary to compensate Parent and the Offeror for the additional
cost of structuring the transaction as an all-cash tender offer, which could not
be characterized for accounting purposes as a 'recapitalization' transaction.
Representatives of the Company indicated at such meeting that an all-cash tender
offer would be attractive to the Company only if the Offeror and Parent would
agree that the conditions to the consummation of the Offer would not include
conditions relating to (i) material adverse changes, (ii) the accuracy of
representations and warranties contained in the Original Merger Agreement, (iii)
obtaining various consents and approvals and (iv) the delivery by the Company to
the Offeror and Parent of material to support the financial projections provided
by the Company to Parent (collectively, the 'Conditions'), which were conditions
to the Original Merger. The meeting concluded with the parties agreeing that an
all-cash tender offer was the preferred structure for a transaction if the
Company, the Offeror and Parent could agree on the terms thereof.
Subsequent to this meeting, in February the parties continued to attempt to
satisfy the conditions in the Original Merger Agreement while, at the same time,
the Offeror and Parent commenced a due diligence review of the Company to
determine whether they would be agreeable to commence an all-cash tender offer
which would not include the Conditions. As a result of this due diligence
review, the Offeror and Parent determined that, in light of the Company's recent
operations, the Company was not able to provide the Offeror and Parent with
supporting material affirming the projections provided by the Company to the
Offeror and Parent prior to the execution of the Original Merger Agreement,
which was a condition to Parent's and the Offeror's obligation to consummate the
Original Merger.
In mid February, it became apparent to the Company that certain conditions
to the Original Merger specified in the Original Merger Agreement were not
capable of being met prior to March 31, 1998. In addition, in mid February, the
respective legal counsels of Parent, the Offeror and the Company began
exchanging and negotiating documents relating to a possible all-cash tender
offer.
On February 21, 1998, Parent and the Offeror notified the Company that they
would agree to restructure the transaction as an all-cash tender offer for all
of the capital stock of the Company at $14.50 per share of Common Stock and
$27.93 per share of Preferred Stock and to the deletion of the Conditions as
conditions to the consummation of the Offer.
On February 22, 1998, the Board of Directors of the Company reviewed drafts
of the Merger Agreement and related documents. On February 22 and February 23,
1998, the Board of Directors of the Company discussed the Merger Agreement and
the Offer. Salomon and J.P. Morgan Securities Inc. ('J.P. Morgan'), which had
also been retained by the Company as the Company's financial advisor,
participated in such meetings and on February 23, 1998, each delivered its
opinion to the effect that the consideration to be received by the stockholders
in the Offer and the Merger was fair to the stockholders of the Company from a
financial point of view. On February 23, 1998, the Board of Directors approved
the Merger Agreement and the Offer, the Merger Agreement was executed and
delivered by all parties thereto and a press release relating thereto was
issued. The press release is filed as Exhibit 14 hereto and is incorporated
herein by reference.
(b) In addition to the matters considered by the Board of Directors and the
reasons described in paragraph (a) of this Item 4, the reasons for the
recommendation set forth in paragraph (a) of this Item 4 and the factors
considered by the Board of Directors of the Company in connection with such
recommendation are set forth below:
(1) The Board considered the risks and benefits of the Offer and the
Merger (collectively, the 'Transaction') against the risks and benefits of
continuing as an independent entity or continuing to pursue other potential
financial or strategic investments or relationships. Of these alternatives,
the Board of
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Directors concluded that the Transaction was in the best interests of the
stockholders of the Company. The Transaction was, on balance, the most
favorable acquisition proposal received by the Company from the time that
it initiated a search for an investor or partner to assist in taking
advantage of development and acquisition opportunities in the assisted
living marketplace, both because the consideration per share was the most
favorable and also because, as an all cash transaction, it provided
superior liquidity to the Company's stockholders; it was unlikely that a
continued search for alternatives would yield a proposal superior to the
Transaction. The Transaction was determined to be more favorable to
stockholders than the Company continuing as an independent entity because
the Company's future growth prospects as an independent entity could be
limited, since the Company does not have the ability, as an independent
entity, fully to take advantage of development and acquisition
opportunities in the assisted living marketplace due to its substantial
leverage and its relatively high cost of capital, as well as increased
competition for prime acquisition and development opportunities.
(2) The concern about the possibility that the conditions to the
consummation of the Original Merger would not be satisfied prior to March
31, 1998, the date on which either Parent or the Company would have the
right to terminate the Original Merger Agreement in accordance with its
terms. The Board was concerned that any such termination might adversely
affect the Company's ability to effect a transaction with another party on
terms similar to, or more favorable than, the proposed terms of the Merger
Agreement. The Board was also concerned that further delays in consummating
the Original Merger Agreement might adversely affect the Company's
business, including the Company's ability to effect acquisitions, develop
new facilities, obtain financing on competitive terms, retain and attract
key employees or otherwise make long-range plans.
(3) The elimination in the Merger Agreement of the Conditions
contained in the Original Merger Agreement and the restructuring of the
Transaction to include the Offer increased the likelihood that the
Transaction would be consummated and that consummation could be achieved in
a shorter time frame than under the Original Merger Agreement.
(4) The Board of Directors considered that shares of Common Stock have
traded as low as $6 3/8 per share during the last year, meaning that the
consideration to be received in the Transaction, even though it represented
a reduction from the consideration proposed to be received pursuant to the
Original Merger Agreement, offered a substantial premium to stockholders
compared to recent historical price levels of the Common Stock.
(5) The opinions of the Company's financial advisors to the effect
that, based upon and subject to various considerations (and the analyses
presented to the Board of Directors of the Company underlying such
opinions) set forth in such opinions, the consideration to be received by
the Company's stockholders in the Transaction is fair, from a financial
point of view, to such stockholders.
(6) The Board of Directors considered the Company's recent operating
results, as well as the Company's most recent internal financial
projections which indicated that projected increases in the Company's total
revenues, EBIT (earnings before interest and taxes) and net income for the
years ending December 31, 1998 and 1999 would be lower than the projected
increases in total revenues, EBIT and net income set forth in the Company's
internal financial forecasts that had been delivered to Parent in September
1997.
(7) The terms and conditions of the Stockholder Agreement, which
provides, among other things, that the Kaplans, who beneficially own
approximately 54% of the outstanding shares of Common Stock, will tender
all of their shares of Common Stock pursuant to the Offer. The Board was
also aware that Parent had requested and required that the Stockholder
Agreement be entered into as a condition of Parent's execution of the
Merger Agreement.
The opinions of Salomon and J. P. Morgan are filed herewith as Exhibits 15
and 16 hereto, respectively, and are incorporated herein by reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Salomon Brothers pursuant to a letter agreement dated
August 14, 1997 (the 'Salomon Engagement Letter') to act as its financial
advisor in connection with, among other things, a possible combination or sale
transaction involving the Company. Pursuant to the Salomon Engagement Letter,
Salomon
14
<PAGE>
rendered financial advisory services to the Company in connection with the
Transaction. Pursuant to the Salomon Engagement Letter, as amended on February
21, 1998, the Company will pay Salomon the following fees: (a) $150,000, payable
upon the execution of the Original Merger Agreement; plus (b) an additional fee
equal to 1% of the aggregate consideration (approximately $2.6 million), less
$1,000,000 in accordance with the February 21 amendment, which is contingent
upon the consummation of the Merger and payable at the closing thereof, against
which the fees described in clause (a) will be credited. The Company has also
agreed to reimburse Salomon for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement and to indemnify Salomon
against certain liabilities and expenses relating to or arising out of its
engagement, including certain liabilities under the federal securities laws.
The Company retained J. P. Morgan pursuant to a letter agreement dated
January 23, 1998 (the 'Morgan Engagement Letter') to act together with Salomon
as the Company's financial advisor in connection with the Offer and the Merger.
Pursuant to the Morgan Engagement Letter, the Company will pay J. P. Morgan a
fee of $1 million upon consummation of a merger of the Company, a sale of all or
a significant portion of the Company's assets, or a sale of more than 50% of its
equity securities. The Company also agreed to reimburse J. P. Morgan for all
reasonable expenses, not to exceed $50,000 without the Company's approval, and
to indemnify J. P. Morgan against certain liabilities and expenses relating to
or arising out of its engagement, including certain liabilities under the
federal securities laws.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except pursuant to the Stockholder Agreement (see Item 3 hereof),
during the past 60 days, neither the Company nor any subsidiary of the Company
nor, to the best of the Company's knowledge, any executive officer, director or
affiliate of the Company has effected a transaction in the Shares.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries presently intend to tender to the Offeror
all Shares held of record or beneficially owned by such persons (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Securities Exchange Act of 1934). Reference is also made to
the Stockholder Agreement described in Item 3 herein.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Statement, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in:
(1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) a tender offer for or other acquisition of securities by or of the
Company; or
(4) any material change in the present capitalization or dividend
policy of the Company.
(b) Not applicable.
15
<PAGE>
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- --------------- --------------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 Amended and Restated Agreement and Plan of Merger, dated as of February 23, 1998, among Prometheus
Senior Quarters, LLC, Prometheus Acquisition Corp. and Kapson Senior Quarters Corp.
Exhibit 2 Pages 5-16 of the Proxy Statement, dated June 23, 1997, of Kapson Senior Quarters Corp.
Exhibit 3 Form of operating agreement among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan and Senior
Quarters Management Corp.
Exhibit 4 Master Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne L.
Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 5 Interim Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne
L. Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 6 Letter agreement relating to the indemnification of Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan by Kapson Senior Quarters Corp.
Exhibit 7 Home Health Agency letter agreement, dated February 23, 1998, among Glenn Kaplan, Wayne L. Kaplan,
Evan A. Kaplan, Kapson Senior Quarters Corp., Prometheus Senior Quarters, LLC and Prometheus
Acquisition Corp.
Exhibit 8 Second Amended and Restated Stockholders Agreement, dated as of February 23, 1998, among
Prometheus Senior Quarters, LLC, Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.
Exhibit 9 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Glenn Kaplan.
Exhibit 10 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Wayne L. Kaplan.
Exhibit 11 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Evan A. Kaplan.
Exhibit 12 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Raymond DioGuardi.
Exhibit 13 Amended and Restated Escrow Agreement, dated as of February 23, 1998, and related letter agreement
among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan, Kapson Senior Quarters Corp. and Prometheus
Acquisition Corp.
Exhibit 14 Press release, dated February 24, 1998.
Exhibit 15* Opinion, dated February 23, 1998, of Salomon Smith Barney.
Exhibit 16* Opinion, dated February 23, 1998, of J. P. Morgan Securities Inc.
</TABLE>
- ------------------
* Included in copies mailed to stockholders.
16
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
KAPSON SENIOR QUARTERS CORP.
Dated: March 2, 1998 By /s/ GLENN KAPLAN
-------------------------
Glenn Kaplan
Chairman of the Board and
Chief Executive Officer
17
<PAGE>
SCHEDULE I
KAPSON SENIOR QUARTERS CORP.
125 FROEHLICH FARM BOULEVARD
WOODBURY, NEW YORK 11797
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about March 2, 1998 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
'Schedule 14D-9'). Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of persons (the
'Parent Designees') designated by Prometheus Senior Quarters, LLC, a Delaware
limited liability company ('Parent'), and an affiliate of Lazard Freres Real
Estate Investors, L.L.C., a Delaware limited liability company ('LFREI'), to a
majority of the seats on the Board of Directors of Kapson Senior Quarters Corp.
(the 'Company'). The Amended and Restated Agreement and Plan of Merger, dated as
of February 23, 1998 (the 'Merger Agreement'), among the Company, Parent and
Prometheus Acquisition Corp., a Delaware corporation (the 'Offeror'), requires
the Company to take all action necessary to cause the Parent Designees to be
elected to the Board of Directors under the circumstances described therein.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action.
Pursuant to the Merger Agreement, Parent caused the Offeror to commence the
Offer on March 2, 1998. The Offer is scheduled to expire at 12:00 Midnight, New
York City time, on March 27, 1998, unless the Offer is extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, the Offeror and the
Parent Designees has been furnished to the Company by Parent, and the Company
assumes no responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Common Stock is the only class of voting securities of the Company.
Each share entitles its record holder to one vote. As of February 20, 1998,
there were 7,750,000 shares of Common Stock issued and outstanding.
ELECTION OF DIRECTORS
Pursuant to the Merger Agreement, promptly upon the purchase of shares of
Common Stock pursuant to the Offer, Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Parent, subject to compliance with Section
14(f) of the Exchange Act, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Parent
bears to the number of shares of Common Stock outstanding, and the Company will,
upon request by Parent, promptly increase the size of the Board of Directors
and/or exercise its reasonable best efforts to secure the resignations of such
number of directors as is necessary to enable the Parent Designees to be elected
to the Board of Directors and will cause the Parent Designees to be so elected.
It is expected that the Parent Designees may assume office at any time
following the purchase by Parent of a majority of the outstanding Shares on a
fully diluted basis pursuant to the Offer, and that, upon assuming office, the
Parent Designees together with the continuing directors of the Company will
thereafter constitute the entire Board of Directors of the Company.
Biographical information concerning each of the Parent Designees is
presented below.
1
<PAGE>
PARENT DESIGNEES
Parent has informed the Company that the Parent Designees will be the
persons set forth below. The following sets forth the name, age, present
principal occupation or employment and five-year employment history for each of
the persons whom Parent has designated pursuant to the Merger Agreement as the
Parent Designees:
Robert P. Freeman, 52, has been a General Member of Lazard Freres & Co. LLC
since January 1998 and a Principal of LFREI since January 1993. Mr. Freeman
received a J.D. degree from Harvard Law School and a B.A. degree from Stanford
University. He is currently a director of American Apartment Communities,
Atlantic American Properties Trust, Commonwealth Atlantic Properties, ARV
Assisted Living Inc. ('ARV') and The Rubenstein Company, L.P. ('TRC').
Murry N. Gunty, 30, is a Principal of LFREI, which he joined in 1995. From
1995 to 1996, Mr. Gunty was a Vice President of LFREI. From 1993 to 1995, he was
associated with J.E. Robert Company, a real estate investment company. He is
currently a director of Atlantic American Properties Trust, ARV and TRC. Mr.
Gunty received an M.B.A. degree from Harvard Business School and an A.B. from
Harvard College.
Howard H. Stevenson, 56, has been the Sarofim-Rock Professor of Business
Administration at Harvard University, Graduate School of Business Administration
since 1994. He was Senior Associate Dean, Director of Financial and Information
Systems from 1991 to 1994. Dr. Stevenson was a founder of the Baupost Group,
Inc., a large money management organization, and serves as vice chairman and
chairman of its mutual fund. He is also chairman and a founder of Quadra Capital
Partners, a financial services firm. He is currently a director of Bessemer
Securities Corporation, Camp Dresser & McKee Inc., Landmark Communications, Gulf
States Steel and the Baupost Group, Inc. He received a B.S. degree in
mathematics from Stanford University and M.B.A. and D.B.A. degrees from Harvard
University.
Parent has informed the Company that each of the persons listed above has
consented to act as a director of the Company. None of the Parent Designees
currently is a director of, or holds any position with, the Company. To the best
knowledge of the Company, none of the Parent Designees beneficially owns any
equity securities, or rights to acquire any equity securities, of the Company or
has been involved in any transactions with the Company or any of its directors
or executive officers that are required to be disclosed pursuant to the rules
and regulations of the Securities and Exchange Commission (the 'Commission').
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
and directors of the Company as of February 27, 1998. Glenn Kaplan, Wayne L.
Kaplan and Evan A. Kaplan are brothers. There are no other family relationships
among any directors or officers of the Company. Each of the directors of the
Company has been a director since 1996. Officers are appointed by and serve at
the discretion of the Board of Directors. The Merger Agreement provides that
Glenn Kaplan and Evan A. Kaplan will continue as directors of the Company
subsequent to the consummation of the Merger. It is expected that, pursuant to
the Merger Agreement, Parent will request the Company to secure the resignations
of the other directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Glenn Kaplan.................................... 45 Chairman of the Board of Directors and Chief
Executive Officer
Wayne L. Kaplan................................. 42 Vice Chairman of the Board of Directors, Senior
Executive Vice President, Secretary and
General Counsel
Evan A. Kaplan.................................. 38 President, Chief Operating Officer and Director
Raymond DioGuardi............................... 42 Chief Financial Officer
Joseph G. Beck.................................. 42 Director
Bernard J. Korman............................... 64 Director
Risa Lavizzo-Mourey, M.D........................ 41 Director
Gerald Schuster................................. 66 Director
</TABLE>
2
<PAGE>
Glenn Kaplan is the Chairman of the Board of Directors and Chief Executive
Officer of the Company. Prior to June 1996, he was a partner and co-founder of
The Kapson Group, the predecessor of the Company. Glenn received a B.S. degree
in Accounting from the University of Bridgeport.
Wayne L. Kaplan is the Vice Chairman of the Board of Directors, Senior
Executive Vice President, Secretary and General Counsel of the Company. Prior to
June 1996, he was a partner and co-founder of The Kapson Group. Wayne is a
member of the New York State Bar, and was appointed to the New York State Life
Care Community Council. Additionally, he serves on the board of directors of the
Assisted Living Federation of America, the Connecticut Assisted Living
Association, the Empire State Association of Adult Homes and the New Jersey
Assisted Living Association. Wayne received a B.S. degree in Business from the
University of Rhode Island and a J.D. degree from the George Washington
University School of Law.
Evan A. Kaplan is the President, Chief Operating Officer and a director of
the Company. Prior to June 1996, he was a partner and co-founder of The Kapson
Group. Evan received a B.A. degree in Psychology from Syracuse University.
Raymond DioGuardi has been the Chief Financial Officer of the Company since
January 1997. From 1994 to January 1997, Mr. DioGuardi was Senior Vice President
of Finance and Chief Financial Officer of Dataflex Corporation, a public company
that sells computer hardware and related services. From 1989 to 1994, Mr.
DioGuardi was Vice President of Finance, Chief Financial Officer and Secretary
of Nathan's Famous, Inc. From 1977 to 1989, Mr. DioGuardi was employed by the
accounting firm of Price Waterhouse, where he became a senior manager with
responsibility for planning, coordinating and executing financial audits and
special projects for major corporate clients. Mr. DioGuardi is a certified
public accountant and received a B.A. degree in Business from Rutgers
University.
Joseph G. Beck, director, is a founding principal and executive committee
member of Shattuck Hammond Partners Inc. ('Shattuck Hammond'), a specialty
health care investment banking firm based in New York. He directs Shattuck
Hammond's activities in the area of long-term care and related companies. Prior
to Shattuck Hammond, he was a Vice President (1987-1990) and Principal
(1990-1993) at Cain Brothers, Shattuck & Company, a predecessor to Shattuck
Hammond. From 1985 to 1987, he was a Vice President at Chemical Bank where he
eventually directed the investment banking work with hospitals and other health
care companies. Prior thereto, he was a senior credit analyst at Moody's
Investors Services, Inc., a financial services company. From 1978 to 1982, he
held several positions in health care regulation and policy analysis for various
departments of the New York State Government and for the New York State Senate.
Mr. Beck is a member of the Board of Trustees of The Lighthouse, a
not-for-profit vision rehabilitation, research and training agency. He received
a B.A. degree from LeMoyne College and a Masters degree in Health Policy and
Management from the Harvard University School of Public Health.
Bernard J. Korman, director, has been Chairman of the Board of Directors of
The Graduate Health System, a Philadelphia-based, not-for-profit health system
with hospitals in Pennsylvania and New Jersey, since December 1995. From 1983 to
1996, Mr. Korman was Chairman of PCI Services, Inc., a publicly-traded company.
Since 1986, Mr. Korman has been Chairman of the Board of Directors of NutraMax
Products, Inc., a publicly-traded consumer health care products company. From
1983 until 1996, Mr. Korman was President, Chief Executive Officer and a
director of MEDIQ, Incorporated, a publicly-traded health care services company.
Mr. Korman is currently a director of The New America High Income Fund, Pep
Boys--Manny, Moe & Jack, Today's Man, Inc., Omega Healthcare Investors, Inc.,
InnoServ Technologies, Inc. and Kranzco Realty Trust. PCI Services, Inc. and
NutraMax Products are affiliates of MEDIQ, Incorporated. Mr. Korman received a
B.S. degree from the University of Pennsylvania and an L.L.B. degree from the
University of Pennsylvania School of Law.
Dr. Risa Lavizzo-Mourey, director, has been Director of the Institute of
Aging, Chief of the Division of Geriatric Medicine and Associate Executive Vice
President for Health Policy at the University of Pennsylvania, Ralston-Penn
Center, since 1994. From 1992 to 1994, Dr. Lavizzo-Mourey served with the Agency
for Health Care Policy and Research, U.S. Public Health Service of the
Department of Health and Human Services. Dr. Lavizzo-Mourey has been on the
faculty of the University of Pennsylvania School of Medicine since 1986, and is
currently the Sylvan Eisman Associate Professor of Medicine. Dr. Lavizzo-Mourey
is a director of Beverly Enterprises, Inc., Medicus Systems Corp., Managed Care
Solutions, Inc. and Nellco Puritan Bennett Inc.
3
<PAGE>
Dr. Lavizzo-Mourey received an M.D. degree from the Harvard Medical School and
an M.B.A. degree in Health Care Administration from The Wharton School of
Business, University of Pennsylvania.
Gerald Schuster, director, has been President and Chief Executive Officer
of Continental Wingate Company, Inc., a real estate, health care and financial
services company which is engaged in commercial mortgage lending and servicing,
development and syndication of multi-family housing, and has developed and
operated eight long-term care and rehabilitation facilities with 1,100 beds in
New York and Massachusetts, since 1971. Mr. Schuster serves as Chairman of the
Advisory Committee for the Massachusetts Housing Finance Agency, a state
authority for the issuance of multi-family housing debt. Mr. Schuster received a
B.B.A. degree from Clark University.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not employees of the Company an
annual fee of $10,000 and a per meeting fee of $500 for each directors meeting
and each committee meeting attended. Under the Company's 1996 Stock Incentive
Plan (the 'Incentive Plan'), each non-employee director was granted a
non-qualified option to purchase 10,000 shares of Common Stock at $10.00 per
share (the price per share to the public in the Company's initial public
offering) and each new non-employee director upon the date of his or her
election or appointment will be granted a non-qualified option to purchase
10,000 shares of Common Stock at the fair market value on the date of grant. All
options granted to non-employee directors will vest at the rate of 25% on each
of the first four anniversaries of the date of grant, assuming the non-employee
director is a director on those dates, and all such options generally will be
exercisable for a period of ten years from the date of grant. Upon a Change of
Control (as defined in the Incentive Plan), all unvested options (which have not
yet expired) will automatically become 100% vested. Directors who are employees
of the Company are not compensated for services as a director.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee, which consists of a majority of
independent directors who are not affiliated with the Kaplans ('Independent
Directors'), makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. Evan A. Kaplan,
Bernard J. Korman and Risa Lavizzo-Mourey are the members of the Audit
Committee. The Audit Committee held one meeting in 1997.
Compensation Committee. The Compensation Committee, which consists of a
majority of Independent Directors, approves the salaries and other benefits of
the executive officers of the Company and administers any non-stock based bonus
or incentive compensation plans of the Company (excluding any cash awards
intended to qualify for the exception for performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the 'Code')).
In addition, the Compensation Committee consults with the Company's management
regarding pension and other benefit plans and compensation policies and
practices of the Company. Glenn Kaplan, Joseph G. Beck and Gerald Schuster are
the members of the Compensation Committee. The Compensation Committee held one
meeting in 1997.
Stock Option Committee. The Stock Option Committee, consisting solely of
directors who, to the extent legally required, qualify as 'outside directors'
under Section 162(m) of the Code and as 'non-employee directors' under Rule
16b-3(c) of the Exchange Act, administers any stock-based incentive plans of the
Company, including the Incentive Plan. In addition, the Stock Option Committee
is responsible for granting any cash awards intended to qualify for the
exception for performance-based compensation under Section 162(m) of the Code.
Bernard J. Korman, Risa Lavizzo-Mourey and Gerald Schuster are the members of
the Stock Option Committee. The Stock Option Committee did not hold any meetings
in 1997.
Nominating Committee. The Company does not have a nominating committee of
the Board of Directors.
4
<PAGE>
MEETINGS OF DIRECTORS
The Board of Directors held four meetings and acted by unanimous written
consent several times in 1997. Each of the directors of the Company attended
more than 75% of the aggregate of (i) the total number of meetings of the Board
of Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which such director served.
EXECUTIVE COMPENSATION
The following table sets forth executive compensation information of the
Company's Chief Executive Officer and the other two most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------------------------------- ------------------------
OTHER RESTRICTED
ANNUAL STOCK SECURITIES
NAME AND COMPENSATION AWARD(S) UNDERLYING
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) OPTIONS #
- --------------------------------------- ---- ---------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Glenn Kaplan (1) 1997 234,144 0 294,579 0 0
Chairman of the Board and Chief
Executive Officer 1996 90,645(2) 26,500(3) 83,924(4) 0 0
1995 67,177 0 10,789(4) 0 0
Wayne L. Kaplan (1) 1997 234,144 0 279,716 0 0
Vice Chairman of the Board, Senior
Executive Vice President, Secretary
and 1996 90,645(2) 26,500(3) 75,114(4) 0 0
General Counsel
1995 67,177 0 2,113(4) 0 0
Evan A. Kaplan (1) 1997 234,144 0 279,640 0 0
President and Chief Operating Officer 1996 90,645(2) 26,500(3) 75,114(4) 0 0
1995 67,177 0 1,982(4) 0 0
Raymond DioGuardi (6) 1997 124,384 0 0 0 0
Chief Financial Officer
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION ($)
- --------------------------------------- ----------------
<S> <C>
Glenn Kaplan (1) 0
Chairman of the Board and Chief
Executive Officer 31,825(5)
39,500(5)
Wayne L. Kaplan (1) 0
Vice Chairman of the Board, Senior
Executive Vice President, Secretary
and 31,825(5)
General Counsel
39,500(5)
Evan A. Kaplan (1) 0
President and Chief Operating Officer 31,825(5)
39,500(5)
Raymond DioGuardi (6) 0
Chief Financial Officer
</TABLE>
- ------------------
(1) Each of the Kaplans entered into an employment agreement with the Company
effective October 1, 1996 and was compensated from that date forward in
accordance with the terms of that employment agreement. On February 23,
1998, the Kaplans entered into new employment agreements with the Company.
See 'Certain Transactions--Employment Agreements.'
(2) Represents, in each case, $44,508 paid as salary by The Kapson Group from
January 1, 1996 through September 30, 1996, plus $46,137 paid as salary from
October 1, 1996 through December 31, 1996 pursuant to the Kaplans'
employment agreements.
(3) Pursuant to the Kaplans' employment agreements, the bonus amounts were
awarded by the Compensation Committee and paid in 1997 for services rendered
from October 1, 1996 through December 31, 1996.
(4) For 1997, represents: (i) fees paid to each of the Kaplans under operating
agreements ($272,300 in each case); (ii) personal use of the Company
automobile; (iii) paid medical benefits; and (iv) with respect to Glenn
Kaplan only, partial payment of club membership dues. For 1996, represents:
(i) fees paid by the Company under the operating agreements from October 1,
1996 through December 31, 1996 ($73,114 in each case); (ii) personal use of
The Kapson Group/Company-paid automobile; (iii) paid medical benefits; and
(iv) with respect to Glenn Kaplan only, partial payment of club membership
dues. For 1995, represents: (i) personal use of The Kapson Group-paid
automobile; and (ii) with respect to Glenn Kaplan only, partial payment of
club membership dues.
(5) For 1996 and 1995, represents, in each case, the Company's payment of
premiums on a life insurance policy.
(6) Raymond DioGuardi commenced employment in January 1997.
5
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of options
under the Incentive Plan to the only named executive officer of the Company who
was granted stock options during the year ended December 31, 1997. No stock
appreciation rights ('SARS') were granted in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------- POTENTIAL
PERCENT OF REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK APPRECIATION
OPTIONS EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE) DATE(3) 5% 10%
- -------------------------------------- ------------- -------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Raymond DioGuardi..................... 21,000 100.0% $ 10.00 1/27/07 $58,019 $132,068
</TABLE>
- ------------------
(1) All options were granted pursuant to the Incentive Plan. The grant to Mr.
DioGuardi is exercisable in annual increments of 25% of the total grant,
beginning on the first anniversary of the date of grant. All options were
granted at the fair market value of the Common Stock on the effective date
of grant.
(2) Mr. DioGuardi received the only options granted to employees in 1997.
(3) The option is subject to earlier termination if the officer's employment
with the Company is terminated.
The following table sets forth information for the named executive officer
with respect to the value of options exercised during the year ended December
31, 1997 and the value of outstanding and unexercised options held as of
December 31, 1997. There were no SARs exercised during 1997 and none were
outstanding as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING
ACQUIRED UNEXERCISED OPTIONS
ON VALUE AT DECEMBER 31, 1996 VALUE OF UNEXERCISED
EXERCISE REALIZED ---------------------------- IN-THE-MONEY OPTIONS
NAME ($) ($) EXERCISABLE UNEXERCISABLE AT DECEMBER 31, 1996(1)
- ----------------------------------- -------- ----------- ----------- ------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Raymond DioGuardi.................. -- -- 0 21,000 $ 0 $ 102,375
</TABLE>
- ------------------
(1) Represents the difference between the closing market price of the Common
Stock as reported by the Nasdaq National Market on December 31, 1997 of
$14.875 per share and the exercise price per share of in-the-money options
multiplied by the number of shares underlying the in-the-money options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation policies and decisions, including those relating to salary,
bonuses and benefits of executive officers, were set or made by the Board of
Directors from the formation of the Company to the time of the Company's initial
public offering in October 1996 (the 'Initial Public Offering'). The Kaplans
participated as members of the Board of Directors in deliberations concerning
executive officer compensation. Upon the consummation of the Initial Public
Offering, the Board of Directors created a Compensation Committee consisting of
a majority of independent directors, which recommends to the Board the cash
compensation to be paid to the Company's executive officers. The members of the
Compensation Committee are Glenn Kaplan, Joseph Beck and Gerald Schuster. Glenn
Kaplan is the Chief Executive Officer of the Company, is party to certain
agreements by which he in his individual capacity is the licensed operator of
certain of the Company's New York facilities, and was party to certain
transactions with the Company in connection with the formation of
6
<PAGE>
the Company. Glenn Kaplan does not participate in discussions regarding
compensation to be paid to him or to Wayne L. Kaplan or Evan A. Kaplan.
COMPENSATION COMMITTEE REPORT
Compensation Policies. The principal goal of the Company's compensation
program as administered by the Compensation Committee is to help the Company
attract, motivate and retain the executive talent required to develop and
achieve the Company's strategic and operating goals with a view to maximizing
stockholder value.
CEO's Compensation; Compensation of the Kaplans
Salary. The Company entered into employment agreements with each of Glenn
Kaplan, Wayne L. Kaplan and Evan A. Kaplan prior to the formation of the
Compensation Committee. Pursuant to such agreements, the Company paid to each
Kaplan an annualized base salary of $234,144 from January 1, 1997 to December
31, 1997. These base salaries are competitive with those payable to executives
holding corresponding positions at corporations within the Company's industry
that are of comparable size. Individual experience and performance is considered
when setting salaries within the range for each position, although the current
employment agreements between the Company and each of the Kaplans provide that
each Kaplan shall receive equal compensation. Annual reviews are held and
adjustments are made based on attainment of individual goals and in a manner
consistent with the Company's overall operating and financial performance. On
February 23, 1998, the Board of Directors approved new employment agreements for
each of the Kaplans and for the chief financial officer. See 'Certain
Transactions--Employment Agreements.'
Bonus. The Kaplans did not receive any bonus for the period from January
1, 1997 to December 31, 1997.
Compensation of Other Executive Officers and Key Employees
Base Salary. Base salaries paid in 1997 to the Company's executive
officers and key employees are competitive with those payable to executives
holding corresponding positions at corporations within the Company's industry
that are of comparable size. Individual experience and performance is considered
when setting salaries within the range for each position. Annual reviews are
held and adjustments are made based on attainment of individual goals and in a
manner consistent with the Company's overall operating and financial
performance.
Annual Bonus. The annual bonus is intended to motivate individual and team
performance by creating potential to earn annual incentive awards that are
contingent upon the performance of the Company and that are comparable to those
payable to executives and key employees holding corresponding positions at
corporations within the Company's industry that are of comparable size. There
were no bonuses paid for 1997.
Long-Term Incentives. The Company provides its executives and key
employees with long-term incentive compensation through grants of stock options
under the Company's stock option plans. The grant of stock options aligns the
executive's interests with those of the Company's stockholders by providing the
executive with an opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the Common Stock. The
size of option grants is comparable to grants by other corporations within the
Company's industry that are of comparable size.
The Compensation Committee
Glenn Kaplan
Joseph G. Beck
Gerald Schuster
7
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows as of December 31, 1997 the beneficial ownership
of Common Stock with respect to (i) each person who was known by the Company to
own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each director and nominee for director, (iii) each executive officer of the
Company, and (iv) directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED CLASS
- ----------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Glenn Kaplan................................................................. 4,150,000(2) 53.5
Wayne L. Kaplan.............................................................. 4,150,000(2) 53.5
Evan A. Kaplan............................................................... 4,150,000(2) 53.5
Raymond DioGuardi............................................................ 21,000(3) *
Joseph G. Beck............................................................... 10,000(3) *
Bernard J. Korman............................................................ 10,000(3) *
Risa Lavizzo-Mourey, M.D..................................................... 10,000(3) *
Gerald Schuster.............................................................. 15,000(3) *
All directors and executive officers as a group (8 persons)(4)............... 4,216,000 54.0
Prometheus Senior Quarters, LLC
30 Rockefeller Center
New York, New York 10020(5)................................................ 4,150,000(6) 53.5
Sirach Capital Management, Inc.
600 University Street
Seattle, Washington 98101(7)............................................... 730,300 9.4
Fusion Capital Management, Inc.
237 Park Avenue
New York, New York 10012(8)................................................ 446,300 5.8
Thomson Hortsmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663(9).......................................... 431,300 5.6
</TABLE>
- ------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of the listed persons is c/o Kapson
Senior Quarters Corp., 125 Froehlich Farm Boulevard, Woodbury, New York
11797.
(2) Includes shares owned of record by the Kaplans, each of whom shares voting
and dispositive power over all of these shares, and Herbert and Jean Kaplan,
who have a pecuniary interest in, and have shared voting and dispositive
power over, 300,001 shares of Common Stock. Herbert and Jean Kaplan are the
parents of the Kaplans.
(3) Includes shares of Common Stock which the directors and executive officers
had the right to acquire through the exercise of options, as follows:
Raymond DioGuardi--21,000; Joseph G. Beck--10,000; Bernard Korman--10,000;
Risa Lavizzo-Mourey--10,000; and Gerald Schuster--10,000 shares.
(4) Includes shares of Common Stock as indicated in the preceding footnotes.
(5) Parent is wholly owned by LFREI.
(6) Parent has the right to cause the shares of Common Stock beneficially owned
by the Kaplans to be voted in favor of the Merger Agreement and has an
option to acquire all of such shares and, therefore, Parent may be deemed to
be the beneficial owner of such shares. See 'Certain
Transactions--Stockholder Agreement.'
(Footnotes continued on next page)
8
<PAGE>
(Footnotes continued from previous page)
(7) Information regarding Sirach Capital Management, Inc. ('Sirach') was
obtained from a Schedule 13G filed by it with the Commission on January 30,
1997. Such Schedule 13G states that Sirach is an investment advisor that has
sole voting power and sole dispositive power over 730,300 shares of Common
Stock.
(8) Information regarding Fusion Capital Management Inc. was obtained from a
Schedule 13D, as amended, filed by it with the Securities and Exchange
Commission on April 10, 1997. Such Schedule 13D states that Wayne M.
Cooperman and Ricky C. Sandler (the 'Reporting Persons') are the general
partners of Fusion Partners, L.P., a Delaware limited partnership that owns
388,800 shares of Common Stock, and that the Reporting Persons own Fusion
Capital Management, Inc., which is the investment manager of Fusion Offshore
Fund Limited, a British Virgin Islands corporation that owns 27,500 shares
of Common Stock. The Reporting Persons thus have shared voting and shared
dispositive power over 416,300 shares of Common Stock. In addition, Mr.
Cooperman has sole voting and dispositive power over 30,000 shares of Common
Stock owned by a family partnership.
(9) Information regarding Thomson Hortsmann & Bryant, Inc. ('THB') was obtained
from a Schedule 13G filed by it with the Securities and Exchange Commission
on January 16, 1997. Such Schedule 13G states that THB, a New York
corporation, is a registered investment advisor that has sole voting power
over 390,200 shares of Common Stock, shared voting power over 27,000 shares
of Common Stock, and sole dispositive power over 431,300 shares of Common
Stock.
The following table shows as of December 31, 1997 the beneficial ownership
of Preferred Stock with respect to each person who was known by the Company to
own beneficially, upon conversion of its shares of Preferred Stock, more than 5%
of the outstanding shares of Common Stock. To the knowledge of the Company, none
of the directors, nominees for director or executive officers owns any shares of
Preferred Stock.
<TABLE>
<CAPTION>
SHARES OF
PREFERRED STOCK
BENEFICIALLY OWNED
PRIOR TO PERCENT OF 'AS CONVERTED'
NAME AND ADDRESS OF BENEFICIAL OWNER(1) THE OFFER CLASS PERCENTAGE(1)
- -------------------------------------------------- ------------------ ---------- ---------------
<S> <C> <C> <C>
J.P. Morgan & Co., Incorporated
60 Wall Street
New York, New York 10260........................ 420,000 17.5 9.5
Dean Witter Intercapital
2 World Trade Center
New York, New York 10048........................ 345,000 14.4 7.9
Guardian Life Insurance Co. of America
201 Park Avenue South
New York, New York 10003........................ 320,000 13.3 7.4
Forest Investment Management Corp.
53 Forest Avenue
Old Greenwich, Connecticut 06810................ 240,000 10.0 5.6
</TABLE>
- ------------------
(1) Percentage of Common Stock that each stockholder would own assuming only
that stockholder has converted its shares of Preferred Stock into Common
Stock.
CERTAIN TRANSACTIONS
Arrangements Regarding the Operation of Certain of the Company's Facilities
Because of New York law and regulations, the Kaplans individually currently
are, and subsequent to any consummation of the Offer or the Merger will continue
to be, the operators of most of the Company's assisted living facilities located
in New York until such time as a successor entity controlled by one of the
Kaplans and an individual associated with LFREI is approved as a replacement
operator in accordance with applicable law. Subsequent to consummation of the
Merger, each operating agreement with a facility that is wholly owned by the
9
<PAGE>
Company will have a term of five years and provide for a management fee to the
operators of $5,000 per month. The current operating agreements with facilities
not wholly owned by the Company generally have a term of at least five years and
provide for an operating fee equal to 5% of gross revenues or the greater of 5%
of gross revenues and a minimum fee (if there is a minimum fee, it is usually
set at $150,000 per annum which, in some instances, will phase out over a period
of time) and the Company may also be entitled to an incentive fee. The Kaplans
or the successor entity, as operators of each of these facilities, will engage a
wholly-owned subsidiary of the Company to provide certain management services in
connection with the day-to-day operations of each facility, in each case
pursuant to a separate management agreement. The term of the management
agreements will be five years. The fee payable to the Company's subsidiary under
each management agreement with a facility operated by the Kaplans or a successor
entity and wholly owned by the Company will be $4,000 per month. The fee payable
to the Company's subsidiary under management agreements related to facilities
that are not wholly owned by the Company will be the greater of (i) 5% of total
gross revenues less $1,000 or (ii) $11,500 per month, but the foregoing fee will
be contingent on the operators receiving payment of said amount from the owner
of the facility. To the extent one or more of the Kaplans retains operating
fees, such amounts will be offset against the Company's payment obligations
under their employment agreements with the Company. The Company has agreed to
indemnify the Kaplans from and against any losses, claims, damages and other
liabilities they may sustain as a result of their serving as operators of any
facility owned by the Company or its affiliates after the Merger or, under
certain circumstances, after the Offer.
Pursuant to a letter agreement among the Company, the Kaplans, the Offeror
and Parent, dated February 23, 1998 (the 'Home Health Agency Letter Agreement'),
the Kaplans have agreed, for no monetary consideration, to use their reasonable
best efforts to arrange and obtain regulatory approval for the transfer of
responsibility for the operation of the Kapson Licensed Home Care Services
Agency ('KLHCSA'), which is currently owned and operated by The Kapson Group, a
partnership comprised of the Kaplans, to the Company promptly after the
consummation of the Offer or the Merger. The Kaplans have also agreed to cause
KLHCSA to maintain its existing business arrangements with the Company and its
subsidiaries until the ownership of KLHCSA is transferred to the Company, which
the parties acknowledge may take a considerable period of time due to the need
for regulatory review of the transfer application by the New York Department of
Health.
The operating agreements, the Interim Management Services Agreement and the
Master Management Services Agreement are in the process of being revised to
conform to comments recently received from the New York State Department of
Health. These revisions will reduce the role of the Company in the operation of
the New York facilities and increase the authority of the operator of the New
York facilities.
Indemnification and Insurance
The Merger Agreement provides that Parent will cause the Company, as the
surviving corporation following the Merger (the 'Surviving Corporation'), to
keep in effect provisions in its Certificate of Incorporation and By-laws
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 of the Merger
Agreement been entitled to the benefit of the indemnification provisions set
forth in the Company's Certificate of Incorporation and By-laws (the
'Indemnified Parties'), to the fullest extent now or hereafter permitted under
the General Corporation Law of the State of Delaware (the 'DGCL'), which
provisions will 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. Pursuant to the Merger Agreement, the Surviving Corporation
will pay all expenses, including attorneys' fees, that may be incurred by any
Indemnified Parties in enforcing the indemnity obligations provided for in this
paragraph. The Merger Agreement provides that the rights of each Indemnified
Party thereunder will be in addition to any other rights such Indemnified Party
may have under the Certificate of Incorporation or By-laws of the Company, under
the DGCL or otherwise. Further, the Merger Agreement provides that for the
period from the time the Offeror first purchases Shares pursuant to the Offer
through the effective time of the Merger (the 'Effective Time'), Parent will not
permit the Company to amend the provisions in its Certificate of Incorporation
or By-laws providing for exculpation of directors' and officers' liability and
indemnification of the Indemnified Parties.
Under the Merger Agreement, the Surviving Corporation will 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
10
<PAGE>
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 will not
be required to maintain or procure such coverage to pay an annual premium in
excess of 150% of the current annual premium paid by the Company 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 will be required to obtain only as much
coverage as can be obtained by paying an annual premium equal to the Cap.
The Stockholder Agreement
Pursuant to a Second Amended and Restated Stockholders Agreement, dated as
of February 23, 1998 (the 'Stockholder Agreement'), among the Kaplans and
Parent, the Kaplans, who beneficially own in the aggregate approximately 54% of
the outstanding shares of Common Stock, have agreed to tender and sell to Parent
pursuant to the Offer all the Common Stock held by them and not to withdraw any
Common Stock tendered in the Offer.
Each of the Kaplans has further agreed to: (1) vote all of the shares of
Common Stock beneficially owned by him in favor of the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement; (2) vote
the shares of Common Stock beneficially owned by him against any action or
agreement involving a sale of such 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 (3)
vote the shares of Common Stock beneficially owned by him against any action or
agreement that would reasonably be expected to impede, interfere with, delay or
attempt to discourage the Merger. If any of the Kaplans fails to comply with the
foregoing, as determined by Parent in its sole discretion, such failure will
result in the automatic, irrevocable appointment of Parent as the attorney and
proxy of such Kaplan, with full power of substitution, to vote, and otherwise
act with respect to, all shares of Common Stock that such Kaplan is entitled to
vote on any of the foregoing matters.
The Kaplans also have granted to Parent an irrevocable option (the 'Stock
Option') to purchase for $14.50 per share (i) all, but not less than all, of the
shares of Common Stock beneficially owned by the Kaplans and (ii) any additional
shares of Common Stock acquired by the Kaplans during the term of the
Stockholder Agreement. The Stockholder Agreement sets no limitation on the
number of shares of Common Stock the Kaplans can own. The Stock Option may be
exercised by Parent at any time prior to the termination of the Stockholder
Agreement and prior to the earliest to occur of (i) the first anniversary of the
date of the Stockholder Agreement, (ii) if the Merger Agreement is terminated,
or Parent provides written or oral notice to the Company that it elects not to
consummate the Offer or close the transactions contemplated by the Merger
Agreement, as a result of the failure of any of the conditions specified in
Exhibit A to the Merger Agreement, and at the time of such termination or notice
there does not exist any Alternative Proposal (as defined in the Merger
Agreement) at $14.50 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, or Parent provides written or
oral notice to the Company that it elects not to consummate the Offer or close
the transactions contemplated by the Merger Agreement, as a result of the
failure of any of the conditions specified in Exhibit A to the Merger Agreement,
and at the time of such termination or notice there exists any Alternative
Proposal at $14.50 or more per share of Common Stock for 75% or more of the
outstanding Common Stock of the Company, the date six months after the date of
the termination of the Merger Agreement; provided, however, that if a tender
offer is commenced by any party or entity other than Parent and its affiliates
with respect to the Common Stock, then, notwithstanding any provision of the
Stockholder Agreement, the Kaplans may tender all or any of their shares of
Common Stock into such tender offer on or before the time 48 hours before the
expiration of such offer.
Each of the Kaplans has also made certain covenants with respect to the
disposition or encumbrance of the shares of Common Stock beneficially owned by
him, the acquisition of additional shares and the solicitation of transactions
relating to the shares of Common Stock beneficially owned by him. Each of the
Kaplans has further agreed that, in the event of any change in the
capitalization of the Company, he will adjust the number and kind of the shares
of Common Stock beneficially owned by him and the consideration payable in
respect of such shares so as to restore to Parent its rights and privileges
under the Stockholder Agreement.
11
<PAGE>
The Employment Agreements
In connection with the execution of the Merger Agreement, the Company has
entered into an amended and restated employment agreement with each of the
following employees: (1) Glenn Kaplan as Chief Executive Officer; (2) Evan A.
Kaplan as Chief Operating Officer; (3) Wayne L. Kaplan as Senior Executive Vice
President, Secretary or General Counsel; and (4) Raymond DioGuardi as Chief
Financial Officer. Base compensation under the employment agreements will be not
less than $250,000 per year for Glenn Kaplan, not less than $225,000 per year
for Evan A. Kaplan, not less than $200,000 per year for Wayne L. Kaplan, and not
less than $175,000 per year for Mr. DioGuardi. In addition, each of the
employees will be entitled to receive a target bonus, based upon the Company's
achievement of certain operating and/or financial goals, equal to a specified
percentage of each employee's then current annual base salary (up to 75% in the
case of Glenn Kaplan and Wayne L. Kaplan, up to 100% in the case of Evan A.
Kaplan, and up to 50% in the case of Mr. DioGuardi). With respect to each of
Glenn Kaplan, Evan A. Kaplan and Wayne L. Kaplan, any bonus payable in respect
of the fiscal year beginning January 1, 1998 shall be payable, with interest at
an annual rate equal to 4%, within five days following the end of fiscal year
1999; provided, however, that no bonus shall be payable for such fiscal year in
the event the employee's employment with the Company shall have been terminated
by the Company for 'Cause' (as defined in such employee's employment agreement)
or voluntarily by the employee without 'Good Reason' (as defined in such
employee's employment agreement) on or prior to December 31, 1999. The Board of
Directors may increase an employee's bonus for any fiscal year to an amount
greater than the percentages specified above; provided, however, that the
Company has attained no less than 95% of the applicable operating or financial
goals for such fiscal year. Each of the employees shall be eligible to
participate in all benefit plans and receive all fringe benefits available to
similarly situated employees which, in the aggregate, shall be no less favorable
than those provided to any other employee of the Company determined as of the
date of the employment agreements.
The term of each employment agreement is for two years commencing at the
Effective Time, which term will be automatically renewed for successive one-year
terms unless either party gives written notice no less than six months prior to
the then applicable term that the term will not be so extended. The Company may
terminate the employees at any time and for any reason, but the employees may
resign only for Good Reason. If an employee's employment with the Company is
terminated: (i) by the Company other than for Cause, death or disability; or
(ii) voluntarily by the employee with Good Reason, the employment agreement
provides that the Company will continue to pay such employee an amount equal to
his then current annual base salary for the remainder of the then applicable
employment term, and the Company will continue such employee's then current
medical coverage for a period of two years following the termination of the
employee's employment.
Pursuant to non-competition covenants contained in the employment
agreements, each of the employees has agreed that he will not, during the term
of his employment and for a period of three years after the date of his
termination (five years if he is terminated for Cause), directly or indirectly
own, manage, operate, join, control, be employed by or participate in the
ownership, management, operation or control of, or be connected in any manner,
including, but not limited to, holding the positions of stockholder, director,
officer, consultant, independent contractor, employee, partner or investor, with
any person or entity engaged in the business of providing assisted living,
independent living, skilled nursing facilities or continuing care retirement
centers (containing assisted living, independent living and skilled nursing
facilities in one campus) (each a 'Competitive Business') within a 25-mile
radius of any such business operated or in the pipeline to be operated (to the
extent the employee has knowledge thereof after due inquiry) by the Company,
LFREI or any affiliate of LFREI (a 'Competing Enterprise'); provided, however,
that if Mr. DioGuardi's employment with the Company shall be terminated by his
giving notice of his intention not to extend his employment past the second
anniversary of the effective date of his employment agreement (the 'Initial
Term'), he shall not be precluded from accepting the position of chief financial
officer with any Competing Enterprise; and provided, further, that if Mr.
DioGuardi's employment is terminated by the Company giving notice of its
intention not to extend his employment beyond the Initial Term (a 'Limited
DioGuardi Termination'), Mr. DioGuardi shall have no restriction on his
employment after the Initial Term.
In addition, during the term of his employment and for a period of two
years thereafter, each of the employees has agreed not to interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the employee's term of employment was an employee
or customer
12
<PAGE>
of the Company or otherwise had a material business relationship with the
Company. With respect to each of Glenn Kaplan, Evan A. Kaplan and Wayne L.
Kaplan, the foregoing shall not apply with respect to Mr. DioGuardi if (i) Mr.
DioGuardi's employment shall have terminated pursuant to a Limited DioGuardi
Termination; and (ii) Mr. DioGuardi shall not be employed in any Competitive
Business.
The Escrow Agreement
Pursuant to an Escrow Agreement, dated as of February 23, 1998, among the
Kaplans, the Company, the Offeror and Parent and a letter agreement among the
same parties dated as of the same date (the 'Escrow Agreement'), the Kaplans
have agreed that $6,000,000 of the proceeds from the shares tendered by them in
the Offer or sold by the Kaplans to Parent pursuant to the Stockholder Agreement
will be placed in escrow. The escrowed funds will be delivered to the Company if
the Kaplans or any of the Kaplans licensed to operate certain of the Company's
facilities loses any such operating certificate or if the Kaplans cause any such
facility to be without a licensed operator as a result of the breach by the
Kaplans of their obligations under certain agreements between the Kaplans and
the Company (a 'License Loss Breach') to the extent that such License Loss
Breach damages the Company. The escrowed funds will be delivered to the Kaplans
upon (i) the retention by the Kaplans of such operating certificates for a given
period of time, (ii) the issuance of such operating certificates for all such
facilities to a Replacement Operator (as defined in the Escrow Agreement), or
(iii) the satisfaction of certain other conditions.
Certain Transactions Regarding Sales of Common Stock
Restrictions on Transfer. Each Kaplan has agreed with the Company that he
will not, for as long as he will be the licensed operator of any of the
Company's facilities, transfer any shares of Common Stock if it would result in
his personally owning fewer than 500,000 shares of Common Stock initially, or
250,000 shares of Common Stock after the fifth anniversary of the consummation
of the Initial Public Offering, in each case subject to certain exceptions. In
addition, a stockholders agreement between the Kaplans and the Company provides
(i) each Kaplan with a right of first refusal with respect to a transfer of the
shares of Common Stock of the other Kaplans, except for a limited exception in
the case of death, and (ii) that the Kaplans will vote all their shares of
Common Stock as a unit. The Board of Directors of the Company has agreed to
release the Kaplans from their obligation each to maintain ownership of 500,000
shares of Common Stock, and the Kaplans have waived their rights of first
refusal with respect to each other's shares to be sold pursuant to the Offer.
Registration Rights. Each of the Kaplans, along with Herbert Kaplan, who
beneficially own in the aggregate 4,150,000 shares of Common Stock, is entitled
to certain rights with respect to the registration of such shares under the
Securities Act of 1933, as amended. These rights are subject to certain
restrictions, conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in such
registration.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of the reports and representations furnished to
the Company during the last fiscal year, the Company believes that each of the
persons required to file reports under Section 16(a) of the Exchange Act was in
compliance with all applicable filing requirements with respect to the Company's
most recent fiscal year, except that each of Raymond DioGuardi and Gerald
Schuster failed to file on a timely basis one report required by Section 16(a)
of the Exchange Act.
13
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
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<S> <C>
Exhibit 1 Amended and Restated Agreement and Plan of Merger, dated as of February 23, 1998, among Prometheus
Senior Quarters, LLC, Prometheus Acquisition Corp. and Kapson Senior Quarters Corp.
Exhibit 2 Pages 5-16 of the Proxy Statement, dated June 23, 1997, of Kapson Senior Quarters Corp.
Exhibit 3 Form of operating agreement among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan and Senior
Quarters Management Corp.
Exhibit 4 Master Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne L.
Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 5 Interim Management Services Agreement, dated as of September 30, 1997, among Glenn Kaplan, Wayne
L. Kaplan, Evan A. Kaplan and Senior Quarters Management Corp.
Exhibit 6 Letter agreement relating to the indemnification of Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan by Kapson Senior Quarters Corp.
Exhibit 7 Home Health Agency letter agreement, dated February 23, 1998, among Glenn Kaplan, Wayne L. Kaplan,
Evan A. Kaplan, Kapson Senior Quarters Corp., Prometheus Senior Quarters, LLC and Prometheus
Acquisition Corp.
Exhibit 8 Second Amended and Restated Stockholders Agreement, dated as of February 23, 1998, among
Prometheus Senior Quarters, LLC, Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.
Exhibit 9 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Glenn Kaplan.
Exhibit 10 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Wayne L. Kaplan.
Exhibit 11 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Evan A. Kaplan.
Exhibit 12 Amended and Restated Employment Agreement, dated as of February 23, 1998, between Kapson Senior
Quarters Corp. and Raymond DioGuardi.
Exhibit 13 Amended and Restated Escrow Agreement, dated as of February 23, 1998, and related letter agreement
among Glenn Kaplan, Wayne L. Kaplan, Evan A. Kaplan, Kapson Senior Quarters Corp. and Prometheus
Acquisition Corp.
Exhibit 14 Press release, dated February 24, 1998, and tombstone advertisement, dated March 2, 1998.
Exhibit 15* Opinion, dated February 23, 1998, of Salomon Smith Barney.
Exhibit 16* Opinion, dated February 23, 1998, of J. P. Morgan Securities Inc.
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* Included in copies mailed to stockholders.
<PAGE>
EXHIBIT 1
Execution Copy
AMENDED AND RESTATED
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
February 23, 1998
AMONG
PROMETHEUS SENIOR QUARTERS LLC,
PROMETHEUS ACQUISITION CORP.
AND
KAPSON SENIOR QUARTERS CORP.
TABLE OF CONTENTS
Page
ARTICLE I THE OFFER.........................................................2
Section 1.1 The Offer......................................................2
Section 1.2 Company Actions................................................4
ARTICLE II THE MERGER.......................................................5
Section 2.1 The Merger.....................................................5
Section 2.2 Effective Time of the Merger...................................5
Section 2.3 Certificate of Incorporation...................................6
Section 2.4 By-laws........................................................6
Section 2.5 Board of Directors and Officers................................6
Section 2.6 Effects of Merger..............................................6
ARTICLE III CONVERSION OF SHARES............................................6
Section 3.1 Conversion of Shares...........................................6
Section 3.2 Exchange of Certificates.......................................7
Section 3.3 Dissenting Company Shares......................................9
Section 3.4 Merger Without Meeting of Stockholders.........................9
Section 3.5 No Further Ownership Rights in the Shares......................9
Section 3.6 Closing of Company Transfer Books.............................10
Section 3.7 Stock Options.................................................10
Section 3.8 Closing.......................................................10
Section 3.9 Transfer Taxes................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR......................10
Section 4.1 Organization, Standing and Power..............................10
Section 4.2 Authority; Non-Contravention..................................11
Section 4.3 Offer Documents and Proxy Statement...........................12
Section 4.4 Financing.....................................................12
Section 4.5 Brokers.......................................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................12
Section 5.1 Organization, Standing and Power..............................13
Section 5.2 Capital Structure.............................................13
Section 5.3 Subsidiaries..................................................14
Section 5.4 Authority; Non-Contravention..................................14
Section 5.5 SEC Documents.................................................15
Section 5.6 Offer Documents and Proxy Statement...........................16
Section 5.7 Absence of Certain Events.....................................17
Section 5.8 Litigation....................................................18
Section 5.9 Compliance with Law...........................................18
Section 5.10 Employee Plans...............................................21
Section 5.11 Employment Relations and Agreement...........................23
Section 5.12 Contracts....................................................24
Section 5.13 Environmental Laws and Regulations...........................27
Section 5.14 Property and Leases..........................................28
Section 5.15 Patents, Trademarks, Copyrights..............................31
Section 5.16 Insurance....................................................32
Section 5.17 Takeover Statutes............................................32
Section 5.18 Taxes........................................................32
Section 5.19 No Change of Control.........................................33
Section 5.20 Brokers......................................................33
Section 5.21 Disclosures..................................................33
Section 5.22 Company Disclosure Letter....................................33
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB....................33
Section 6.1 Organization and Standing.....................................34
Section 6.2 Authority; Non-Contravention..................................34
ARTICLE VII COVENANTS RELATING TO CONDUCT OF BUSINESS......................34
<PAGE>
Section 7.1 Conduct of Business by the Company Pending the Merger.........35
Section 7.2 Conduct of Business of Sub Pending the Merger.................38
ARTICLE VIII ADDITIONAL AGREEMENTS.........................................38
Section 8.1 Company Stockholder Approval; Proxy Statement.................38
Section 8.2 Indemnification...............................................39
Section 8.3 Additional Agreements.........................................40
Section 8.4 No Shop.......................................................41
Section 8.5 Advice of Changes; SEC Filings................................42
Section 8.6 Board Representation; Directors...............................42
ARTICLE IX CONDITIONS PRECEDENT............................................42
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger....42
ARTICLE X TERMINATION, AMENDMENT AND WAIVER................................43
Section 10.1 Termination by Mutual Consent................................43
Section 10.2 Termination by Either Investor or the Company................43
Section 10.3 Termination by Investor......................................44
Section 10.4 Termination by the Company...................................44
Section 10.5 Effect of Termination and Abandonment........................45
ARTICLE XI MISCELLANEOUS...................................................46
Section 11.1 Non-Survival of Representations, Warranties and Agreements...46
Section 11.2 Notices......................................................47
Section 11.3 Fees and Expenses............................................48
Section 11.4 Publicity....................................................48
Section 11.5 Specific Performance.........................................48
Section 11.6 Assignment; Binding Effect...................................48
Section 11.7 Entire Agreement.............................................48
Section 11.8 Amendment....................................................49
Section 11.9 Governing Law................................................49
Section 11.10 Counterparts................................................49
Section 11.11 Headings and Table of Contents..............................49
Section 11.12 Interpretation..............................................49
Section 11.13 Waivers.....................................................49
Section 11.14 Incorporation of Exhibits...................................50
Section 11.15 Severability................................................50
Section 11.16 Subsidiaries................................................50
Exhibits
Exhibit A Conditions of the Offer
Exhibit B Operating Plan and Budget
Defined Terms Index
Agreement......................................................Preamble
Alternative Proposal...........................................Section 8.4
Blue Sky Laws..................................................Section 4.2
Budgets........................................................Exhibit A
Cap............................................................Section 8.3
Capital Expenditure Budget and Schedule........................Section 5.14
Certificates...................................................Section 3.1
Closing........................................................Section 3.8
Code...........................................................Section 5.10
Common Stock...................................................Recitals
Common Stock Cash Merger Price.................................Section 3.1
Common Stock Certificates......................................Section 3.1
Common Stock Merger Consideration..............................Section 3.1
Common Stock Offer Price.......................................Recitals
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 Company Shares......................................Section 3.3
Effective Time.................................................Section 2.2
Employment Agreements..........................................Section 5.11
Environmental Claim............................................Section 5.13
Environmental Laws.............................................Section 5.13
ERISA..........................................................Section 5.10
Exchange Act...................................................Section 1.1
Exchange Fund..................................................Section 3.2
Exchangeable Preferred.........................................Recitals
Exchangeable Preferred Certificates............................Section 3.1
Exchangeable Preferred Merger Consideration....................Section 3.1
Exchangeable Preferred Offer Price.............................Recitals
Fairness Opinion...............................................Section 2.1
Financial Advisor..............................................Section 1.2
Governmental Entity............................................Section 4.2
Hazardous Materials............................................Section 5.13
Indemnified Parties............................................Section 8.2
Information Statement..........................................Section 4.3
Investor.......................................................Preamble
Knowledge......................................................Section 11.6
Leased Property................................................Section 5.14
<PAGE>
LFREI..........................................................Guaranty
Liens..........................................................Section 5.14
Material Adverse Change........................................Section 4.2
Material Adverse Effect........................................Section 4.2
Medical Reimbursement Program..................................Section 5.9
Merger.........................................................Recitals
Merger Consideration...........................................Section 3.1
Minimum Condition..............................................Exhibit A
Multiemployer Plan.............................................Section 5.10
Offer..........................................................Recitals
Offer Documents................................................Section 1.1
OIG............................................................Section 5.9
Option.........................................................Section 3.7
Options........................................................Section 3.7
Owned Property.................................................Section 5.14
Paying Agent...................................................Section 3.2
PCBs...........................................................Section 5.13
Permits........................................................Section 5.9
Permitted Liens................................................Section 5.14
Plan...........................................................Section 5.10
Prior Agreement................................................Recitals
Projects.......................................................Section 5.14
Property.......................................................Section 5.13
Proxy Statement................................................Section 4.3
Schedule 14D-9.................................................Section 2.1
SEC............................................................Section 1.1
Section 9.3 Agreements.........................................Section 9.3
Securities Act.................................................Section 4.2
Shares.........................................................Recitals
Salomon Brothers Book..........................................Exhibit A
Stock Plan.....................................................Section 5.2
Stockholder Meeting............................................Section 8.1
Stockholders Agreement.........................................Recitals
Sub............................................................Preamble
Sub Share......................................................Section 3.1
Subsidiary.....................................................Section 11.6
Surviving Corporation..........................................Section 2.1
Tax; Taxes; Taxable............................................Section 5.18
Tax Return.....................................................Section 5.18
Termination Date...............................................Section 10.2
Termination Fee................................................Section 10.5
Title Policies.................................................Section 5.14
Transfer Taxes.................................................Section 3.9
UST............................................................Section 5.13
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated as of February 23, 1998, 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, Investor, Sub and the Company previously entered into that certain
Agreement and Plan of Merger, dated as of September 30, 1997 (the "Prior
Agreement"), and each now desires to amend and restate the Prior Agreement in
its entirety;
WHEREAS, the Board of Directors of the Company has approved the acquisition
of the Company by Investor pursuant to a tender offer (such tender offer, as it
may be amended or supplemented from time to time as permitted under this
Agreement, the "Offer") by Sub for (i) all of the outstanding shares of Common
Stock, par value $.01 per share ("Common Stock"), of the Company at a price of
$14.50 per share, net to the seller in cash, without interest (the "Common Stock
Offer Price") and (ii) all of the outstanding shares of the $2.00 Convertible
Exchangeable Preferred Stock of the Company (the "Exchangeable Preferred") at a
price per share of $27.93, net to the seller in cash, without interest (the
"Exchangeable Preferred Offer Price") (the Exchangeable Preferred, together with
the Common Stock, the "Shares"), followed by a merger (the "Merger") of Sub with
and into the Company upon the terms and subject to the conditions set forth
herein;
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 an Amended and Restated
Stockholders Agreement (the "Stockholders Agreement") pursuant to which such
stockholders have, among other matters, agreed to tender their shares of Common
Stock in the Offer and have granted to Investor an option to purchase the shares
of Common Stock owned by such stockholders, in each case, upon the terms and
subject to the conditions specified in the Stockholders Agreement;
WHEREAS, the Board of Directors of the Company has determined
<PAGE>
that it is fair and in the best interests of its stockholders for Sub to merge
with and into the Company 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 Offer, the Merger, the Stockholders Agreement, this Agreement and
the transactions to which the Company is a party contemplated hereby and
thereby, and has agreed, upon the terms and subject to the conditions set forth
herein, to recommend that the Company's stockholders accept the Offer and tender
their shares;
WHEREAS, pursuant to the Merger, each issued and outstanding Share not
owned directly or indirectly by Investor or the Company, except Shares held by
holders who comply with the provisions of the DGCL regarding the right of
stockholders to dissent from the Merger and require appraisal of their Shares,
will be converted into the right to receive the per share consideration paid
pursuant to the Offer in respect of the Common Stock and the Exchangeable
Preferred, as the case may be; and
WHEREAS, Investor and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Offer and the Merger
and also to prescribe various conditions to the Offer and 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 OFFER
Section 1.1 The Offer. (a) Subject to the provisions of this Agreement and
as soon as practicable, but in any event within five business days after the
first public announcement of this Agreement, Sub shall, and Investor shall cause
Sub to, commence, within the meaning of Rule 14d-2 under the Exchange Act (as
hereinafter defined), the Offer. The obligation of Sub to, and of Investor to
cause Sub to, commence the Offer and accept for payment, and pay for, any Shares
tendered pursuant to the Offer shall be subject to the conditions set forth in
Exhibit A and to the terms and conditions of this Agreement. The Offer shall
initially expire 20 business days after the date of its commencement (subject to
the other provisions of this Section 1.1); provided, however, that unless this
Agreement is terminated in accordance with Article X, in which case the Offer
(whether or not previously extended in accordance with the terms hereof) shall
expire on such date of termination, at the request of the Company, Investor and
Sub shall extend the expiration date of the Offer from time to time to the
earlier of (i) the date on which Sub purchases or becomes obligated to purchase
that number of Shares that would satisfy the Minimum Condition (as defined in
Exhibit A) and (ii) the date 60 business days after the date of its
commencement. Without the prior written consent of the Company, Sub shall not
(i) waive the Minimum Condition, (ii) reduce the number of Shares subject to the
Offer, (iii) reduce the price per share of either class of the Shares to be paid
pursuant to the Offer, (iv) except as provided in the following sentence, extend
the Offer, if all of the conditions of the Offer are satisfied or waived, or (v)
change the form of consideration payable in the Offer. Notwithstanding the
foregoing, Sub may, without the consent of the Company, extend the Offer at any
time, and from time to time: (i) if at the then scheduled expiration date of the
Offer any of the conditions to Sub's obligation to accept for payment and pay
for the Shares shall not have been satisfied or waived, until such time as such
conditions are satisfied or waived; (ii) for any period required by any rule,
regulation, interpretation or position of the SEC (as hereinafter defined) or
its staff applicable to the Offer; (iii) until 10 business days following the
expiration of the 10 business day period referred to in the condition in clause
(f) of Exhibit A and if such condition (f) shall not have been satisfied, for as
long as Investor and Sub shall determine until, in their sole discretion, all
conditions of the Offer are satisfied; and (iv) if all conditions of the Offer
are satisfied or waived but the number of Shares tendered is less than 90% of
the then outstanding number of shares of Common Stock and less than 90% of the
then outstanding shares of Exchangeable Preferred, for an aggregate period of
not more than 10 business days (for all such extensions) beyond the latest
expiration date that would be permitted under clause (i), (ii) or (iii) of this
sentence. Subject to the terms and conditions of the Offer and this Agreement,
Sub shall, and Investor shall cause Sub to, pay for all of the Shares validly
tendered and not withdrawn pursuant to the Offer as soon as practicable after
the expiration of the Offer.
(b) On the date of commencement of the Offer, Investor and Sub shall file
with the Securities and Exchange Commission (the "SEC") a Tender Offer Statement
on Schedule 14D-1 with respect to the Offer, which shall contain an offer to
purchase and a related letter of transmittal (such Schedule 14D-1 and the
documents therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). The Company and its
<PAGE>
counsel shall be given an opportunity to review and comment upon the Offer
Documents prior to the filing thereof with the SEC. Investor and Sub hereby
covenant that the Offer Documents shall comply as to form in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated thereunder, the
"Exchange Act"), and on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, the Offer Documents
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Investor or Sub with
respect to information supplied by the Company for inclusion in the Offer
Documents. Each of Investor, Sub and the Company agrees to correct promptly any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect, and each of Investor, Sub and Company further agrees to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the SEC
and to be disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws.
Section 1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that the Board of Directors of
the Company at a meeting duly called and held has duly adopted resolutions (i)
approving this Agreement, the Stockholders Agreement, the Offer and the Merger,
(ii) determining that the Merger is advisable and that the terms of the Offer
and Merger are fair to, and in the best interests of, the Company, and the
holders of shares of Common Stock and the holders of shares of Exchangeable
Preferred and (iii) recommending that the Company's stockholders accept the
Offer and tender their Shares and approve the Merger and this Agreement. The
Company hereby consents to the inclusion in the Offer Documents of such
recommendation of the Board of Directors of the Company. The Company represents
and warrants that its Board of Directors has received the written opinions (the
"Fairness Opinions") of Salomon Smith Barney and J.P. Morgan Securities Inc.
(together, the "Financial Advisors") that the proposed consideration to be
received by the holders of shares of Common Stock and the holders of shares of
Exchangeable Preferred pursuant to the Offer and the Merger is fair to such
holders from a financial point of view. The Company has been authorized by the
Financial Advisors to permit, subject to the prior review and consent by the
Financial Advisors (such consent not to be unreasonably withheld), the inclusion
of the Fairness Opinions (or a reference thereto) in the Offer Documents, the
Schedule 14D-9 (as hereinafter defined) and the Proxy Statement (as hereinafter
defined). The Company represents and warrants that its Board of Directors has
taken all necessary steps to render Section 203 of the DGCL inapplicable to the
Offer, the Merger and the transactions contemplated by this Agreement and the
Stockholders Agreement.
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to
time, the "Schedule 14D-9") containing the recommendations set forth in
paragraph (a) above and shall mail the Schedule 14D-9 to the stockholders of the
Company as required by Rule 14d-9 promulgated under the Exchange Act. To the
extent practicable, the Company shall cooperate with Investor in mailing or
otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents
to the Company's stockholders. Investor and its counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 prior to the filing
thereof with the SEC. The Company hereby covenants that the Schedule 14D-9 shall
comply as to form in all material respects with the requirements of the Exchange
Act and, on the date filed with the SEC and on the date first published, sent or
given to the Company's stockholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Investor or Sub for inclusion in the Schedule 14D-9. Each of the Company,
Investor and Sub agrees to correct promptly any information provided by it for
use in the Schedule 14D-9 if and to the extent that such information shall have
become false or misleading in any material respect, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to the holders of Shares, in each case
as and to the extent required by applicable federal securities laws. The Company
agrees to provide Investor and Sub and their counsel in writing with any
comments the Company or its counsel may receive from the SEC or its staff with
respect to the Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to promptly furnish Sub with a list of the holders of Shares and mailing
labels containing the names and addresses of the record holders of Shares as of
a recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of stockholders, security position
listings (including Shares held by depositories) and computer files and all
other
<PAGE>
information in the Company's possession or control regarding the beneficial
owners of Shares, and shall furnish to Sub such information and assistance
(including updated lists of stockholders, security position listings and
computer files) as Sub may reasonably request in communicating the Offer to the
Company's stockholders. The Company acknowledges that Sub intends to commence
the Offer by sending Offer materials to the holders of the Shares and,
therefore, the obligations of the Company as set forth in this subparagraph are
extremely time-sensitive.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the DGCL, 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 2.2 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 2.3 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 2.4 By-laws. The By-laws of the Company 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 2.5 Board of Directors and Officers. The directors of Sub at the
Effective Time and Glenn Kaplan and Evan A. Kaplan shall, from and after the
Effective Time, be the initial directors of the Surviving Corporation and the
officers of the Company shall be the officers of the Surviving Corporation, in
each case until their respective successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal, in
accordance with the Surviving Corporation's Articles of Incorporation and
By-laws.
Section 2.6 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 Conversion of Shares. As of the Effective Time, by virtue of
the Merger and without any action on the part of any stockholder of the Company:
(a) All Shares that are held in the treasury of the Company and any Shares
owned by Investor, Sub or any other wholly owned Subsidiary (as hereinafter
defined) of Investor shall be canceled and no consideration shall be delivered
in exchange therefor.
(b) Each share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares of Common Stock to be canceled in
accordance with Section 3.1(a) and other than Dissenting Company Shares (as
hereinafter defined)) shall be converted into the right to receive from the
Surviving Corporation in cash, without interest, the Common Stock Offer Price,
without interest (the "Common Stock Merger Consideration"). All such shares of
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a certificate or
certificates (the "Common Stock Certificates") representing any such shares of
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Common Stock Merger Consideration.
(c) Each Share of Exchangeable Preferred issued and outstanding immediately
prior to the Effective Time (other than shares of Exchangeable Preferred to be
canceled in accordance with Section 3.1(a) and other than Dissenting Company
Shares) shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, the Exchangeable Preferred Offer Price,
without interest (the "Exchangeable Preferred Merger Consideration" and,
together with the Common Stock Merger Consideration, the "Merger
Consideration"). All such shares of Exchangeable Preferred, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and each holder of a certificate or certificates
<PAGE>
(the "Exchangeable Preferred Certificates" and, together with the Common Stock
Certificates, the "Certificates") representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the
Exchangeable Preferred Merger Consideration.
(d) Each share 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 one fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
Section 3.2 Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Investor shall appoint IBJ Schroder Bank & Trust Company or a
commercial bank or trust company mutually agreeable to Investor and the Company
to act as paying agent hereunder (the "Paying Agent") for the payment of the
Merger Consideration upon surrender of the Certificates. All of the fees and
expenses of the Paying Agent shall be borne by Investor.
(b) Surviving Corporation to Provide Funds. Investor shall take all steps
necessary to enable and cause the Surviving Corporation to provide the Paying
Agent with cash in amounts necessary to pay for all of the Shares pursuant to
Section 3.1 (determined as though there are no Dissenting Company Shares), when
and as such amounts are needed by the Paying Agent (such amounts, the "Exchange
Fund"). 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 Investor. 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 Merger Consideration 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. Any portion of the Exchange Fund
(including the proceeds of any interest and other income received by the Paying
Agent in respect of such funds) that remains undistributed to the holders of
Shares 180 days after the Effective Time of the Merger shall be delivered to the
Surviving Corporation at such time. After six months following the Effective
Time, holders of Shares shall look only to the Surviving Corporation (subject to
the terms of this Agreement) as a general creditor for payment of the Merger
Consideration, without interest, upon the surrender of any Certificates held by
them.
(c) Exchange Procedures. As soon as practicable after the Effective Time,
the Paying Agent shall mail to each holder of record of a Certificate, other
than Investor and the Company, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon actual delivery of the Certificates to the Paying Agent
and shall be in a form and have such other provisions as Investor may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate (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) for cancellation to the Paying Agent or
to such other agent or agents as may be appointed by the Surviving Corporation,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 3.1, and the Certificates so surrendered
shall forthwith be canceled. No interest will be paid or will accrue on the cash
payable upon the surrender of any Certificate. If payment is to be made to a
person other than the person in whose name the Certificate so surrendered is
registered, it shall be a condition of payment that such Certificate shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 3.2, each Certificate (other than Certificates
representing Dissenting Company Shares and Certificates representing any Shares
held in the treasury of the Company) shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
amount of cash, without interest, into which the Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 3.1. If any
Certificate shall not have been surrendered prior to three years after the
Effective Time (or immediately prior to such time on which any payment in
respect hereof would otherwise escheat or become the property of any
governmental unit or agency), the payment 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. Notwithstanding the foregoing, none of the Paying Agent, the
Surviving Corporation or any party hereto shall be liable to any former
stockholder of the Company for any cash or interest delivered to a public
official pursuant to
<PAGE>
applicable abandoned property, escheat or similar laws.
Section 3.3 Dissenting Company Shares. Notwithstanding any provision of
this Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by holders of such Shares who have
properly exercised appraisal rights with respect thereto in accordance with
Section 262 of the DGCL (the "Dissenting Company Shares") will not be
exchangeable for the right to receive the Merger Consideration, and holders of
such Shares will be entitled to receive payment of the appraised value of such
Shares in accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or effectively withdraw or lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
Shares will thereupon be treated as if they had been converted into and have
become exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. Upon the Company's receipt of any
notice of election to dissent in accordance with the provisions of such Section
262, the Company shall promptly provide Investor with a copy of such notice of
election to dissent. The Company shall not, except with the prior written
consent of Investor, make any payment with respect to any such election to
dissent or offer to settle or settle any such election to dissent.
Section 3.4 Merger Without Meeting of Stockholders. In the event that Sub,
or any other direct or indirect Subsidiary of Investor, shall acquire at least
90% of the outstanding shares of Common Stock and at least 90% of the
outstanding shares of the Exchangeable Preferred, the parties hereto agree to
take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the expiration of the Offer without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
Section 3.5 No Further Ownership Rights in the Shares. From and after the
Effective Time, the holders of Shares which were outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to such Shares
except as otherwise provided in this Agreement or by applicable law. All cash
paid upon the surrender of Certificates in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to the Shares.
Section 3.6 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged as
provided in this Article III.
Section 3.7 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 Common Stock Merger
Consideration over the per share exercise price of such Option, without
interest. All amounts payable pursuant to this Section 3.7 shall be subject to
all applicable withholding of taxes and shall be paid as soon as practicable
following the Effective Time. 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 3.8 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 two business days after
the day on which the last of the conditions set forth in Article IX (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 (collectively, "Transfer Taxes"). The Company will
pay all of the Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company as follows:
<PAGE>
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 (as hereinafter
defined) 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 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 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 Offer Documents and Proxy Statement. None of the information to
be supplied by Investor or Sub for inclusion or incorporation by reference in
the Schedule 14D-9, the information statement, if any, filed by the Company in
connection with the Offer or the Merger pursuant to Regulation 14C or Rule 14f-1
promulgated under the Exchange Act or otherwise (together with any amendments or
supplements thereto, the "Information Statement"), or, if applicable, the proxy
statement (together with any amendments or supplements thereto, the "Proxy
Statement") relating to the Stockholder Meeting (as hereinafter defined) (i) in
the case of the Schedule 14D-9, at the time the Schedule 14D-9 is filed with the
SEC or first published, sent or given to the Company's stockholders, or (ii) in
the case of the Proxy Statement or the Information Statement, as applicable, at
the time of the mailing of the Proxy Statement or Information Statement and at
the time of the Stockholder Meeting or the taking of the action contemplated by
the Information Statement (as applicable), will contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 4.4 Financing. Investor has available and will make available to
Sub sufficient funds to enable it to consummate the Offer and the Merger on the
terms contemplated by this Agreement.
<PAGE>
Section 4.5 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.
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 $.01 per share, and
10,000,000 shares of preferred stock, par value $.01 per share, issuable in one
or more series, of which 2,400,000 shares of Exchangeable Preferred have been
designated. At the close of business on February 20, 1998, (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,
options available for grant, convertible securities and stock rights in the
Company. At the close of business on February 20, 1998, 2,400,000 shares of
Exchangeable Preferred 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 February 20, 1998, the Company had
outstanding options to acquire an aggregate of 142,100 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 (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 February 20, 1998, 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, or
conversion of Exchangeable Preferred, 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, 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
<PAGE>
(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, 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 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, By-laws 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.
Section 5.5 SEC Documents. (a) Except as set forth in the Company
Disclosure Letter, 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, except that no representation is made by the
Company with respect to information supplied by Investor, Sub or their
respective Subsidiaries for inclusion in the Company SEC Documents. 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 Company has delivered to Investor the preliminary
proxy materials relating to the Merger, as filed with the SEC prior to the date
hereof, and the comment letters of the SEC received by the Company with respect
thereto. The financial
<PAGE>
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 September 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 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 Offer Documents and Proxy Statement. None of (a) the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Offer Documents at the time such documents are
filed with the SEC or first published, sent or given to the Company's
stockholders or (b) the Proxy Statement or the Information Statement (as
applicable) at the time of the mailing of the Proxy Statement or the Information
Statement and at the time of the Stockholder Meeting or the taking of the action
contemplated by the Information Statement (as applicable), will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Investor, Sub or their respective Subsidiaries for inclusion in any
of such documents. If at any time prior to the Effective Time any event with
respect to the Company, its officers and directors should occur which is
required to be set forth in an amendment of, or a supplement to, the Proxy
Statement or the Information Statement (as the case may be), such event shall be
so set forth, and such amendment or supplement shall be promptly filed with the
SEC and, as required by law, disseminated to the stockholders of the Company.
The Proxy Statement and the Information Statement shall comply as to form in all
material respects with the requirements of the Exchange Act.
Section 5.7 Absence of Certain Events. Except as set forth in the Company
Disclosure Letter, since September 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
<PAGE>
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 5.8 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 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 5.9 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 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.
<PAGE>
(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 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.
Section 5.10 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,
<PAGE>
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
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
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
<PAGE>
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 5.11 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.
Section 5.12 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;
(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,
<PAGE>
(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 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 5.13 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
<PAGE>
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 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 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 5.14 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
<PAGE>
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, 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.
(d) The Company has made available to Investor 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 has made available to Investor a list of each Company
Property which consists of or includes undeveloped land or which is in the
process of being developed or redeveloped
<PAGE>
(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 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 5.15 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.
Section 5.16 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 5.17 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.
<PAGE>
Section 5.18 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 5.19 No Change of Control. Except as set forth in the Company
Disclosure Letter, the consummation of the Merger and the transactions
contemplated by 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 5.20 Brokers. No broker, investment banker or other person, other
than the Financial Advisors, 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 letters between each of the Financial Advisors 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 5.21 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 5.22 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.
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
<PAGE>
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
B (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 of 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 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 B, and subject to the
provisions of Sections 8.4 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 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 in accordance with its 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;
(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;
<PAGE>
(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;
(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.
During the period from the date of this Agreement through the
<PAGE>
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 5.12, 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 Company Stockholder Approval; Proxy Statement. (a) If approval
or action in respect of the Merger by the stockholders of the Company is
required by applicable law, the Company shall, if appropriate, call a meeting of
its stockholders (the "Stockholder Meeting") for the purpose of voting upon the
Merger and shall use its reasonable best efforts to obtain stockholder approval
of the Merger. The Stockholder Meeting shall be held as soon as practicable
following the purchase of Shares pursuant to the Offer and the Company shall,
through its Board of Directors but subject to the fiduciary duties of its Board
of Directors under applicable law as determined by the Board of Directors in
good faith after consultation with the Company's outside counsel, recommend to
its stockholders the approval of the Merger and not rescind its declaration that
the Merger is advisable. The record date for the Stockholder Meeting shall be a
date subsequent to the date Investor or Sub becomes a record holder of Shares
purchased pursuant to the Offer.
(b) If required by applicable law, the Company shall, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary Proxy Statement or, if applicable, an Information Statement, with
the SEC and shall use its reasonable best efforts to respond to any comments of
the SEC or its staff and to cause the Proxy Statement or the Information
Statement to be cleared by the SEC. The Company shall notify Investor of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement, or the
Information Statement or for additional information and shall supply Investor
with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement, the Information Statement or the Merger.
The Company shall give Investor and its counsel the opportunity to review the
Proxy Statement or, if applicable, the Information Statement, prior to its being
filed with the SEC and shall give Investor and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement or, if applicable,
the Information Statement, and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the SEC. Each of the Company and Investor agrees to use its reasonable best
efforts, after consultation with the other parties hereto, to respond promptly
to all such comments of and requests by the SEC. As promptly as practicable
after the Proxy Statement or, if applicable, the Information Statement, has been
cleared by the SEC, the Company shall mail the Proxy Statement or, if
applicable, the Information Statement, to the stockholders of the Company.
(c) The Company shall use its reasonable best efforts to obtain any
necessary approvals by its stockholders of the Merger, this Agreement and the
transactions contemplated hereby.
(d) Investor agrees, subject to applicable law, to cause all Shares
purchased pursuant to the Offer and all other Shares owned by Sub or any other
Subsidiary of Investor to be voted in favor of the approval of the Merger.
Section 8.2 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
<PAGE>
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 8.2.
(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 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.
(e) For the period from the time when Sub first purchases Shares pursuant
to the Offer through the Effective Time, Investor shall not permit the Company
to amend the provisions in its Certificate of Incorporation and Bylaws providing
for exculpation of director and officer liability and indemnification of the
Indemnified Parties.
Section 8.3 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) 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 8.4 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 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
<PAGE>
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 8.5 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 8.6 Board Representation; Directors. Promptly upon the purchase of
shares of Common Stock pursuant to the Offer, Investor shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as will give Investor, subject to compliance
with Section 14(f) of the Exchange Act, representation on the Board of Directors
equal to the product of (a) the total number of directors on the Board of
Directors and (b) the percentage that the number of shares of Common Stock
purchased by Investor bears to the number of shares of Common Stock outstanding,
and the Company shall, upon request by Investor, promptly increase the size of
the Board of Directors and/or exercise its reasonable best efforts to secure the
resignations of such number of directors as is necessary to enable Investor's
designees to be elected to the Board of Directors and shall cause Investor's
designees to be so elected. The Company shall take, at its expense, all action
required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder
in order to fulfill its obligations under this Section 8.8 and shall include in
the Schedule 14D-9 or otherwise timely mail to its stockholders such information
with respect to the Company and its officers and directors as is required by
such Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this
Section 8.8. Investor shall supply to the Company in writing and be solely
responsible for any information with respect to itself and its nominees,
officers, directors and affiliates required by such Section 14(f) and Rule
14f-1. At the Effective Time, the Company will obtain a resignation of each
director not specified in Schedule 2.5.
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) Common Stockholder Approval. If approval of the Merger by the holders
of the Common Stock is required by applicable law, the Merger shall have been
approved by the requisite vote of such holders.
(b) No Order. 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).
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 any approval by the stockholders of the Company, by the
mutual consent of Investor and the Company prior to the purchase of the Shares
pursuant to the Offer.
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:
<PAGE>
(a) the Merger shall not have been consummated by December 31, 1998 (the
"Termination Date"); provided, however, that the right to terminate this
Agreement pursuant to this clause shall not be available (i) to Investor, if Sub
or any affiliate of Sub acquires Shares pursuant to the Offer, or (ii) to any
party whose failure to fulfill any obligation of this Agreement has been the
cause of, or resulted in, the failure of the Merger to have occurred on or prior
to the aforesaid date; or
(b) upon a vote at a duly held meeting or upon any adjournment thereof, the
stockholders of the Company shall have failed to give any approval required by
applicable law; 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 this clause (c) shall have
used all commercially reasonable efforts to remove such injunction, order or
decree; or
(d) pursuant to the provisions of Section 1.1 or as the result of the
failure of any of the conditions set forth in Exhibit A hereto, the Offer shall
have terminated or expired in accordance with its terms without Sub having
purchased any Shares pursuant to the Offer; provided, however, that the right to
terminate this Agreement pursuant to this clause (d) shall not be available to
any party whose failure to fulfill any of its obligations under this Agreement
results in the failure of any such condition; or
(e) Investor shall have reasonably determined that any Offer condition
(other than the Minimum Condition) is not capable of being satisfied at any time
in the future and Investor has not purchased Shares pursuant to the Offer;
provided, however, that the right to terminate this Agreement pursuant to this
clause (e) shall not be available to any party whose failure to fulfill any
obligation of this Agreement has been the cause of, or resulted in, such Offer
condition being incapable of satisfaction.
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 the Board of Directors of the Company shall have failed to
recommend, or shall have withdrawn, modified or amended in any material respect
its approval or recommendations of the Offer or the Merger or shall have
resolved to do any of the foregoing, or shall have recommended an Alternative
Proposal to the Company's stockholders.
Section 10.4 Termination by the Company. 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 8.4 or (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.
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 the Offer 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, (y) this Agreement shall have been terminated by the Company
pursuant to Section 10.4 or (z) any person shall have made an Alternative
Proposal at $14.50 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 $14.50 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 Exhibit A then
<PAGE>
the Company shall promptly reimburse Investor for all out-of-pocket costs and
expenses incurred by Investor in connection with the Offer, 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.
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) 632-6000
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 Froehlich 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
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, the Offer or the
other transactions contemplated hereby are 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.
<PAGE>
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
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 8.2 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,
(including, without limitation, the Prior Agreement). 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
Merger 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 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. Subject to applicable law, 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
<PAGE>
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 Glenn Kaplan, Wayne Kaplan,
Evan Kaplan or Raymond DioGuardi.
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: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE INVESTORS
L.L.C., its General Partner
By: /s/ Robert P. Freeman
-----------------------------------
Robert P. Freeman
Principal
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
Lazard Freres Real Estate Investors L.L.C. ("LFREI") 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 LFREI 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 LFREI as a surety or
guarantor. LFREI represents and warrants that it is the sole member of Investor.
LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.
<PAGE>
By: /s/ Robert P. Freeman
-----------------------------
Robert P. Freeman
Principal
EXHIBIT A
---------
CONDITIONS OF THE OFFER
-----------------------
Notwithstanding any other term of the Offer or this Agreement, Sub shall
not be required to accept for payment or pay for, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) of the Exchange Act,
any Shares not theretofore accepted for payment or paid for and may terminate or
amend the Offer as to such Shares unless there shall have been validly tendered
and not withdrawn prior to the expiration of the Offer that number of Shares
which would represent at least a majority of the sum of all outstanding shares
of Common Stock on a fully-diluted basis including shares issuable upon (i) the
exercise of options (other than options the holders of which have executed
agreements which provide that, for so long as the Agreement shall be in effect,
such holders will not exercise such options prior to the Effective Time, which
agreements are in full force and effect at the time of the expiration of the
Offer), warrants or other rights to acquire shares (whether or not currently
exercisable or vested) having an exercise price equal to or less than the Common
Stock Offer Price and (ii) the conversion of outstanding Shares of Exchangeable
Preferred (it being understood and agreed that for purposes of satisfying the
Minimum Condition (as hereinafter defined), each share of Exchangeable Preferred
tendered in the Offer shall be deemed to account for 1.92604 shares of Common
Stock)(the "Minimum Condition"). Furthermore, notwithstanding any other term of
the Offer or this Agreement, Sub shall not be required to accept for payment or,
subject as aforesaid, to pay for any Shares not theretofore accepted for payment
or paid for, and may terminate or amend the Offer if at any time on or after the
date of this Agreement and before the acceptance of such Shares for payment or
the payment therefor, any of the following conditions exist or shall occur and
remain in effect:
(a) there shall have been instituted, pending or threatened any
action or proceeding by any governmental, regulatory or administrative
agency or authority, which (i) seeks to challenge the acquisition by
Investor of Shares pursuant to the Offer, restrain, prohibit or delay the
making or consummation of the Offer or the Merger, or obtain any material
damages in connection therewith, (ii) seeks to make the purchase of or
payment for some or all of the Shares pursuant to the Offer or the Merger
illegal, (iii) seeks to impose limitations on the ability of Investor (or
any of its affiliates) effectively to acquire or hold, or to require
Investor or the Company or any of their respective affiliates to dispose
of or hold separate, any portion of the assets or the business of Investor
and its affiliates taken as a whole or the Company, or (iv) seeks to
impose material limitations on the ability of Investor (or any of its
affiliates) to exercise full rights of ownership of the Shares purchased
by it, including, without limitation, the right to vote the Shares
purchased by it on all matters properly presented to the stockholders of
the Company; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
foreign government or governmental authority or by any court, domestic or
foreign, any statute, rule, regulation, judgment, decree, order or
injunction that could reasonably be expected to, in the judgment of
Investor, directly or indirectly, result in any of the consequences
referred to in clauses (i) through (iv) of subsection (a) above; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States or (ii)
the declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States;or
(d) the Company and Investor shall have reached an agreement or
understanding that the Offer or this Agreement be terminated or this
Agreement shall have been terminated in accordance with its terms; or
(e) the Company's Board of Directors shall have modified or amended
its recommendation of the Offer in any manner adverse to Investor or shall
have withdrawn its recommendation of the Offer, or shall have recommended
acceptance of any Alternative Proposal or shall have resolved to do any of
the foregoing, or shall have failed to reject any Alternative Proposal
within 10 business days after receipt by the Company or public
announcement thereof; or
<PAGE>
(f) (i) any corporation, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) ("person"), other than Investor, one or more
of its affiliates or any beneficial owner of Shares on the date hereof,
shall have acquired beneficial ownership of 30% or more of the outstanding
shares of Common Stock or shall have been granted any options or rights,
conditional or otherwise, to acquire a total of 30% or more of the
outstanding shares of Common Stock; (ii) any new group shall have been
formed which beneficially owns 30% or more of the outstanding shares of
Common Stock; (iii) any person (other than Investor, one or more of its
affiliates or any beneficial owner of Shares on the date hereof) shall
have entered into an agreement in principle or definitive agreement with
the Company with respect to a tender or exchange offer for any Shares or a
merger, consolidation or other business combination with or involving the
Company; or (iv) any person (other than Investor, one or more of its
affiliates or any beneficial owner of Shares on the date hereof) shall
have offered to tender or exchange for 30% or more of the outstanding
shares of Common Stock, or offered to merge, consolidate or effect some
other business combination with or involving the Company.
The foregoing conditions are for the sole benefit of Investor and may be
asserted by Investor regardless of the circumstances giving rise to any such
condition, unless the failure of the satisfaction of any such condition has been
caused by or resulted from the failure by Investor to fulfill any of its
obligations under this Agreement, and any such condition may be waived by
Investor, in whole or in part, at any time and from time to time, in the sole
discretion of Investor. The failure by Investor at any time to exercise any of
the foregoing rights will not be deemed a waiver of any right, the waiver of
such right with respect to any particular facts or circumstances shall not be
deemed a waiver with respect to any other facts or circumstances, and each right
will be deemed an ongoing right which may be asserted at any time and from time
to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered Shares not theretofore accepted for payment shall forthwith be returned
by the Paying Agent to the tendering stockholders.
<PAGE>
EXHIBIT 2
Compensation Committee. The Compensation Committee, which consists of a
majority of Independent Directors, approves the salaries and other benefits of
the executive officers of the Company and administers any non-stock based bonus
or incentive compensation plans of the Company (excluding any cash awards
intended to qualify for the exception for performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")).
In addition, the Compensation Committee consults with the Company's management
regarding pension and other benefit plans and compensation policies and
practices of the Company. Glenn Kaplan, Joseph G. Beck and Gerald Schuster are
the members of the Compensation Committee. The Compensation Committee held one
meeting in 1996.
Stock Option Committee. The Stock Option Committee, consisting solely
of directors who, to the extent legally required, qualify as "outside directors"
under Section 162(m) of the Code and as "non-employee directors" under Rule
16b-3(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), administers any stock-based incentive plans of the Company, including the
Incentive Plan. In addition, the Stock Option Committee is responsible for
granting any cash awards intended to qualify for the exception for
performance-based compensation under Section 162(m) of the Code. Bernard J.
Korman, Risa Lavizzo-Mourey and Gerald Schuster are the members of the Stock
Option Committee. The Stock Option Committee held one meeting in 1996.
Nominating Committee. The Company does not have a nominating committee
of the Board of Directors.
Meetings of Directors
The Board of Directors held three meetings and acted by unanimous
written consent several times in 1996. Each of the directors of the Company
attended more than 75% of the aggregate of (i) the total number of meetings of
the Board of Directors and (ii) the total number of meetings held by all
committees of the Board of Directors on which such director served.
Compensation of Directors
The Company pays its directors who are not employees of the Company an
annual compensation fee of $10,000 and a per meeting fee of $500 for each
directors meeting and each committee meeting attended. Under the Company's 1996
Stock Incentive Plan (the "Incentive Plan"), each non-employee director was
granted a non-qualified option to purchase 10,000 shares of Common Stock at
$10.00 per share (the price per share to the public in the Company's initial
public offering) and each new non-employee director upon the date of his or her
election or appointment will be granted a non-qualified option to purchase
10,000 shares of Common Stock at the fair market value on the date of grant. All
options granted to non-employee directors will vest at the rate of 25% on each
of the first four anniversaries of the date of grant, assuming the non-employee
director is a director on those dates, and all such options generally will be
exercisable for a period of ten years from the date of grant. Upon a Change of
Control (as defined in the Incentive Plan) all unvested options (which have not
yet expired) will automatically become 100% vested. Directors who are employees
of the Company are not compensated for services as a director.
-5-
<PAGE>
PROPOSAL 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has reappointed Coopers & Lybrand L.L.P. as the
Company's independent accountants for the fiscal year ending December 31, 1997
and recommends the ratification by the stockholders of that reappointment. In
the absence of instructions to the contrary, the shares of Common Stock
represented by a proxy delivered to the Board of Directors will be voted FOR the
ratification of the appointment of Coopers & Lybrand L.L.P.
A representative of Coopers & Lybrand L.L.P. is expected to be present
at the Annual Meeting of Stockholders and will be available to respond to
appropriate questions and make such statements as he or she may desire.
-6-
<PAGE>
MANAGEMENT AND
PRINCIPAL STOCKHOLDERS
The following table shows as of April 30, 1997 the beneficial ownership
of Common Stock with respect to (i) each person who was known by the Company to
own beneficially more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each director and nominee for director, (iii) each executive officer
of the Company, and (iv) directors and executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Positions and Offices Shares of Common Stock Percent
Beneficial Owner (1) with the Company Beneficially Owned of Class
- -------------------- ---------------- ------------------ --------
<S> <C> <C> <C>
Glenn Kaplan (2) Chairman of the Board of Directors
and Chief Executive Officer 4,150,000 53.5
Wayne L. Kaplan (2) Vice Chairman of the Board of
Directors, Senior Executive Vice
President, Secretary and General 4,150,000 53.5
Counsel
Evan A. Kaplan (2) President and Chief Operating
Officer; Director 4,150,000 53.5
Raymond DioGuardi Chief Financial Officer 0 0
Joseph G. Beck Director 0 0
Bernard J. Korman Director 0 0
Risa Lavizzo-Mourey, M.D. Director 0 0
Gerald Schuster Director 2,500 *
All directors and executive 4,152,500 53.6
officers as a group (8 persons)
Sirach Capital Management, Inc.
600 University Street
Seattle, WA 98101 (3) 730,300 9.4
Fusion Capital Management, Inc.
237 Park Avenue
New York, NY 10012 (4) 446,300 5.8
Thomson Hortsmann & Bryant, Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663(5) 431,300 5.6
</TABLE>
- --------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of the listed persons is c/o
Kapson Senior Quarters Corp., 242 Crossways Park West, Woodbury, New
York 11797.
(2) Includes shares owned of record by the Kaplans, each of whom share
voting and dispositive power over all of these shares, and Herbert
Kaplan, who has a pecuniary interest in, and has shared voting and
dispositive power over, 300,001 shares of Common Stock. Herbert Kaplan
is the father of the Kaplans.
-7-
<PAGE>
(3) Information regarding Sirach Capital Management, Inc. ("Sirach") was
obtained from a Schedule 13G filed by it with the Securities and
Exchange Commission on January 30, 1997. Such Schedule 13G states that
Sirach, a Washington corporation, is an investment advisor that has
sole voting power and sole dispositive power over 730,300 shares of
Common Stock.
(4) Information regarding Fusion Capital Management Inc. was obtained from
a Schedule 13D, as amended, filed by it with the Securities and
Exchange Commission on April 10, 1997. Such Schedule 13D states that
Wayne M. Cooperman and Ricky C. Sandler (the "Reporting Persons") are
the general partners of Fusion Partners, L.P., a Delaware limited
partnership that owns 388,800 shares of Common Stock, and that the
Reporting Persons own Fusion Capital Management, Inc., which is the
investment manager of Fusion Offshore Fund Limited, a British Virgin
Islands corporation that owns 27,500 shares of Common Stock. The
Reporting Persons thus have shared voting and shared dispositive power
over 416,300 shares of Common Stock. In addition, Mr. Cooperman has
sole voting and dispositive power over 30,000 shares of Common Stock
owned by a family partnership.
(5) Information regarding Thomson Horstmann & Bryant, Inc. ("THB") was
obtained from a Schedule 13G filed by it with the Securities and
Exchange Commission on January 16, 1997. Such Schedule 13G states that
THB, a New York corporation, is a registered investment advisor that
has sole voting power over 390,200 shares of Common Stock, shared
voting power over 27,000 shares of Common Stock, and sole dispositive
power over 431,300 shares of Common Stock.
-8-
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation earned for services rendered in all capacities to the Company for
the fiscal years ended December 31, 1996 and December 31, 1995 by the Company's
Chief Executive Officer and each other executive officer whose salary and bonus
for such fiscal year was in excess of $100,000.
<TABLE>
<CAPTION>
Annual Long Term
--------------------------- ----------------------
Compensation Compensation
Other
Annual Restricted Securities
Name and Compensation Stock Underlying All Other
Principal Position Year Salary($) Bonus ($) ($) Award(s)($) Options # Compensation ($)
------------------- ----- --------- --------- ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn Kaplan (1) 1996 90,645(2) 26,500(3) 83,924(4) 0 0 31,825(5)
Chairman of the Board and Chief
Executive Officer 1995 67,177 0 10,789(4) 0 0 39,500(5)
Wayne L. Kaplan (1) 1996 90,645(2) 26,500(3) 75,114(4) 0 0 31,825(5)
Vice Chairman of the Board,
Senior Executive Vice President, 1995 67,177 0 2,113(4) 0 0 39,500(5)
Secretary and General Counsel
Evan A. Kaplan (1) 1996 90,645(2) 26,500(3) 75,114(4) 0 0 31,825(5)
President and Chief Operating
Officer 1995 67,177 0 1,982(4) 0 0 39,500(5)
</TABLE>
- -------------------
(1) Each of the Kaplans entered into an employment agreement (collectively,
the "Employment Agreements") with the Company effective October 1, 1996
and is compensated from that date forward in accordance with the terms
of that employment agreement. See "Employment Agreements."
(2) Represents, in each case, $44,508 paid as salary by the Predecessor of
the Company, from January 1, 1996 through September 30, 1996, plus
$46,137 paid as salary from October 1, 1996 through December 31, 1996
pursuant to the Employment Agreements.
(3) Pursuant to the Employment Agreements, the bonus amounts were awarded
by the Compensation Committee and paid in 1997 for services rendered
from October 1, 1996 through December 31, 1996.
(4) For 1996, represents: (i) fees paid by the Company under the Operating
Agreements (as defined herein) from October 1, 1996 through December
31, 1996 ( $73,114 in each case); (ii) personal use of a Predecessor
(as defined herein)/Company-paid automobile; and (iii) with respect to
Glenn Kaplan only, partial payment of club membership dues. For 1995,
represents: (i) personal use of a Predecessor-paid automobile; and (ii)
with respect to Glenn Kaplan only, partial payment of club membership
dues. See "Certain Transactions."
(5) For 1996 and 1995, represents, in each case, the Company's payment of
premiums on a life insurance policy.
Stock Options
None of the executive officers of the Company named in the Summary
Compensation Table were granted any options or exercised any options during the
year ended December 31, 1996.
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<PAGE>
Employment Agreements
The Company has entered into substantially similar employment
agreements with each of Glenn Kaplan (as Chairman and Chief Executive Officer),
Wayne L. Kaplan (as Vice Chairman, Senior Executive Vice President, Secretary
and General Counsel) and Evan A. Kaplan (as President and Chief Operating
Officer) (each individually, an "Executive"). Each agreement provides for an
initial five-year term which is automatically renewable for successive one-year
terms (the "Employment Term") unless either party gives written notice to the
other at least six months prior to the expiration of the then Employment Term.
During the Employment Term, the Executive will be obligated to devote
substantially all his business time, energy, skill and efforts to the
performance of his duties under the agreement and shall faithfully serve the
Company, subject to his right to perform his obligations as operator of one or
more of the Company's facilities in his individual capacity.
The agreement currently provides for an annual base salary of $237,000
(as adjusted annually in the discretion of the Compensation Committee and also
for cost of living increases) and a discretionary bonus. The Compensation
Committee shall determine the amount of the bonus to be awarded to the Kaplans,
taking into account the operating results of the Company as well as such
subjective factors as the Compensation Committee deems appropriate and in the
best interests of the Company and its stockholders, which bonus amount will be
shared equally by the Kaplans. In addition, under the agreement the Executive
will be entitled to long-term disability coverage, use of an automobile and club
membership, and benefits generally provided to executive employees.
The agreement also provides that, during the Employment Term and
thereafter, the Company will indemnify the Executive, to the fullest extent
permitted by law, in connection with any claim against the Executive as a result
of the Executive serving as an officer or director of the Company or in any
capacity at the request of the Company in or with regard to any other entity,
employee benefit plan or enterprise. Following the Executive's termination of
employment, the Company will continue to cover the Executive under the Company's
directors' and officers' insurance for the period during which the Executive may
be subject to potential liability for any claim, action or proceeding (whether
civil or criminal) as a result of his service as an officer or director of the
Company at the highest level then maintained for any then or former officer or
director.
Any dispute or controversy arising under or in connection with the
agreement (other than injunctive relief) shall be settled exclusively by
arbitration. Each party shall bear its own legal fees except that, in the event
the Executive prevails on any material issue, the arbitrator shall award the
Executive his legal fees, except for those attributable to frivolous positions.
The agreement may be terminated at any time by the Executive for Good
Reason (including a Change in Control of the Company) or by the Company with or
without Cause (as each capitalized term is defined in the agreement). Good
Reason also includes an event of default or termination, other than in
accordance with its terms, by the Company or its subsidiaries without cause, of
any Operating Agreement between the Company and the Kaplans, as operators of the
Company's facilities, or any Management Services Agreement between the Company's
wholly-owned subsidiary and the Kaplans. If the employment of the Executive is
terminated for any reason, he may withdraw as a licensed operator of certain of
the Company's facilities. Likewise, if the Executive is terminated by the
Company as an operator of one of its facilities, he may resign his employment
with the Company.
If the Executive terminates his employment with the Company for Good
Reason (including the
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<PAGE>
Company giving notice of non-renewal) or is terminated without Cause, he will
receive severance pay (i) in an amount equal to two years' Base Salary and
bonus, plus (ii) continued medical benefits for two years. The agreement
provides that the Executive will have no obligation to mitigate the Company's
financial obligations in the event of his termination for Good Reason or without
Cause and there will be no offset against the Company's financial obligations
for other amounts earned by the Executive. If termination is the result of
Executive's death or disability, the Company will pay to the Executive (or his
estate), an amount equal to six months' Base Salary at his then current rate of
pay (reduced in the case of disability by his long-term disability policy
payments). If the Executive's employment is terminated by him for Good Reason or
by the Company without Cause, he may also withdraw as an operator of the
Company's facilities; in such an event, he will be entitled to receive twice his
pro rata share of the operating fees (net of fees payable under the applicable
Management Services Agreement) for the preceding twelve months.
Compensation Committee Report
Compensation Policies. The principal goal of the Company's compensation
program as administered by the Compensation Committee is to help the Company
attract, motivate and retain the executive talent required to develop and
achieve the Company's strategic and operating goals with a view to maximizing
stockholder value.
CEO's Compensation; Compensation of the Kaplans.
Salary. The Company entered into employment agreements with each of
Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan prior to the formation of the
Compensation Committee. Pursuant to such agreements, the Company paid to each
Kaplan an annualized base salary of $213,000 from October 1, 1996 to December
31, 1996. The Compensation Committee has determined that, in 1997, the Kaplans
will be paid an annualized base salary of $237,000. These base salaries are
competitive with those payable to executives holding corresponding positions at
corporations within the Company's industry that are of comparable size.
Individual experience and performance is considered when setting salaries within
the range for each position, although the Employment Agreements between the
Company and each of the Kaplans provide that each Kaplan shall receive equal
compensation. Annual reviews are held and adjustments are made based on
attainment of individual goals and in a manner consistent with the Company's
overall operating and financial performance.
Bonus. Each Kaplan also received a bonus of $26,500 for the period from
October 1, 1996 to December 31, 1996.In making its determination of the bonus
amounts, the Compensation Committee reviewed a compensation survey prepared by
Sibson & Co., a compensation consulting firm. Several other factors were
considered in the decision to award 1996 bonuses to the Kaplans, including the
Company's performance in reaching or exceeding its development and acquisition
goals.
Compensation of Other Executive Officers and Key Employees.
Base Salary. Base salaries paid in 1996 to the Company's executive
officers and key employees are competitive with those payable to executives
holding corresponding positions at corporations within the Company's industry
that are of comparable size. Individual experience and performance is considered
when setting salaries within the range for each position. Annual reviews are
held and adjustments are made based on attainment of individual goals and in a
manner consistent with the Company's overall operating and financial
performance.
-11-
<PAGE>
Annual Bonus. The annual bonus is intended to motivate individual and
team performance by creating potential to earn annual incentive awards that are
contingent upon the performance of the Company and that are comparable to those
payable to executives and key employees holding corresponding positions at
corporations within the Company's industry that are of comparable size. Bonuses
for 1996 were determined both by evaluations of individual performance and by
the Company's successful initial public offering of its common stock and the
successful execution of the Company's growth strategy during the period.
Long-Term Incentives. The Company provides its executives and key
employees with long-term incentive compensation through grants of stock options
under the Company's stock option plans. The grant of stock options aligns the
executive's interests with those of the Company's stockholders by providing the
executive with an opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the Company's Common
Stock. The size of option grants is comparable to grants by other corporations
within the Company's industry that are of comparable size.
The Compensation Committee
Glenn Kaplan
Joseph G. Beck
Gerald Schuster
Compensation Committee Interlocks and Insider Participation
Compensation policies and decisions, including those relating to
salary, bonuses and benefits of executive officers, were set or made by the
Board of Directors from the formation of the Company to the time of the Initial
Public Offering. The Kaplans participated as members of the Board of Directors
in deliberations concerning executive officer compensation. Upon consummation of
the Initial Public Offering, the Board of Directors created a Compensation
Committee consisting of a majority of Independent Directors, which recommends to
the Board the cash compensation to be paid to the Company's executive officers.
The members of the Compensation Committee are Glenn Kaplan, Joseph Beck and
Gerald Schuster. Glenn Kaplan is the Chief Executive Officer of the Company, is
party to certain agreements by which he in his individual capacity is the
licensed operator of certain of the Company's New York facilities, and was party
to certain transactions with the Company in connection with the formation of the
Company. See "Certain Transactions." Glenn Kaplan does not participate in
discussions regarding compensation to be paid to him or to Wayne Kaplan or Evan
Kaplan.
-12-
<PAGE>
Performance Graph
The following performance graph compares the cumulative total return of
the Company's Common Stock (on which no dividends have been paid) from September
26, 1996 (the first day of public trading of the Company's Common Stock) through
December 31, 1996 to the cumulative total return of the Russell 2000 Stock Index
and the Peer Group Index (defined below) for the same time period. The graph
assumes that $100 was invested on September 26, 1996 in the Company's Common
Stock and each of the indices and assumes reinvestment of dividends. The initial
public offering price of the Company's Common Stock was $10.00 per share.
The Peer Group Index is composed of other major publicly traded
assisted living companies. These companies are ARV Assisted Living, Assisted
Living Concepts, Emeritus Corp., Just Like Home, Inc., Karrington Healthcare,
Regent Assisted Living, Sterling House Corp. and Sunrise Assisted Living. The
companies in the Peer Group Index are weighted by their respective market
capitalization at September 26, 1996.
-13-
<PAGE>
Certain Transactions
Consolidating Transactions. The Company was formed in order to
consolidate and expand the assisted living business of the Kapson Group (the
"Predecessor"). The Predecessor historically operated its business through a
number of partnerships, limited liability companies and S corporations. In
connection with the Initial Public Offering, the Predecessor and the Company
entered into certain transactions pursuant to which the Company received
substantially all of the Predecessor's assets associated with its assisted
living business. In addition, a number of transactions were entered into in
connection with the operation of the Company's facilities, largely in order to
comply with applicable law and regulations.
Conveyance of Assisted Living Business to the Company. Upon the
consummation of the Initial Public Offering, the Predecessor transferred to the
Company the following: (i) certain wholly-owned subsidiaries of the Predecessor
that owned the entire fee in the land and building underlying six facilities
(Town Gate East, Town Gate Manor, Senior Quarters at Huntington Station, Senior
Quarters at Centereach I, Senior Quarters at Centereach II and Senior Quarters
at Stamford); (ii) certain wholly-owned subsidiaries of the Predecessor that
owned, directly or indirectly, less than the entire fee in the land and building
underlying five facilities (23.75% of Change Bridge Inn, 50.1% of Senior
Quarters at Chestnut Ridge, 50% of Senior Quarters at East Northport, 10% of
Senior Quarters at Jamesburg and 11% of Senior Quarters at Glen Riddle); (iii)
two wholly-owned subsidiaries of the Predecessor that provided management
services for all the foregoing facilities, in addition to four facilities in
which the Predecessor did not have an equity interest (Castle Gardens, The
Regency at Glen Cove, Senior Quarters at Lynbrook and Senior Quarters at
Cranford); (iv) the Predecessor's interest in pre-construction development
projects in seven facilities (Patterson, NY; Albany, NY; Briarcliff Manor, NY;
Tinton Falls, NJ; Westchester County, NY; Riverdale, NY and Northampton County,
PA); and (v) all of its other assets relating to its assisted living business.
In consideration of the foregoing, the Company: (i) issued to the Kaplans, as
sole equal partners of the Predecessor, 4,150,000 shares of Common Stock, and
paid to them the sum of $6.0 million (representing the approximate tax liability
incurred by the Kaplans in connection with transactions pertaining to the
transfer by the Predecessor of its facilities to the Company); and (ii) agreed
to pay all real estate transfer taxes arising out of the foregoing transactions
(approximately $83,000). As a result of these transactions, the Company assumed
all indebtedness encumbering the facilities. The Kaplans had guaranteed certain
indebtedness incurred by the Predecessor with respect to certain facilities, and
the Kaplans were released from such guarantees.
Arrangements Regarding Operation of Certain Facilities. Because of New
York law and regulations, the Kaplans individually are the operators of
substantially all the Company's assisted living facilities located in New York.
Of these facilities, the Kaplans are or will be the operators of Town Gate East,
Town Gate Manor, Senior Quarters at Huntington Station, Senior Quarters at
Centereach I, Senior Quarters at Centereach II, Senior Quarters at Chestnut
Ridge and Senior Quarters at Lynbrook, either pursuant to a separate operating
agreement entered into by the Company and the Kaplans (each, an "Operating
Agreement") or the pre-existing agreement with the unaffiliated owner of the
facility (that has been assigned to the Kaplans). Each Operating Agreement has a
term of 25 years and provides for an operating fee equal to 5% of gross revenues
of the facility. The pre-existing agreements with third-party owners generally
have a term of five years and provide for an operating fee equal to 5% of gross
revenues or the greater of 5% of gross revenues and a minimum fee (ranging from
$96,000 to $150,000 per annum). In some instances, the Company may also be
entitled to an incentive fee or may have an equity interest in the facility. The
Kaplans, as operators of each of these facilities, have engaged a wholly-owned
subsidiary of the Company to provide certain management services in connection
with the day-to-day operations of
-14-
<PAGE>
each facility, in each case pursuant to a separate Management Services Agreement
(each, a "Management Services Agreement"). Each Management Services Agreement is
co-terminous with the underlying Operating Agreement or pre-existing agreement
with the third-party owner. The fee payable to the Company's subsidiary under
each Management Services Agreement is 30% of the operator's fee, increasing to
96% of all the fees generated by aggregate gross revenues of all facilities
operated under this fee structure exceeding $23.0 million. The Kaplans have also
agreed that, with respect to any other projects for which the Company may not
act as the licensed operator (such as Senior Quarters at East Northport), they
will act as licensed operators in exchange for a fee equal to 5% of gross
revenues and pay the Company's wholly-owned subsidiary a servicing fee equal to
96% of their operating fee. The Operating Agreements may be terminated: (i) by
either the Company or the licensed operators upon the occurrence of certain
events of default (such as failure to timely pay the licensed operators' fees,
failure to perform any material term, provision or covenant, subject to certain
cure periods, or an event of default under the Management Services Agreement);
(ii) by the Company upon the death or disability of all the licensed operators;
(iii) by the licensed operators upon a change of control in the Company or at
any time after five years; or (iv) by the Company in its discretion at any time,
provided that if the Operating Agreement is terminated by the Company other than
for an event of default by the licensed operators, the licensed operators will
be entitled to liquidated damages equal to twice the licensed operators' fees
under the applicable Operating Agreement (net of fees payable under the
applicable Management Services Agreement) over the preceding twelve months. In
addition, the employment agreement with each Kaplan provides that each Kaplan
may withdraw as a licensed operator if he ceases to be an employee of the
Company for any reason, and that if his employment is terminated by him for good
reason or by the Company without cause, he will be entitled to receive, in
addition to the severance payments provided for in his employment agreement,
either the liquidated damages provided for in the applicable Operating Agreement
or a lump sum equal to twice his share of the licensed operators' fees (net of
fees payable under the applicable Management Services Agreement) for the
preceding twelve months. Good reason includes the termination of an Operating
Agreement or a Management Services Agreement by the Company or its wholly-owned
subsidiary, as the case may be, other than in accordance with its terms or by a
licensed operator because of an event of default. Legislation has been enacted
in New York State that allows privately-owned corporations to operate certain
types of licensed facilities, including ALP facilities. As a result, the Kaplans
may form one or more corporations to operate these facilities. The Kaplans are
entitled, pursuant to the Operating Agreements, to assign such agreements to any
corporation that is wholly owned by them.
Certain Transactions Regarding Sales of Common Stock
Restrictions on Transfer. Each Kaplan has agreed with the Company that
he shall not, for as long as he shall be the licensed operator of any of the
Company's facilities, transfer any shares of Common Stock if it would result in
his personally owning fewer than 500,000 shares of Common Stock initially, or
250,000 shares of Common Stock after the fifth anniversary of the consummation
of the Initial Public Offering, in each case subject to certain exceptions. In
addition, a stockholders' agreement between the Kaplans and the Company provides
(i) each Kaplan with a right of first refusal with respect to a transfer of the
shares of Common Stock of the other Kaplans, except for a limited exception in
the case of death, and (ii) that the Kaplans shall vote all their shares of
Common Stock as a unit.
Registration Rights. Each of the Kaplans, along with Herbert Kaplan,
who beneficially own in the aggregate 4,150,000 shares of Common Stock, is
entitled to certain rights with respect to the registration of such shares under
the Securities Act of 1933 (the "Securities Act"). Under the terms of the
agreement between the Company and the Kaplans, if the Company proposes to
register any of its securities under the
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<PAGE>
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, each of the Kaplans is entitled to
notice of such registration and is entitled to include shares of such Common
Stock therein. The stockholders benefitting from these rights may, acting
jointly, also require the Company on two separate occasions to file a
registration statement under the Securities Act at the Company's expense with
respect to shares of Common Stock beneficially owned by them, and the Company is
required to use its diligent reasonable efforts to effect such registration.
These rights are subject to certain restrictions, conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares included in such registration.
Shattuck Hammond Fee. Upon consummation of the Initial Public Offering,
the Company paid its financial advisor, Shattuck Hammond, approximately
$887,500, as its fee for various investment banking services rendered. Joseph G.
Beck, a director of the Company, is a founding principal, executive committee
member and shareholder of Shattuck Hammond.
Future Transactions. The Board of Directors of the Company has adopted
a policy that future transactions between the Company and its officers,
directors, principal stockholders and their affiliates will be subject to the
approval of a majority of the Independent Directors, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.
-16-
<PAGE>
EXHIBIT 3
OPERATING AGREEMENT
-------------------
Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan, d/b/a G.W.E.
Partnership (collectively, the "Operators"), with offices located at 125
Froehlich Farm Boulevard, Woodbury, New York 11797, hereby contract with the
Owner set forth below to operate the Facility described below pursuant to the
Terms of Operating Agreement attached hereto and which form a part of this
Agreement as fully as if recited in their entirety over the signatures affixed
below. The parties agree that the services to be provided by Operators shall be
personally rendered by them, except as contemplated herein, or unless Owner
approves a successor Operator or Operators under the Terms of Operating
Agreement.
1. The "Effective Date" shall be September 30, 1997.
2. The "Effective Time" shall be the effective time of the merger of Prometheus
Acquisition Corp. (the "Company") with and into Kapson Senior Quarters Corp. as
defined in that certain Agreement and Plan of Merger dated as of the Effective
Date among Prometheus Senior Quarters LLC, Prometheus Acquisition Corp. and
Company.
3. The "Owner" is Kapson Rochester East, L.L.C., with offices located at 125
Froehlich Farm Boulevard, Woodbury, New York 11797.
4. The "Property" is the land located at 2006 Five Mile Line Road, Penfield, New
York 14526.
5. The "Facility" is an approximately 120 bed adult care facility known as Town
Gate East, located on the Property.
6. The "Escrow Agreement" is that certain escrow agreement, dated the Effective
Date, among Prometheus Senior Quarters LLC, Prometheus Acquisition Corp.,
Operators and Harris Trust and Savings Bank.
7. The "Stock" is the three hundred seventy-five thousand (375,000) shares of
stock in Kapson Senior Quarters Corp., a Delaware corporation, placed into
escrow by Operators pursuant to the Escrow Agreement.
8. The "Master Management Services Agreement" is that certain master management
services agreement, dated the Effective Date between Operators and Senior
Quarters Management Corp., a New York Corporation.
<PAGE>
9. The "Notice Addresses" are as follows:
To Owner: KAPSON ROCHESTER EAST, L.L.C.
125 Froehlich Farm Boulevard
Woodbury, New York 11797
Phone:(516) 921-8900
Telecopier: (516) 921-8360
Copy to: Kapson Senior Quarters Corp.
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
Telephone: (212) 632-6026
Telecopier: (212) 332-5980
To Operators: Glenn Kaplan, Wayne L. Kaplan and Evan
A. Kaplan
GWE Partnership
125 Froehlich Farm Boulevard
Woodbury, New York 11797
Phone:(516) 921-8900
Telecopier: (516) 921-8360
Copy to: Arnold J. Levine, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Telephone: (212) 969-3000
Telecopier: (212) 969-2900
10. The "Department's Regional Office" shall be:
New York State Department of Social Services
259 Monroe Avenue
Rochester, New York 14607
<PAGE>
Executed in duplicate as of the Effective Date, at New York, New York.
OWNER: KAPSON ROCHESTER EAST, L.L.C.
By: Kapson Senior Quarters Corp.,
Sole member
By: /s/ Wayne L. Kaplan
------------------------------
Name: Wayne Kaplan
Title: Senior Exec. Vice President
OPERATORS: G.W.E. PARTNERSHIP
/s/ Glenn Kaplan
------------------------------
Glenn Kaplan
/s/ Wayne L. Kaplan
------------------------------
Wayne L. Kaplan
/s/ Evan A. Kaplan
------------------------------
Evan A. Kaplan
<PAGE>
TERMS OF OPERATING AGREEMENT
----------------------------
This Operating Agreement is made as of the Effective Date, by and between
Owner and Operators, shall commence as of the Effective Time, and shall at the
Effective Time supersede the operating agreement between the parties that is in
place with respect to the Facility on the Effective Date.
WHEREAS, Owner is the owner or lessee of the Property where the Facility is
located;
WHEREAS, Operators hold an operating certificate to operate the Facility,
are experienced and qualified in the field of operating adult-care facilities
such as the Facility, and Owner desires to engage Operators to continue to
operate Facility from and after the Effective Time;
WHEREAS, Operators are willing to continue to operate the Facility on the
terms and subject to the conditions set forth in this Agreement from and after
the Effective Time.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
I. RESPONSIBILITIES OF OPERATORS.
------------------------------
A. ENGAGEMENT. Owner hereby engages Operators to operate the Facility, and
Operators hereby accept such engagement and agree to operate the Facility, at
Owner's expense, so as to provide all services required by applicable law and
regulation and the terms and conditions set forth in this Agreement. During the
term of this Agreement, Operators shall have full authority to operate and
manage the Facility as an adult-care facility in accordance with applicable law
and regulation and the terms and conditions hereof, and shall have full and
complete control and reign over, and use of, the entire Facility, including its
common areas. Without limiting the generality of the foregoing, Operators shall
have full authority and responsibility as follows:
1. OPERATIONAL POLICIES AND FORMS. In accordance with the Annual Budgets
(as defined in Section I.B. hereof), Operators shall promulgate and implement
such operational policies and procedures as they may deem necessary to insure
the establishment and maintenance of operational standards appropriate for the
nature of the Facility.
<PAGE>
2. CHARGES. In accordance with the Annual Budgets, Operators shall
supervise and coordinate the establishment of schedules of charges including any
and all special charges for services rendered at the Facility.
3. INFORMATION. Within the expenses allowed and provided for in the Annual
Budget, and subject to the review of the Owner, Operators shall supervise and
coordinate the development of any informational material, mass media releases,
and other related publicity materials that are necessary or appropriate for the
operation of the Facility.
4. REGULATORY COMPLIANCE. Operators shall use their reasonable best efforts
to obtain and maintain all licenses, permits, qualifications and approvals from
any applicable governmental or regulatory authority required for the operation
of the Facility, to operate the Facility in compliance with all applicable laws
and regulations, and to comply with such laws and regulations in performing
Operators' obligations under this Agreement. Where permitted by law, all such
licenses, permits, approvals and certifications obtained or renewed after the
Effective Date shall be in the name of Owner; all other such licenses, permits,
approvals and certifications shall be in the name of Operators, or an individual
partner of Operators, unless the governing law requires otherwise. In addition,
Operators shall supervise and coordinate the preparation and filing of (and,
where Operators are required to do so under applicable law or regulation, shall
file) all reports or other information required by New York State Department of
Social Services, New York State Department of Health, New York State Housing
Finance Agency and other New York or other governmental agencies having
jurisdiction over the Facility; Operators shall use reasonable best efforts to
deliver copies of all such reports to Owner for its review prior to their
filing. Operators shall cooperate with governmental inspection and enforcement
activities. Operators shall notify Owner of the requirement for changes to the
physical structure of the Facility to comply with applicable laws and codes and
Owner shall be responsible for any mandated changes to bring the physical
structure into compliance with the applicable laws and codes.
5. EQUIPMENT AND IMPROVEMENTS. In accordance with the Annual Budgets and
subject to consultation with of Owner, Operators shall, on behalf of owner,
engage third parties to acquire or effect the equipment and improvements which
are needed to maintain or upgrade the quality, to replace obsolete or run down
equipment, or to correct any other survey deficiencies which may be cited during
the term of this Agreement, make all such
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<PAGE>
repairs, replacements and maintenance and acquire all necessary equipment,
including replacement equipment.
6. FINANCIAL AND ACCOUNTING SERVICES.
----------------------------------
a. In consultation with Owner, Operators shall
supervise and coordinate the preparation and/or maintenance (as appropriate)
of the following items:
- a monthly balance sheet and statement
of operations for the Facility, to be
submitted to Owner within thirty (30)
days after the end of each calendar
month;
- Resident billing records;
- Accounts receivable and collection records;
- Accounts payable records;
- All payroll functions, including,
preparation of payroll checks,
establishment of depository accounts
for withholding taxes, payment of such
taxes (at the Company's sole expense),
filing of payroll reports and the
issuance of W-2 forms to all
employees; and
b. In consultation with Owner, Operators shall
supervise and coordinate the preparation and/or maintenance (as appropriate) of
(i) a complete general ledger for the purposes of recording and summarizing all
transactions for the Facility and (ii) the preparation and filing of all
necessary reports as required by applicable governmental authorities and the
simultaneous provision of copies thereof to the Owner. In consultation with
Owner, and subject to Owner's further direction, Operators shall use reasonable
best efforts to file all such reports as are required to be filed for the
Facility, Owner and/or Operators.
C. In consultation with Owner, Operators shall
supervise and coordinate the preparation and delivery of all reports required to
be delivered to any lenders at the time and in the manner required by such
lenders.
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d. All accounting procedures and systems utilized
in providing said support shall be in accordance with the operating capital and
cash programs developed by Owner, which programs shall conform to generally
accepted accounting principles and shall not materially distort income or loss.
Nothing herein shall preclude Operators from engaging a third party, at
Operator's expense and approved by owner, to assist it in the performance of the
accounting duties provided for herein.
7. REPORTS. Operators shall supervise and coordinate the
preparation of any reasonable operational information which may from time to
time be specifically requested by Owner, including any information needed to
assist Owner in completing its tax returns and in complying with any reporting
obligations imposed by any mortgagees or lessors of the Facility. In addition:
(a) within thirty (30) days after the end of each calendar month, Operators
shall supervise and coordinate the preparation and the delivery to Owner of an
unaudited balance sheet of the Facility, dated the last day of such month, and
an unaudited statement of income and expenses for such month relating to the
operation of the Facility and (b) within ninety (90) days after the end of the
fiscal year of the Owner, Operators shall supervise and coordinate the
preparation of unaudited financial statements, including a balance sheet of the
Facility dated the last day of said fiscal year and a statement of income and
expense for the year then ended relating to the operation of the Facility. In
addition, Operators shall supervise and coordinate the preparation and the
delivery to owner of monthly occupancy reports and related information with
respect to Facility. All books, forms and records of the Facility in connection
with the operation of the Facility are Operators' property, provided, however
that Operator shall provide true and complete copies of all such books, forms
and records (of Facility and not the residents) to Owner.
8. BANK ACCOUNTS AND WORKING CAPITAL. Owner shall
establish and maintain in a local bank selected by Owner an account or accounts
for the operation of the Facility ("Operating Accounts"), in Owner's name and on
behalf of Owner, and Operators shall thereafter deposit therein all funds
received by Operators on Owner's behalf from the operation of the Facility. It
is anticipated that Operators shall have sufficient revenue and working capital
to operate the Facility out of the revenue generated by the Facility. Owner
shall provide funds for the Operating Accounts, in addition to the revenue
generated from the operation of the Facility, in the event that revenue is
insufficient, at any point, to pay current expenses. All expenses incurred in
connection with the operation of the Facility (including, without limitation,
the payment of
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Operator's Management Fee) shall be paid out of the Operating Accounts. In
consultation with Owner and subject to its direction, Operators shall supervise
and coordinate the writing of checks and withdrawals from the Operating Accounts
to pay for operating the Facility to the extent necessary for the discharge of
Operators' obligations hereunder. Replacement Reserve accounts have been
established for the Facility. Capital improvements shall be paid out from those
Replacement Reserve accounts according to their terms. Operators shall have no
obligation to (1) provide or contribute working capital required for the
operation of the Facility, or (2) fund capital expenditures required to maintain
the Facility in good condition and repair.
9. PERSONNEL. In consultation with Owner, Operators shall
supervise the recruiting, hiring, training and promotion; supervise the
establishment of salary levels, personnel policies and employee benefits; and
establish employee performance standards, all as Operators determine to be
necessary or desirable during the term of this Agreement to ensure the efficient
operation of all departments within, and all services offered by, the Facility.
All of the foregoing obligations shall be undertaken in accordance with the
Annual Budgets and applicable law and regulations. All of the Facility personnel
shall be the employees of Owner, unless otherwise agreed by Owner, and all
salary, bonuses, fringe benefits, payroll taxes and related expenses payable to
or in respect of the Facility's personnel shall be subject to review by the
owner and shall be expenses of the Facility. Operators shall in all events
retain the authority to direct, discipline and discharge all Facility personnel,
including the Administrator of the Facility.
10. SUPPLIES AND EQUIPMENT. In consultation with Owner,
Operators shall supervise and coordinate the purchase, on behalf of Owner, of
supplies and non-capital equipment needed to operate the Facility within the
budgetary limits set forth in the Annual Budgets.
11. LEGAL PROCEEDINGS. Operators shall, through legal
counsel approved by Owner, direct all legal matters and proceedings that are
within the scope of Operators' authority pursuant to this Agreement, in
consultation with Owner, including without limitation, instituting any necessary
legal actions or proceedings to collect obligations owing to the Facility,
canceling or terminating any contract or agreement for breach thereof or default
thereunder and otherwise enforcing the rights and obligations of the residents,
sponsors, licensees, customers and other users of the Facility. Without
limiting the generality of the foregoing, Operations are authorized to settle,
in the name
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and on behalf of the Owner and on such terms and conditions as Operators may
deem to be in the best interests of the Facility, any and all claims or demands
arising out of, or in connection with, the operation of the Facility, whether or
not legal action has been instituted, provided that such settlement does not
exceed twenty-five thousand ($25,000) dollars for each such individual claim or
demand or exceed two hundred fifty thousand ($250,000) dollars in any fiscal
year. All such amounts shall be expenses of the Facility. Operators will give
notice promptly to Owner of all demands and claims, and all proposed settlements
and legal actions.
B. ANNUAL BUDGETS.
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1. PREPARATION AND SUBMISSION. Owner and Operators
hereby adopt the annual budget for calendar year 1998 that is attached hereto as
Exhibit A and incorporated herein by this reference. At least ninety (90) days
prior to the end of each subsequent calendar year that commences during the term
of this Agreement, Operators shall submit to Owner a proposed annual budget for
the Facility projecting the revenues available and funds required during such
fiscal year in order to operate the Facility and to make capital improvements
necessary or desirable in order to keep the Facility's physical plant in good
condition and repair. The proposed annual budget shall be based upon data and
information then available to owner and Operators and shall include, without
limitation, estimated salaries and fringe benefits for all personnel groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make the capital improvements projected in such budget. The
proposed annual budget shall be an estimate of revenues and costs, and Owner and
operators acknowledge that (x) projected revenue may not be actually received
and (y) projected costs may be exceeded by actual expenses and capital
expenditures incurred in connection with the operation and maintenance of the
Facility. By submitting such a projected budget, Operators will not be deemed to
be providing a guarantee or warranty as to the projected revenue, expenses or
capital expenditures of the Facility.
2. ADOPTION. Owner shall, within thirty (30) days
following receipt of a proposed annual budget proposal, notify Operators of
either Owner's approval of such proposed annual budget or those items of which
Owner approves and those items of which Owner disapproves. Owner shall either
approve or disapprove of, in total or in part, such proposed annual budget in
writing within a thirty (30) day period. If such proposed
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annual budget is not approved in such period, it shall be deemed disapproved. If
Owner disapproves of the proposed annual budget either in total or in part
within such thirty (30) day period, then Owner and Operators shall have thirty
(30) days from the date of owner's disapproval notice to formulate a mutually
agreeable Annual Budget. If the parties are unable to reach an agreement within
said thirty (30) day period, then Operator will operate at the previous year's
Annual Budget with up to a five (5%) percent increase in necessary categories
until a new Annual Budget is agreed upon or this Agreement is terminated;
provided, however, that the budgeted items for the categories of Heat, Light,
Power, Insurance and Real Estate Taxes shall be deemed increased as required to
reflect actual expenses for the succeeding calendar year. Each annual budget as
finally established in accordance with this paragraph (I.B.) (including as it
may thereafter be revised from time to time during a calendar year pursuant to
the written agreement of Owner and Operators), shall constitute an "Annual
Budget" for all purposes under this Agreement.
3. EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Operators agree
to use their reasonable best efforts to operate the Facility in accordance with
the Annual Budgets. Subject to the foregoing limitation, Owner shall be
responsible on a periodic basis, as and when needed, for all expenses and
capital expenditures incurred in connection with the operation and maintenance
of the Facility, including, without limitation, fees and cost overruns which
exceed the projections in the then current Annual Budget, but not to exceed ten
(10%) percent of the Annual Budget, unless otherwise agreed. Notwithstanding
anything in this Agreement, if Operators determine in good faith that the
incurrence of any expenditure is required in order to comply with applicable law
or regulations or to provide services in accordance with the adult-care
facilities industry's then prevailing standards in the area in which the
Facility is located, then Operators shall give prior notice to Owner and shall
make such expenditures, and all such expenditures shall be deemed, for all
purposes of this Agreement, to be in accordance with the then current Annual
Budget.
C. COLLECTION OF ACCOUNTS. In consultation with Owner, Operators
shall supervise and coordinate the issuance of bills and collection of accounts
and monies owed for goods and services furnished by the Facility, including, but
not limited to, enforcing the rights of Owner and the Facility as creditor under
any contract or in connection with the rendering of any services. Any actions
taken by Operators to collect said accounts receivable shall be in accordance
with the applicable
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laws, rules and regulations governing the collection of accounts receivable.
D. CONTRACTS. In consultation with Owner, Operators shall
supervise and coordinate the negotiation, preparation for execution,
cancellation or termination of agreements and contracts which Operators may deem
necessary or advisable for the operation of the Facility, including, without
limitation, the furnishing of concessions, supplies, utilities, extermination,
refuse removal and other services, and requisite contracts regarding home health
care and the transfer of residents. Where lawful, said agreements and contracts
will be entered into in the name of and on behalf of Owner. In no event,
however, shall Operators enter into any agreements with individuals or entities
that are related to any Operator by blood or marriage, or in which any Operator
or any member of his family, including brothers, sisters, nieces, nephews,
parents, grandparents, aunts or uncles, has an ownership interest, except with
the prior written approval of Owner.
All contracts over Five Thousand Dollars ($5,000) are subject to
Owner's final approval, which shall be evidenced by Owner's written consent
given prior to Operators entering into any contracts on behalf of Owner. All
contracts delegating any powers of Operators are subject to the prior written
approval of Owner.
E. EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Operators shall designate an entity to be the exclusive representative of Owner
for purposes of communicating and dealing directly with the regulatory
authorities, governmental agencies, employees, independent contractors,
suppliers, residents, sponsors, licensees, customers and guests of the Facility.
Any communications from Owner to such persons or entities or authorities shall
be directed through such designee. Owner may maintain contact and working
relationships with the above-mentioned persons and entities.
II. INSURANCE. Operators shall arrange for and maintain all necessary
and proper hazard insurance covering the Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Operators' and Owner's protection and for the
protection of Operators' and Owner's officers, partners, agents and the
Facility's personnel. Operators shall also arrange for and maintain all employee
health and worker's compensation insurance for the Facility's personnel. Any
insurance provided pursuant to this paragraph shall comply with the requirements
of any applicable Facility mortgage or lease and shall be an expense
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of the Facility. Any insurance coverage acquired for the Facility is subject to
Owner's final approval in writing.
III. CONFIDENTIAL MATERIALS. The systems, methods, procedures and
controls employed by Operators on behalf of Owner and any written materials or
brochures developed to document the same are property of Owner, shall remain
confidential and are not, at any time during or after the term of this
Agreement, to be utilized, distributed, copied or otherwise employed or acquired
by Operators, except as authorized by Owner.
IV. TERM OF AGREEMENT: EFFECT OF TERMINATION.
-----------------------------------------
A. INITIAL SERVICES. Commencing at the Effective Time, and until
the completion date of the Facility if the Facility is not yet open to the
public, Operators agree to provide assistance to the Owner in the planning of
the Facility, if appropriate. Such assistance may include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance in filing for
Certificates of Need and other governmental requirements, if any; and financial
analysis ("Initial Services").
B. GENERAL MANAGEMENT. Beginning at the Effective Time and
continuing until the expiration or earlier termination of this Agreement,
Operators shall manage and supervise the day-to-day operation of the Facility,
in the name of, on behalf of, and for the account of, Owner, in accordance with
the terms of this Agreement.
C. TERM OF AGREEMENT. The term of this Agreement shall commence at
the Effective Time and shall terminate on the fifth (5th) anniversary of the
Effective Time or the earlier date designated by Owner, provided, however, that
Owner shall provide not less than one hundred and eighty (180) days notice of
early termination, unless Owner, Operators and applicable regulatory authorities
otherwise agree in writing. In the event of a termination by Operators for any
reason, or in the event that Owner determines that it wishes to engage another
Operator or Operators during or prior to the expiration of the term of this
Agreement, Operators shall cooperate with and assist Owner in engaging a
replacement operator and all necessary operating certificates, permits and
licenses for the Facility. Operators shall cooperate with Owner, and use their
reasonable best efforts, to minimize the impact of any change in Operators on
the residents of the Facility.
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V. EVENTS OF DEFAULT AND REMEDIES.
-------------------------------
A. DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
1. NONPAYMENT. If Owner shall fail to pay or allow
payment of any installment of the fees due to Operators in accordance with
Section VIII hereof for a period of thirty (30) days after written notice of
such default from operators.
2. NONPERFORMANCE. If either Owner, on the one hand, or
the Operators, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement (other than as set forth in the
immediately preceding paragraph) and (i) such failure continues after written
notice from the other party or parties specifying such failure to perform,
unless such failure cannot reasonably be cured within such 30-day period, or
(ii) the defaulting party fails to endeavor vigorously and continuously to cure
such default as promptly as is practicable. It is understood and agreed that
Operators' obligations under this Agreement may be performed by one or more of
Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan, and that performance of such
obligations by one or more of such individuals shall constitute performance by
the Operators.
3. INSOLVENCY. If Owner is dissolved or liquidated,
applies for or consents to the appointment of a receiver, trustee or liquidator
of all or a substantial part of its assets, files a voluntary petition in
bankruptcy or is the subject of an involuntary bankruptcy filing, makes a
general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Owner bankrupt or insolvent or approving a petition seeking
reorganization of owner or appointing a receiver, trustee or liquidator for such
party of all or a substantial part of its assets, and such order, judgment or
decree shall continue unstayed and in effect for any period of sixty (60)
consecutive days.
4. TERMINATION BY LAW. If operators (x) elect to
terminate this Agreement prior to the end of its term pursuant to applicable law
for reasons other than an Event of Default by Owner or (y) cause such
termination or allow such termination to occur by operation of law.
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5. SEPARATE DEFAULT. If an Event of Default (as defined
therein) shall be committed by Operators under the terms of any agreement listed
on Exhibit B attached hereto and incorporated herein by this reference, and
pursuant to which Operators provide services to Owner or its affiliates,
including but not limited to their employment agreements with Kapson Senior
Quarters Corp.
B. REMEDIES. Upon any Event of Default which is not timely cured,
the party who has committed or suffered the Event of Default may, at its option,
terminate this Agreement upon one hundred eighty (180) days prior written
notice, and/or exercise all other rights and remedies available to such party at
law or in equity.
1. PAYMENT. In the event of any termination of this
Agreement, Operators shall be paid all Management Fees and other fees due to the
date of termination, plus any other damages to which Operators are entitled,
subject to any rights of offset by Owner. No delay or failure on the part of
either party hereunder to declare the other party in default or exercise any
remedies in respect of such default shall operate as a waiver of such right to
declare a default and exercise such remedies.
2. ATTORNEYS FEES AND COSTS. If either party is forced
to engage counsel to enforce any of the default provisions of this Agreement,
the prevailing party shall also be entitled to reasonable attorneys fees and all
costs attendant to such action.
3. OWNER'S UNREASONABLE WITHHOLDING OR DELAYING CONSENT
OR APPROVAL. Operators' sole remedy for any claim or assertion by Operators that
Owner has unreasonably withheld or unreasonably delayed any consent or approval
to any matter where such consent or approval is required pursuant to this
Agreement shall be an action or proceeding to enforce any such provision, or for
specific performance, injunction or declaratory judgment.
4. OPERATORS' REMEDIES. Operators shall look only to
Owner's estate and property relating to the Facility for the satisfaction of
Operators' remedies or for the collection of a judgment (or other judicial
process) requiring the payment of money by Owner in the event of any default by
Owner hereunder; no other property or assets of Owner or its shareholders,
members, partners or principals, disclosed or undisclosed, shall be subject to
levy, execution or other enforcement procedure for the satisfaction of
Operators' remedies under or with respect to this Agreement, the relationship of
Owner and Operators hereunder or Operators' use or occupancy of the Premises.
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C. CONTINUATION OF SERVICES. In the event of a default and
termination of this Agreement, Operators (or such other firm or entity as is
duly and properly authorized to provide adult care facility services) shall, if
required by applicable law, rule or regulation, for the greater of one hundred
eighty (180) days or such period of time as may be required by the New York
State Department of Social Services or any other regulatory agency with
jurisdiction, continue to provide adult care facility services at the Facility
and be paid for same. During the one hundred eighty (180) days or statutorily
required period, the adult care facility services shall be the only services
provided by Operators, provided, however that in such case Owner shall have all
rights and authority to operate the Facility directly or through an agency,
independent contractor or other third party of Owner's choice, if there is any
other firm or entity that is duly and properly authorized to provide such adult
care facility services and has obtained the necessary operating certificates,
permits and licenses.
D. OTHER PROVISIONS CONTROL. In the event that the New York State
Department of Social Services or any other regulatory agency with jurisdiction
does not require that one hundred and eighty (180) day notice be given to
Operators or such other firm or entity as is duly and properly authorized to
provide adult care facility services prior to termination, then the provisions
of subsection "C." of this section shall not apply and the other provisions of
this Agreement shall control events of default, remedies and rights of
termination.
VI. FACILITY OPERATIONS.
--------------------
A. NO GUARANTEE OF PROFITABILITY. Operators do not guarantee that
operation of the Facility will be profitable, but Operators shall use their
reasonable best efforts to operate the Facility in as cost effective and
profitable manner as possible consistent with maintaining operations in
accordance with the adult care facilities industry's then prevailing standards
in the area in which the Facility is located and in accordance with applicable
law.
B. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In performing
its obligations under this Agreement, Operators shall use their reasonable best
efforts and act in good faith and with professionalism in accordance with the
Annual Budgets and the prevailing standards of the adult-care facilities
industry in the area in which the Facility is located.
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C. FORCE MAJEURE. The parties will not be deemed to be in
violation of this Agreement if they are prevented from performing any of their
respective obligations hereunder for any reason beyond their control, including,
without limitation, strikes, shortages, war, acts of God, or any statute,
regulation or action of federal, state or local government or an agency thereof.
VII. WITHDRAWAL OF FUNDS BY OPERATORS.
---------------------------------
Owner and Operators acknowledge and agree that the efficient
operation of the Facility requires that the Operators have reasonable access to
the capital required therefor. Accordingly, unless otherwise agreed by Owner and
Operators, Owner agrees not to withdraw any funds from the Facility's bank
accounts Operators determine to be required for the proper operation of the
Facility or maintenance of appropriate reserves respect thereto.
VIII. FEES.
-----
A. MANAGEMENT FEE. There will be no fee for the Initial Services,
except as otherwise provided herein. Commencing on the later of the day the
Facility begins admitting residents for occupancy or the Effective Time, Owner
shall pay Operators a management fee ("Management Fee"), equal to Five Thousand
Dollars ($5,000) per month, payable monthly on the fifteenth (15th)) day of each
month.
B. ADDITIONAL SERVICES. Operators are entitled to reasonable
compensation in addition to the Management Fee to be agreed upon between
Operators and Owner for services that do not fall within the scope of management
or do not involve supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by the Owner or
recommended by Operators and approved by Owner.
IX. ASSIGNMENT; DELEGATION.
-----------------------
A. OPERATING AGREEMENT. This Agreement shall not be assigned
(including by operation of law, whether by merger or consolidation) by Operators
without the prior written consent of the Owner as indicated.
B. DELEGATION. Owner authorizes Operators to enter into the
Management Services Agreement and consents to the delegation of the performance
of certain services as contemplated thereby. In the event that the Management
Services Agreement shall terminate prior to the termination of this Agreement
other
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than as a result of the commission of any Event of Default thereunder by
Operators, Operators shall obtain the consent of Owner before entering into one
or more agreements with any other third party or parties providing for the
delegation of the performance of Operators' duties hereunder. In any case,
Operators shall retain, subject to review by Owner, (1) the authority to
promulgate and implement such operational policies and procedures as they may
deem necessary regarding the operation of the Facility and (2) the right to
direct third parties in the performance of their responsibilities.
X. NOTICES. All notices required or permitted hereunder shall in writing
by hand delivery, by registered or certified mail, postage prepaid, by overnight
delivery or by facsimile transmission (with receipt confirmed with the
recipient). Notices given by Operators may be signed by any of the Operators.
Notices shall be delivered or mailed to the parties at the Notice Addresses or
at such other places as either party shall designate in writing.
NOTICE TO THE DEPARTMENT OF SOCIAL SERVICES. Notwithstanding
anything in this Agreement to the contrary, Owner acknowledges that its right to
terminate this Agreement does not confer upon it the authority to operate an
adult care facility, as defined in the Social Services Law, at the Facility.
Each party agrees that it will give the New York State Department of Social
Services (the Department), 40 North Pearl Street, Albany, New York 12243,
notification by certified mail of its intent to terminate the Agreement or that
the Agreement is due to expire, at least six (6) months prior to the date on
which the party intends to exercise its right to terminate the Agreement or at
least six (6) months before termination of the Agreement.
Upon receipt of a notice from Owner of its intent to terminate
this Agreement prior to the expiration of this Agreement, Operators agree to
immediately notify by certified mail, the Department of the receipt of such
notice or service of such notice or that the Agreement is about to expire, and
shall further notify the Department of its anticipated response to said notice.
Each party further agrees to comply with all additional
regulations of the New York State Department of Social Services and any other
agency having regulatory control over either party.
A copy of all such notices shall also be sent to the Department's
Regional Office with jurisdiction over the Facility.
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XI. RELATIONSHIP OF THE PARTIES. The relationship of Operators to Owner
in connection with this Agreement shall be that of independent contractors and
all acts performed by Operators during the term hereof shall be deemed to be
performed in their capacity as independent contractors, provided however, that
nothing in this Agreement shall affect the status of Operators pursuant to any
separate employment contract with Owner or its affiliates. Nothing contained in
this Agreement is intended to or shall be construed to give rise to or create a
partnership or joint venture or lease between Owner, its successors and assigns
on the one hand and Operators and their assigns on the other hand.
XII. ENTIRE AGREEMENT. This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties, shall be
binding upon their respective successors and assigns, and shall be construed in
accordance with the laws of the State of New York (without regard to the State
of New York choice of law provisions). This Agreement may not be modified or
amended except by written instrument signed by the parties hereto.
XIII. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS.
----------------------------------------------------
A. The parties hereto agree that they will present this Agreement and
their intended relationship to applicable regulatory agencies prior to the
Effective Time; in the event that such regulatory agencies request modifications
to the text hereof, the parties shall work in good faith to make modifications
to this Agreement or to cooperate in restructuring their relationship as
appropriate, provided that any such restructuring shall, to the maximum extent
possible, preserve the underlying economic, financial and general business
arrangements between Owner and Operators. The parties acknowledge that such
agencies may require either or both parties to obtain appropriate regulatory
licenses and approvals.
B. In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the Effective Date, are interpreted by judicial
decision, a regulatory agency or legal counsel of either party in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, Owner and Operators agree to cooperate in restructuring
their relationship and this Agreement, provided that any such restructuring
shall, to the maximum extent possible, preserve the underlying economic and
financial arrangements between Owner and Operators. The parties acknowledge that
such amendment may require reorganization of
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Owner or Operators, or both, and may require either or both parties to obtain
appropriate regulatory licenses and approvals.
XIV. CAPTIONS. The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any of the
terms hereof.
XV. SEVERABILITY. In the event any of the provisions contained in this
Agreement is deemed to be invalid, illegal or unenforceable in any respect under
applicable law, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be impaired thereby.
XVI. CUMULATIVE: NO WAIVER. No right or remedy herein conferred upon or
reserved to any of the parties hereto is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative with
any other right or remedy given hereunder, or now or hereafter legally existing,
including upon the occurrence of an Event of Default hereunder. The failure of
any party hereto to insist at any time upon the strict observance or performance
of any of the provisions of this Agreement or to exercise any right or remedy as
provided in this Agreement shall not impair any such right or remedy or be
construed as a waiver or relinquishment thereof with respect to subsequent
defaults. Every right and remedy given by this Agreement to the respective
parties hereto may be exercised from time to time and as often as may be deemed
expedient by such parties.
XVII. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original; each such counterpart shall
together constitute but one and the same Agreement.
XVIII. TIME IS OF THE ESSENCE. Time is of the essence throughout the
entire Agreement.
XIX. WAIVERS. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further and continuing waiver of any such
term, provision or condition of this Agreement.
XX. ATTORNMENT. If any mortgagee or lender secured by the Facility
succeeds to the Owner's rights with respect to the Facility through any means
including repossession, foreclosure or delivery of a new deed or deed in lieu of
foreclosure, Operators shall at the successor's request, automatically attorn to
and recognize the successor as a party to this Agreement. In such
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case, the Agreement will remain unmodified and in full force and effect, except
that operators shall have the right to cancel this Agreement on one hundred and
eighty (180) days prior written notice. At the successor's request, Operators
shall deliver to successor appropriate instruments and documents confirming the
attornment.
XXI. COSTS AND EXPENSES OF FACILITY: INDEMNITY. All fees, costs, expenses
and purchases arising out of, relating to, or incurred in the operation of the
Facility, shall be the sole responsibility of Owner. Operators, by reason of the
execution of this Agreement and the performance of their services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs, and expenses, or any other liability or debt of Owner whatsoever, arising
out of or relating to the Facility or incurred in its operation. Owner agrees to
indemnify, defend, pay on behalf of, and hold Operators and their principals,
agents and employees harmless from and against all losses, claims, damages and
other liabilities arising out of or relating to the ownership or operation of
the Facility (except those resulting from the willful misconduct,
misappropriation of funds or fraud of Operators), including, without limitation,
any liabilities asserted against Operators or any of their principals, employees
or agents by reason of any action or inaction taken by any of the foregoing
while performing the duties of Operators hereunder on behalf of Owner. Operators
agree to indemnify, defend, pay on behalf of, and hold Owner and its officers,
directors, agents and employees harmless from and against all losses, claims,
damages and other liabilities arising out of the willful misconduct,
misappropriation of funds or fraud of Operators. The terms of this Section XXI
shall survive the expiration or earlier termination of this Agreement.
XXII. FURTHER ASSURANCES. Notwithstanding any other provisions of this
Agreement, Operators shall not (A) take or permit any action or (B) refrain from
taking or permitting any action, if such act or refusal would cause Operators to
violate, either immediately or with the passage of time, any law, rule,
regulation, code of ethics or fiduciary obligation in their capacity as licensed
Operators. Any refusal by Operators to take action demanded by Owners or any
action taken by Operators over the objection of Owners shall not be deemed a
breach of this Agreement, and shall not be an Event of Default, if such action
or refusal is necessary for Operators to maintain compliance with any such law,
rule, regulation, code of ethics or fiduciary obligation.
* * *
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<PAGE>
KAPSON SENIOR QUARTERS CORP.
February 23, 1998
PROMETHEUS SENIOR QUARTERS LLC
PROMETHEUS ACQUISITION CORP.
Ladies and Gentlemen:
Reference is made to (1) that certain Master Management Services Agreement,
that certain Interim Management Services Agreement between Glenn Kaplan, Wayne
G. Kaplan and Evan A. Kaplan d/b/a G.W.E. Partnership and Senior Quarters
Management Corp. dated as of September 30, 1997, and those Five Operating
Agreements dated as of September 30, 1997 and the exhibits thereto
(collectively the "Management and Operating Agreements") between G.W.E.
Partnership and Kapson Rochester Manor L.L.C., Kapson Rochester East, L.L.C.,
Kapson Northport Development Corp., Commco Management Associates Inc., and
Kapson H.K. Associates Holding Corp., respectively, and (2) that certain
Amended and Restated Agreement and Plan of Merger (the "Amended and Restated
Merger Agreement") of even date herewith, among Prometheus Senior Quarters LLC
(the "Parent"), Prometheus Acquisition Corp. (the "Merging Corporation"), and
Kapson Senior Quarters Corp. (the "Company"), pursuant to which Investor shall
acquire Company pursuant to a tender offer of all of the outstanding shares of
the Company and the Merging Corporation shall merge with and into the Company
and all other documents executed in connection with the Amended and Restated
Merger Agreement, including the Amended and Restated Escrow Agreement and all
attachments and side letters thereto (collectively the "February 1998
Agreements"). Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Amended and Restated Merger
Agreement.
The parties agree to amend, and will cause any entities controlled solely by
them to amend, any and all of the Management and Operating Agreements, as
follows:
1. The Letter Agreement designated as Item 11 of Exhibit B to Operating
Agreement, wherever attached, whether to an executed or form of
Operating Agreement, shall be replaced with the Escrow Side Letter
dated as of February 23, 1998;
2. Item B on Exhibit A of the Interim Management Services Agreement
shall be amended to read: "An approximately 200 bed adult care
facility known as Senior Quarters and located at 1025 Pleasantville
Road, Briarclilff Manor, New York 11797."
3. Item C on Exhibit A of the Interim Management Services Agreement
shall be amended to read: "An approximately 122 unit, 200 bed adult
care facility known as Senior Quarters and located at 345 Northern
Boulevard, Albany, New York ."
<PAGE>
4. Item G on Exhibit A of the Interim Management Services Agreement
referring to Senior Quarters Special Needs on the same campus as
Greenpoint Senior Living shall be deleted.
5. Item H on Exhibit A of the Interim Management Services Agreement
referring to a "pending license" shall be revised to conclude:
"(effective at the time the Senior Quarter Operating Corporation
("SQOC") submits an application to operate as an enriched housing
program as further described in Section 5.9 of the Company Disclosure
Letter attached to the Amended and Restated Merger Agreement."
6. Exhibit A to the Master Management Services Agreement shall be
amended to provide that the Master Management Services Agreement
shall apply to an approximately 200 bed, 126 unit adult care facility
known as Senior Quarters, located at 100 Peninsula Boulevard,
Lynbrook, New York 11563 if SQOC submits an adult home application as
further described in Section 5.9 of the Company Disclosure Letter
attached to the Amended and Restated Merger Agreement prior to the
Effective Time and such application is approved.
7. References in the Management and Operating Agreements to the
Effective Time shall be amended to have the following meaning: the
Effective Time of the merger of Prometheus Acquisition Corp. with and
into Kapson Senior Quarters Corp. as defined in the Amended and
Restated Merger Agreement.
8. References to the Effective Date in the initial sentence of Article
IV of the Master Management Services Agreement and the Interim
Management Services Agreement shall be deleted in their entirety and
replaced by references to the Effective Time.
<PAGE>
Please confirm that this letter correctly sets forth our agreement by signing
a counterpart copy where designated below.
Very truly yours,
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
----------------------------
Title: Chairman and Chief Executive Officer
GLENN KAPLAN
/s/ GLENN KAPLAN
- --------------------------------
WAYNE L. KAPLAN
/s/ WAYNE L. KAPLAN
- ---------------------------------
EVAN A. KAPLAN
/s/ EVAN A. KAPLAN
- ---------------------------------
AGREED:
PROMETHEUS SENIOR QUARTERS LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE PROMETHEUS ACQUISITION CORP.
INVESTORS L.L.C.,
its General Partner
By: /s/ Robert P. Freeman By: /s/ Robert P. Freeman
----------------------- ----------------------
Robert P. Freeman Robert P. Freeman
Principal President
<PAGE>
EXHIBIT 4
MASTER MANAGEMENT SERVICES AGREEMENT
------------------------------------
This Master Management Services Agreement ("Agreement") is made as of
September 30, 1997 (the "Effective Date"), between Glenn Kaplan, Wayne L. Kaplan
and Evan A. Kaplan, d/b/a G.W.E. Partnership, with offices located at 125
Froehlich Farm Boulevard, Woodbury, New York 11797 (collectively, "Operators")
and Senior Quarters Management Corp., a New York corporation (the "Manager").
WHEREAS, Operators are the licensed operators of the facilities
described in Exhibit A attached hereto and incorporated herein by this
reference (collectively, the "Facilities");
WHEREAS, Manager is financially stable and qualified in the field of
managing adult-care facilities such as the Facilities, and Operators desire to
engage Manager to provide services in connection with the operation of the
Facilities, pursuant to Operators' supervision and direction, on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, Manager is willing to provide such services, on the terms and
subject to the conditions set forth in this Agreement, commencing with the
Effective Time of the merger of Prometheus Acquisition Corp. with and into
Kapson Senior Quarters Corp. (the "Company") as defined in that certain
Agreement and Plan of Merger dated as of the Effective Date among Prometheus
Senior Quarters LLC, Prometheus Acquisition Corp. and Company.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
I. RESPONSIBILITIES OF OPERATORS.
-----------------------------
A. Operators hereby engage Manager to provide management and
consulting services to the Facilities, and Manager hereby accepts such
engagement and agrees to provide such services for the compensation set forth
in Section VII, upon the terms and conditions set forth in this Agreement.
During the term of this Agreement, Manager shall provide the services set forth
below, all of which shall be subject to the supervision and review of
Operators, it being understood and agreed, however, that notwithstanding any
other provision of this Agreement, Operators remain responsible for operation
of the Facilities in accordance with applicable law and regulations.
Consequently, Operators shall retain the right, power and authority to (1)
issue such directives to Manager as are required by or appropriate under
applicable law and regulations with respect to services of Manager, and (2)
establish such policies and
<PAGE>
procedures as are required by or appropriate under applicable law and
regulations with respect to any or all of the matters covered by this Agreement;
all such directives and policies shall be binding upon, and complied with by
Manager.
a. OPERATIONAL POLICIES AND FORMS. Subject to the review by the
Operator pursuant to those certain Operating Agreements described in Exhibit A
attached hereto and incorporated herein by this reference (the "Operating
Agreements"), and the Annual Budgets (as defined in the Operating Agreements),
Manager shall establish and implement appropriate operational policies and
procedures, and shall develop such new policies and procedures as it may deem
necessary to insure the establishment and maintenance of operational standards
appropriate for the nature of the Facilities.
b. CHARGES. Manager shall prepare on behalf of Operators schedules
of charges, including any and all special charges for services rendered at the
Facilities.
c. INFORMATION. Manager shall develop any informational material,
mass media releases, and other related publicity materials that it deems
necessary for the operation of the Facilities.
d. REGULATORY COMPLIANCE. Manager shall use its reasonable best
efforts to assist Operators in maintaining all licenses, permits, qualifications
and approvals from any applicable governmental or regulatory authority required
for the operation of the Facilities, to operate the Facilities in compliance
with applicable laws and regulations, and to comply with such laws and
regulations in performing Manager's obligations under this Agreement. In
addition, Manager shall provide all information required by applicable
governmental agencies, and shall cooperate with governmental inspection and
enforcement activities. Manager shall comply with all applicable provisions of
law and regulations. Notwithstanding the provisions herein requiring Manager to
comply with applicable law, Operators remain responsible for the operation of
the Facilities in compliance with such applicable law and regulations.
e. EQUIPMENT AND IMPROVEMENTS. Subject to the Annual Budgets,
Manager shall recommend, and, if approved by Operators, acquire or effect, on
behalf of an owner of the applicable Facility (an "Owner"), the equipment and
improvements that it determines are needed to maintain or upgrade the quality,
to replace obsolete or rundown equipment, or to correct any other survey
deficiencies which may be cited during the term of this Agreement. Manager shall
make all such repairs and maintenance approved by Operators in a workmanlike and
lien-free manner.
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<PAGE>
f. ACCOUNTING. Manager shall arrange for and supervise accounting
support to the Facilities, including the following:
(1) A monthly balance sheet and statement of operations
for each Facility, to be submitted to its Owner within thirty (30) days after
the end of each calendar month;
(2) Resident billing records;
(3) Accounts receivable and collection records;
(4) Accounts payable records;
(5) All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes, filing of payroll reports and the issuance of W-2 forms
to all employees;
(6) A complete general ledger for the purposes of
recording and summarizing all transactions for each Facility;
g. Manager shall prepare and file all necessary reports as
required by applicable governmental authorities and simultaneously provide a
copy to the Operators.
h. Manager shall be responsible for preparation and delivery of
all reports required to be delivered to any lenders at the time and in the
manner required by such lenders.
All accounting procedures and systems utilized in providing said support shall
be in accordance with the operating capital and cash programs developed or put
in place by an Owner or developed by Operators. Upon Manager's recommendation,
Operators may determine to engage a third party (in addition to Manager) to
assist it in the performance of the accounting duties provided for herein.
i. REPORTS. Manager shall prepare and provide to Operators any
information that is required to be furnished by Operators to an Owner under the
Operating Agreements and any other reasonable operational information which may
from time to time be specifically requested by Operators, including any
information needed to assist Operators in completing their tax returns and in
complying with any reporting obligations imposed by any regulatory agencies or
mortgages or lessors of the Facilities. In addition: (1) within thirty (30) days
after the end of each calendar month, Manager shall provide Operators and the
applicable Owner with an unaudited balance sheet of the Facilities, dated the
last day of such month, and an unaudited statement of income and expenses for
such month relating to the operation of each Facility and (2) within ninety (90)
days after
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<PAGE>
the end of the fiscal year of each Facility, Manager shall provide Operators and
the applicable Owner with unaudited financial statements including a balance
sheet of such Facility dated the last day of said fiscal year and a statement of
income and expense for the year ended relating to the operation of such
Facility. In addition, Manager shall prepare and send to Operators and the
applicable Owner monthly occupancy reports and related information with respect
to each Facility. All books, records, forms and reports of the Facilities in
connection with operation of the Facilities shall be Operators' property,
provided, however that Manager may retain copies of all books, forms and records
(of the Facilities and not the residents) Operators maintain for the files of
Manager.
j. BANK ACCOUNTS. Manager shall establish and maintain necessary
bank accounts and shall deposit therein all money received during the term of
this Agreement in the course of the operation of each Facility, and shall make
such withdrawals and payments from such accounts as are necessary and
appropriate to fulfill the responsibilities described in this Agreement.
Operator shall be given notice as to the identity of authorized signatories. All
expenses incurred in the operation of the Facilities shall be paid in accordance
with the Operating Agreements.
k. PERSONNEL. Manager shall recruit, hire, train, promote,
direct, discipline and fire, if necessary, all Facility personnel, including the
Administrator and Program Coordinator, if any, of the Facilities, establish
salary levels, personnel policies and employee benefits; and establish employee
performance standards, all as Manager determines to be necessary or desirable
during the term of this Agreement to ensure the efficient operation of all
departments within, and all services offered by the Facilities. All of the
foregoing obligations shall be undertaken in accordance with the Annual Budget,
Operators' authority and control, and applicable law and regulations. All of the
personnel of each Facility shall be the employees of the Owner of such Facility,
unless otherwise agreed by the applicable Owner and Operators (and Manager if
such personnel shall be employees of Manager), and all salary, bonuses, fringe
benefits, payroll taxes and related expenses payable to or in respect of the
Facility's personnel shall be expenses of the respective Facilities.
Notwithstanding the above, the Operators shall retain the authority to discharge
any person working in a Facility.
l. SUPPLIES AND EQUIPMENT. Manager shall purchase supplies and
non-capital equipment needed to operate the Facilities within the budgetary
limits set forth in the Annual Budget. In purchasing said supplies and
equipment, if possible, Manager shall take advantage of any national or group
purchasing
-4-
<PAGE>
agreements to which Manager or Operators or any of their affiliates may be a
party.
m. LEGAL PROCEEDINGS. Manager shall monitor and, pursuant to
Owner's direction, act with respect to, all legal matters and proceedings that
are within the scope of Manager's authority pursuant to this Agreement,
including without limitation, any necessary legal actions or proceedings to
collect obligations owing to the Facilities, the cancellation or termination of
any contract or agreement for breach thereof or default thereunder, and other
actions necessary to enforce the rights and obligations of the residents,
sponsors, licensees, customers and other users for the Facilities. Manager shall
give notice promptly to Owner and Operators of all demands, claims and all legal
actions.
n. ANNUAL BUDGETS. PREPARATION. Manager shall timely prepare and
deliver to Operators for their review and submission to the applicable Owner
proposed annual budgets ("Annual Budget(s)") for each Facility. Such proposed
Annual Budgets shall be prepared in accordance with the Operating Agreements.
Manager and Operators acknowledge that (x) projected revenue may not be actually
received and (y) projected costs may be exceeded by actual expenses and capital
expenditures incurred in connection with the operation and maintenance of the
Facilities. By submitting such a projected Annual Budget, Manager will not be
deemed to be providing a guarantee or warranty as to the projected revenue,
expenses or capital expenditures of the Facilities.
o. COLLECTION OF ACCOUNTS. Manager shall issue bills and collect
accounts and monies for goods and services furnished by each Facility,
including, but not limited to, enforcing the rights of Operators, any Owner and
the Facilities as creditor under any contract or in connection with the
rendering of any services. Any actions taken by Manager to collect said accounts
receivable shall be in accordance with the applicable laws, rules and
regulations governing the collection of accounts receivable.
p. CONTRACTS. Manager shall negotiate, prepare for execution,
cancel or terminate agreements and contracts as Operators deems necessary or
advisable for the operation of each Facility, including, without limitation, the
furnishing of concessions, supplies, utilities, extermination, refuse removal
and other services. Manager shall be entitled to utilize any entities affiliated
with Manager to provide these services, provided that the rates and prices
therefor, are competitive.
B. EXCLUSIVE REPRESENTATIVE. Operators hereby designate Manager
to be the exclusive representative of each Owner for purposes of communicating
and dealing directly with the regulatory authorities, governmental agencies,
employees, independent contractors, suppliers, residents, sponsors,
-5-
<PAGE>
licensees, customers and guests of each Facility, unless Operators are required
by law to serve such function. Any communications from an Owner to such persons
or entities or authorities shall be directed through Manager, unless Operators
are required by law to serve such function. Each Owner may maintain contact and
working relationships with the abovementioned persons and entities.
II. INSURANCE. Manager shall arrange for and maintain all necessary and
proper hazard insurance covering each Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Manager's, Operators' and Owners' protection
and for the protection of Manager's, Operators' and Owners' officers, partners,
agents and the personnel of the Facilities. Subject to the prior written
approval of Operators, Manager shall also arrange for and maintain all employee
health and worker's compensation insurance for the personnel of the Facilities.
Any insurance provided pursuant to this paragraph shall comply with the
requirements of any applicable Facility mortgage or lease and, with the
exception of the insurance maintained by Manager for its own protection, shall
be an expense of the Facilities.
III. CONFIDENTIAL MATERIALS. Operators hereby provide an exclusive,
irrevocable license to Manager to use the systems, methods, procedures and
controls employed by Operators on behalf of each Owner and any written materials
or brochures developed to document the same. Notwithstanding the foregoing,
Manager shall use reasonable best efforts to keep such systems, methods,
procedures and controls confidential and to prevent them from being utilized,
distributed, copied or otherwise employed or acquired, except on behalf of an
Owner or its affiliates.
IV. TERM OF AGREEMENT; EFFECT OF TERMINATION. The term of this Agreement
shall commence on the Effective Date and shall terminate on the fifth (5th)
anniversary of the Effective Date, unless sooner terminated as hereinafter
provided. This Agreement may be terminated: (i) in accordance with Section V,
(ii) by Manager upon the death or continuing disability of all of the Operators,
or (iii) by the Manager by giving at least thirty (30) days' prior written
notice to Operators at any time after the occurrence of a Change in Control of
an Owner. Upon any termination of this Agreement other than pursuant to Section
V, the parties hereto shall have no further obligations or liabilities hereunder
except for the respective right of Manager or its representatives, estates,
successors or assigns to receive fees through the date of termination, and
except that upon the expiration or earlier termination of this Agreement for any
reason, the parties shall cooperate (at the applicable Owner's expense) to
minimize the impact of the change on the residents. To the extent that Manager
provides management services to Operators hereunder in connection therewith,
Manager shall be
-6-
<PAGE>
entitled to receive fees in accordance with Section VII hereof. For purposes of
this Agreement, "disability" shall mean the inability to provide services
hereunder due to illness, injury or other medical reasons for a period of more
than one hundred eighty (180) consecutive days, and a "Change in Control" of an
Owner shall be deemed to have occurred if any person or group (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act") or any successor provision) shall acquire beneficial ownership
(determined in accordance with Rule 13d-3 promulgated under the Exchange Act or
any successor provision) of securities of such Owner representing both: (i) at
least 30% of the total outstanding voting power of securities of an Owner
entitled to vote for the election of directors of such Owner and (ii) a greater
percentage of such voting power than is owned at such time in the aggregate by
Manager and its affiliates.
V. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
A. DEFAULT. Each of the following shall constitute an Event of
Default hereunder:
1. If either Manager, on the one hand, or the Operators,
collectively, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement and such failure (i) continues after
written notice from the other party or parties specifying such failure to
perform for a period of thirty (30) days unless such failure cannot reasonably
be cured within such 30-day period, (ii) the defaulting party fails to endeavor
vigorously and continuously to cure such default as promptly as is practicable;
it being understood and agreed that Operators' obligations under this Agreement
may be performed by one or more of Glenn Kaplan, Wayne Kaplan and Evan Kaplan,
and that performance of such obligations by one or more of such individuals
shall constitute performance by the Operators.
2. If an Event of Default shall be committed or suffered by
Manager under any other agreement (as defined therein) pursuant to which Manager
provides management services for any adult-care facility (whether or not owned
by an Owner) for which Operators act as the licensed operators.
3. If Manager is dissolved or liquidated, applies for or consents
to the appointment of a receiver, trustee or liquidator of all or a substantial
part of its assets, files a voluntary petition in bankruptcy or is the subject
of an involuntary bankruptcy filing, makes a general assignment for the benefit
of creditors, or files a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law, or if an
order, judgment or decree shall be entered by any court of competent
jurisdiction, on the
-7-
<PAGE>
application of a creditor, adjudicating Manager bankrupt or insolvent or
approving a petition seeking reorganization of Manager or appointing a receiver,
trustee or liquidator for such party of all or a substantial part of its assets,
and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days.
B. REMEDIES. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or suffered
the Event of Default (with any Event of Default of an Owner being deemed to be
an Event of Default by Operators for this purpose) may, at its option, terminate
this Agreement by giving written notice to the other party and shall be entitled
to exercise all rights and remedies available under applicable law.
VI. FACILITY OPERATIONS.
-------------------
A. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In
performing its obligations under this Agreement, Manager shall use its
reasonable best efforts and act in good faith and with professionalism in
accordance with the Annual Budgets and the prevailing standards of the
adult-care facilities industry in each area in which a Facility is located and
in accordance with applicable law.
B. FORCE MAJEURE. The parties will not be deemed to be in
violation of this Agreement if they are prevented from performing any of their
respective obligations hereunder for any reason beyond their control, including,
without limitation, strikes, shortages, war, acts of God, or any statute,
regulation or rule or action of a federal, state or local government or an
agency thereof.
VII. FEES.
----
Commencing on the later of the day the Facility begins admitting
residents for occupancy or on the Effective Time, Operators shall pay Manager a
management fee ("Management Fee"), equal to Four Thousand Dollars ($4,000)
per month, payable monthly on the fifteenth (15th) day of each month.
VIII. ASSIGNMENT; DELEGATION.
----------------------
A. MANAGEMENT SERVICES AGREEMENT. This Agreement shall not be
assigned (including by operation of law, whether by merger or consolidation
(excluding a merger effected solely for the purpose of changing Manager's
jurisdiction of incorporation that does not affect the stock ownership of
Manager in any material respect) or otherwise) by Manager, on the one hand, or
by any of the Operators,on the other, without the prior written consent of the
other party or parties.
-8-
<PAGE>
B. DELEGATION. Notwithstanding any other provision of this
Agreement to the contrary, Operators hereby delegate to Manager only those
powers, duties or responsibilities set forth herein. All other powers and duties
remain with the Operators.The Manager shall not exercise any powers, duties or
responsibilities that it is prohibited by applicable law or regulations from
exercising.
IX. NOTICES. All notices required or permitted hereunder shall in
writing by hand delivery, by registered or certified mail, postage prepaid, by
overnight delivery or by facsimile transmission (with receipt confirmed with the
recipient). Notices given by Operators may be signed by any of the Operators.
Notices shall be delivered or mailed to the parties at the addresses specified
below or at such other places as either party shall designate in writing:
To Operators: Glenn Kaplan, Wayne L. Kaplan and Evan
A. Kaplan
125 Froehlich Farm Boulevard
Woodbury, New York 11797
Telephone: (516) 921-8900
Telecopier: (516) 921-8360
Copy to:
Arnold J. Levine, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Telephone: (212) 969-3000
Telecopier: (212) 969-2900
To Manager: Senior Quarters Management Corp.
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
Telephone: (212) 632-6026
Telecopier: (212) 332-5980
Copy to: Jonathan L. Mechanic, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Telephone: (212) 859-8000
Telecopier: (212) 859-4000
X. RELATIONSHIP OF THE PARTIES. The relationship of
Manager to Operators in connection with this Agreement shall be
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<PAGE>
that of an independent contractor and all acts performed by Manager during the
term hereof shall be deemed to be performed in its capacity as an independent
contractor. To the fullest extent permitted under applicable law, the Operators
shall not be deemed to have any fiduciary duties to Manager or its stockholders
in connection with Managers' provision of services hereunder or any matters
arising out of or related thereto. Nothing contained in this Agreement is
intended to or shall be construed to give rise or create a partnership or joint
venture or lease between Manager, its successors and assigns on the one hand,
and Operators and their assigns on the other hand.
XI. ENTIRE AGREEMENT. As of the Effective Time, this Agreement and any
documents executed in connection herewith shall supersede all previous
management services agreements between the parties and relating to the
Facilities, contain the entire agreement among the parties and be binding upon
the respective successors and assigns of the parties, provided however that any
successor or successors of the Operators shall be approved in advance by an
Owner under the terms of the Operating Agreement applicable to such Owner. This
Agreement shall be construed in accordance with the laws of the State of New
York (without regard to the State of New York choice of law provisions). This
Agreement may not be modified or amended except by written instrument signed by
the parties hereto.
XII. CAPTIONS. The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any of the
terms hereof.
XIII. SEVERABILITY. In the event one or more of the provisions contained
in this Agreement is deemed to be invalid, illegal or unenforceable in any
respect under applicable law, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be impaired thereby.
XIV. CUMULATIVE. NO WAIVER. No right or remedy herein conferred upon or
reserved to any of the parties hereto is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder, or now or hereafter
legally existing upon the occurrence of an Event of Default hereunder. The
failure of any party hereto to insist at any time upon the strict observance or
performance of any of the provisions of this Agreement or to exercise any right
or remedy as provided in this Agreement shall not impair any such right or
remedy or be construed as a waiver or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given by this Agreement to the
respective parties hereto may be exercised from time to time and as often as may
be deemed expedient by such parties.
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<PAGE>
XV. PROSPECTIVE LEGAL EVENTS. CONTRACT MODIFICATIONS FOR
PROSPECTIVE LEGAL EVENTS.
A. The parties hereto agree that in the event that applicable regulatory
agencies request modifications to the text hereof prior to the Effective Time,
the parties shall work in good faith to make modifications to this Agreement or
to cooperate in restructuring their relationship as appropriate, provided that
any such restructuring shall, to the maximum extent possible, preserve the
underlying economic, financial and general business arrangements between Owner
and Operators. The parties acknowledge that such agencies may require either or
both parties to obtain appropriate regulatory licenses and approvals.
B. In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the Effective Date, are interpreted by judicial
decision, a regulatory agency or legal counsel of either party in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, Manager and Operators shall use reasonable best efforts to
amend this Agreement, to the maximum extent possible, to preserve the underlying
economic and financial arrangements between Manager and Operators. The parties
acknowledge that such amendment may require reorganization of Manager or
Operators, or both, and may require either or both parties to obtain appropriate
regulatory licenses and approvals.
XVI. COSTS AND EXPENSES OF FACILITY: INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner. Operators, by reason
of the execution of this Agreement and the performance of their services to the
Facility, shall not be liable for or deemed to have assumed any liability for
such fees, costs, and expenses, or any other liability or debt of Owner
whatsoever, arising out of or relating to the Facility or incurred in its
operation. Manager agrees to indemnify, defend, pay on behalf of, and hold
Operators and their officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of the
operation of the Facility (except those resulting from the willful misconduct,
misappropriation of funds, fraud or gross negligence of Operators), including,
without limitation, any liabilities asserted against Manager or any of its
officers, directors, agents and employees by reason of any action or inaction
taken by any of the foregoing while performing the duties of Manager hereunder.
The terms of this Section XVI shall survive the expiration or earlier
termination of this Agreement.
XVII. FURTHER ASSURANCES. Notwithstanding any other provisions of this
Agreement, Operators shall not (A) take or permit any action or (B) refrain from
taking or permitting any action, if such act or refusal would cause Operators to
violate,
<PAGE>
either immediately or with the passage of time, any law, rule, regulation, code
of ethics or fiduciary obligation in their capacity as licensed Operators. Any
decision by Operators to override any action or recommendation of Manager shall
not be deemed a breach of this Agreement, and shall not be an Event of Default,
if such action or refusal is necessary for Operators to maintain compliance with
any such law, rule, regulation, code of ethics or fiduciary obligation.
XVIII. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement. Operators shall retain
a copy of this Agreement on file, to be available for inspection by regulatory
authorities.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
duly executed, as of the day and year first above written.
MANAGER:
SENIOR QUARTERS MANAGEMENT CORP.
By: /s/ Wayne L. Kaplan
-------------------
Wayne L. Kaplan
Vice President/Secretary
OPERATORS:
G.W.E. PARTNERSHIP
/s/ Glenn Kaplan
-------------------
Glenn Kaplan
/s/ Wayne L. Kaplan
-------------------
Wayne L. Kaplan
/s/ Evan A. Kaplan
--------------------
Evan A. Kaplan
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EXHIBIT 5
INTERIM MANAGEMENT SERVICES AGREEMENT
-------------------------------------
This Interim Management Services Agreement ("Agreement") is made as of
September 30, 1997 (the "Effective Date"), between Glenn Kaplan, Wayne L. Kaplan
and Evan A. Kaplan, d/b/a G.W.E. Partnership, with offices located at 125
Froehlich Farm Boulevard, Woodbury, New York 11797 (collectively, "Operators")
and Senior Quarters Management Corp., a New York corporation (the "Manager").
WHEREAS, Operators are the licensed operators of the facilities
described in Exhibit A attached hereto and incorporated herein by this reference
(collectively, the "Facilities");
WHEREAS, Operators may delegate the performance of certain services
relating to the Facilities pursuant to Section 9(B) of the Operating Agreements
listed on Exhibit B attached hereto and incorporated herein by this reference
(collectively, the "Operating Agreements"), or by agreeing with Manager to
terminate the existing Management Services Agreements applicable to the
Facilities and entering into this Agreement;
WHEREAS, Manager is financially stable and qualified in the field of
managing adult-care facilities such as the Facilities, and operators desire to
engage Manager to provide services in connection with the operation of the
Facilities, pursuant to Operators' supervision and direction, on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, Manager is willing to provide such services on an interim
basis, on the terms and subject to the conditions set forth in this Agreement,
commencing with the "Effective Time", of the merger of Prometheus Acquisition
Corp. with and into Kapson Senior Quarters Corp. (the "Company") as defined in
that certain Agreement and Plan of Merger dated as of the Effective Date among
Prometheus Senior Quarters LLC, Prometheus Acquisition Corp. and Company.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
I. RESPONSIBILITIES OF OPERATORS.
A. Operators hereby engage Manager to provide management and
consulting services to the Facilities, and Manager hereby accepts such
engagement and agrees to provide such services for the compensation set forth in
Section VII, upon the terms and conditions set forth in this Agreement. During
the term of this Agreement, Manager shall provide the services set
<PAGE>
forth below, all of which shall be subject to the supervision and review of
Operators. Manager and Operators understand and agree that notwithstanding any
other provision of this Agreement, Operators remain responsible for operation of
the Facilities in accordance with applicable law and regulations. Consequently,
Operators shall retain the right, power and authority to promulgate all policies
and procedures regarding operation of each Facility and the right to direct
Manager and other third parties in the performance of their responsibilities;
all such policies and directives shall be binding upon, and complied with by
Manager. Notwithstanding the current authority of Operators, Operators
acknowledge that Manager typically works with greater discretion than is
provided pursuant to the Operating Agreements. Consequently, Operators shall, at
the election of Manager, (x) work with the owner of the applicable Facility (the
"Owner") to amend the Operating Agreements, substantially in the form of Exhibit
C hereto, to clarify that the powers of the Operators primarily are to (1) issue
such directives to Manager as are required by or appropriate under applicable
law and regulations with respect to services of Manager, (2) establish such
policies and procedures as are required by or appropriate under applicable law
and regulations with respect to any or all of the matters covered by this
Agreement, (3) supervise Manager and (4) ensure that the Facilities comply with
applicable law, or (y) use their reasonable best efforts to facilitate a
transition of the Operators of the Facility to an Operator or Operators approved
by Owner and Manager.
a. OPERATIONAL POLICIES AND FORMS. Subject to the review by
the operator pursuant to those certain operating Agreements described in Exhibit
B attached hereto and incorporated herein by this reference, and the Annual
Budgets (as defined in the Operating Agreements), Manager shall establish and
implement appropriate operational policies and procedures, and shall develop
such new policies and procedures as it may deem necessary to insure the
establishment and maintenance of operational standards appropriate for the
nature of the Facilities.
b. CHARGES. Manager shall prepare on behalf of operators
schedules of charges, including any and all special charges for services
rendered at the Facilities.
c. INFORMATION. Manager shall develop any informational
material, mass media releases, and other related publicity materials that it
deems necessary for the operation of the Facilities.
d. REGULATORY COMPLIANCE. Manager and Operators shall use
their reasonable best efforts to maintain all licenses, permits, qualifications
and approvals from any applicable governmental or regulatory authority required
for the operation
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of the Facilities, to operate the Facilities in compliance with applicable laws
and regulations, and to comply with such laws and regulations in performing
their respective obligations relating to the Facilities. In addition, Manager
shall provide all information required by applicable governmental agencies, and
shall cooperate with governmental inspection and enforcement activities. Manager
shall comply with all applicable provisions of law and regulations.
Notwithstanding the provisions herein requiring Manager to comply with
applicable law, operators remain responsible for the operation of the Facilities
in compliance with such applicable law and regulations.
e. EQUIPMENT AND IMPROVEMENTS. Subject to the Annual Budgets,
Manager shall recommend, and, if approved by Operators, acquire or effect, on
behalf of an Owner, the equipment and improvements that it determines are needed
to maintain or upgrade the quality, to replace obsolete or rundown equipment, or
to correct any other survey deficiencies which may be cited during the term of
this Agreement. Manager shall make all such repairs and maintenance approved by
operators in a workmanlike and lienfree manner.
f. ACCOUNTING. Manager shall arrange for and supervise
accounting support to the Facilities, including the following:
(1) A monthly balance sheet and statement of
operations for each Facility, to be submitted to its Owner within thirty (30)
days after the end of each calendar month;
(2) Resident billing records;
(3) Accounts receivable and collection records;
(4) Accounts payable records;
(5) All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes, filing of payroll reports and the issuance of W-2 forms
to all employees;
(6) A complete general ledger for the purposes of
recording and summarizing all transactions for each Facility;
g. Manager shall prepare and file all necessary reports as
required by applicable governmental authorities and simultaneously provide a
copy to the Operators.
h. Manager shall be responsible for preparation and delivery
of all reports required to be delivered to any lenders at the time and in the
manner required by such lenders.
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All accounting procedures and systems utilized in providing said support shall
be in accordance with the operating capital and cash programs developed or put
in place by an Owner or developed by Operators. Upon Manager's recommendation,
Operators may determine to engage a third party (in addition to Manager) to
assist it in the performance of the accounting duties provided for herein.
i. REPORTS. Manager shall prepare and provide to Operators any
information that is required to be furnished by Operators to an Owner under the
Operating Agreements and any other reasonable operational information which may
from time to time be specifically requested by operators, including any
information needed to assist Operators in completing their tax returns and in
complying with any reporting obligations imposed by any regulatory agencies or
mortgages or lessors of the Facilities. In addition: (1) within thirty (30) days
after the end of each calendar month, Manager shall provide Operators and the
applicable owner with an unaudited balance sheet of the Facilities, dated the
last day of such month, and an unaudited statement of income and expenses for
such month relating to the operation of each Facility and (2) within ninety (90)
days after the end of the fiscal year of each Facility, Manager shall provide
Operators and the applicable Owner with unaudited financial statements including
a balance sheet of such Facility dated the last day of said fiscal year and a
statement of income and expense for the year ended relating to the operation of
such Facility. In addition, Manager shall prepare and send to Operators and the
applicable owner monthly occupancy reports and related information with respect
to each Facility. All books, records, forms and reports of the Facilities in
connection with operation of the Facilities shall be Operators' property,
provided, however that Manager may retain copies of all books, forms and records
(of the Facilities and not the residents) operators maintain for the files of
Manager.
j. BANK ACCOUNTS. Manager shall establish and maintain
necessary bank accounts and shall deposit therein all money received during the
term of this Agreement in the course of the operation of each Facility, and
shall make such withdrawals and payments from such accounts as are necessary and
appropriate to fulfill the responsibilities described in this Agreement.
Operator shall be given notice as to the identity of authorized signatories. All
expenses incurred in the operation of the Facilities shall be paid in accordance
with the Operating Agreements.
k. PERSONNEL. Manager shall recruit, hire, train, promote,
direct, discipline and fire, if necessary, all Facility personnel, including the
Administrator and Program Coordinator, if any, of the Facilities, establish
salary levels, personnel
<PAGE>
policies and employee benefits; and establish employee performance standards,
all as Manager determines to be necessary or desirable during the term of this
Agreement to ensure the efficient operation of all departments within, and all
services offered by the Facilities. All of the foregoing obligations shall be
undertaken in accordance with the Annual Budget, Operators' authority and
control, and applicable law and regulations. All of the personnel of each
Facility shall be the employees of the owner of such Facility, unless otherwise
agreed by the applicable Owner and Operators (and Manager if such personnel
shall be employees of Manager), and all salary, bonuses, fringe benefits,
payroll taxes and related expenses payable to or in respect of the Facility's
personnel shall be expenses of the respective Facilities. Notwithstanding the
above, the Operators shall retain the authority to discharge any person working
in a Facility.
1. SUPPLIES AND EQUIPMENT. Manager shall purchase supplies and
non-capital equipment needed to operate the Facilities within the budgetary
limits set forth in the Annual Budget. In purchasing said supplies and
equipment, if possible, Manager shall take advantage of any national or group
purchasing agreements to which Manager or Operators or any of their affiliates
may be a party.
M. LEGAL PROCEEDINGS. Manager shall monitor and, pursuant to
owner's direction, act with respect to, all legal matters and proceedings that
are within the scope of Manager's authority pursuant to this Agreement,
including without limitation, any necessary legal actions or proceedings to
collect obligations owing to the Facilities, the cancellation or termination of
any contract or agreement for breach thereof or default thereunder, and other
actions necessary to enforce the rights and obligations of the residents,
sponsors, licensees, customers and other users for the Facilities. Manager shall
give notice promptly to Owner and Operators of all demands, claims and all legal
actions.
n. ANNUAL BUDGETS. PREPARATION. Manager shall timely prepare
and deliver to Operators for their review and submission to the applicable Owner
proposed annual budgets ("Annual Budget(s)") for each Facility. Such proposed
Annual Budgets shall be prepared in accordance with the Operating Agreements.
Manager and Operators acknowledge that (x) projected revenue may not be actually
received and (y) projected costs may be exceeded by actual expenses and capital
expenditures incurred in connection with the operation and maintenance of the
Facilities. By submitting such a projected Annual Budget, Manager will not be
deemed to be providing a guarantee or warranty as to the projected revenue,
expenses or capital expenditures of the Facilities.
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<PAGE>
o. COLLECTION OF ACCOUNTS. Manager shall issue bills and
collect accounts and monies for goods and services furnished by each Facility,
including, but not limited to, enforcing the rights of Operators, any owner and
the Facilities as creditor under any contract or in connection with the
rendering of any services. Any actions taken by Manager to collect said accounts
receivable shall be in accordance with the applicable laws, rules and
regulations governing the collection of accounts receivable.
p. CONTRACTS. Manager shall negotiate, prepare for execution,
cancel or terminate agreements and contracts as Operators deems necessary or
advisable for the operation of each Facility, including, without limitation, the
furnishing of concessions, supplies, utilities, extermination, refuse removal
and other services. Manager shall be entitled to utilize any entities affiliated
with Manager to provide these services, provided that the rates and prices
therefor, are competitive.
B. EXCLUSIVE REPRESENTATIVE. Operators are the exclusive
representative of each Owner pursuant to the Operating Agreements for purposes
of communicating and dealing directly with the regulatory authorities,
governmental agencies, employees, independent contractors, suppliers, residents,
sponsors, licensees, customers and guests of each Facility. Operators however
acknowledge that Manager typically acts as exclusive representative of each
owner for such purposes; consequently, Operators shall use reasonable best
efforts to work with Owners to enable Manager to serve such role in the future,
including by enacting appropriate amendments to the Operating Agreements, in all
instances except where Operators are required by law to serve such function. In
addition, each Owner may maintain contact and working relationships with the
abovementioned persons and entities.
II. INSURANCE. Manager shall arrange for and maintain all necessary and
proper hazard insurance covering each Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Manager's, Operators' and Owners' protection
and for the protection of Manager's, Operators' and Owners, officers, partners,
agents and the personnel of the Facilities. Subject to the prior written
approval of Operators, Manager shall also arrange for and maintain all employee
health and worker's compensation insurance for the personnel of the Facilities.
Any insurance provided pursuant to this paragraph shall comply with the
requirements of any applicable Facility mortgage or lease and, with the
exception of the insurance maintained by Manager for its own protection, shall
be an expense of the Facilities.
III. CONFIDENTIAL MATERIALS. Operators hereby provide an exclusive,
irrevocable license to Manager to use the systems, methods, procedures and
controls employed by Operators on behalf
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<PAGE>
of each Owner and any written materials or brochures developed to document the
same. Notwithstanding the foregoing, Manager shall use reasonable best efforts
to keep such systems, methods, procedures and controls confidential and to
prevent them from being utilized, distributed, copied or otherwise employed or
acquired, except on behalf of an Owner or its affiliates.
IV. TERM OF AGREEMENT; EFFECT OF TERMINATION. The term of this
Agreement shall commence on the Effective Date and shall terminate on the fifth
(5th) anniversary of the Effective Date, unless sooner terminated as hereinafter
provided. This Agreement may be terminated: (i) in accordance with Section V,
(ii) by Manager upon the death or continuing disability of all of the Operators,
or (iii) by the Manager by giving at least thirty (30) days, prior written
notice to Operators at any time after the occurrence of a Change in Control of
an Owner. Upon any termination of this Agreement other than pursuant to Section
V, the parties hereto shall have no further obligations or liabilities hereunder
except for the respective right of Manager or its representatives, estates,
successors or assigns to receive fees through the date of termination, and
except that upon the expiration or earlier termination of this Agreement for any
reason, the parties shall cooperate (at the applicable Owner's expense) to
minimize the impact of the change on the residents. To the extent that Manager
provides management services to operators hereunder in connection therewith,
Manager shall be entitled to receive fees in accordance with Section VII hereof.
For purposes of this Agreement, "disability" shall mean the inability to provide
services hereunder due to illness, injury or other medical reasons for a period
of more than one hundred eighty (180) consecutive days, and a "Change in
Control" of an Owner shall be deemed to have occurred if any person or group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act") or any successor provision) shall acquire beneficial
ownership (determined in accordance with Rule 13d-3 promulgated under the
Exchange Act or any successor provision) of securities of such Owner
representing both: (i) at least 30% of the total outstanding voting power of
securities of an Owner entitled to vote for the election of directors of such
Owner and (ii) a greater percentage of such voting power than is owned at such
time in the aggregate by Manager and its affiliates.
V. EVENTS OF DEFAULT AND REMEDIES.
A. DEFAULT. Each of the following shall constitute an Event of
Default hereunder:
1. If any Operating Agreement is terminated by Operators as a result
of an Event of Default (as defined therein) committed by an owner.
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<PAGE>
2. If either Manager, on the one hand, or the Operators,
collectively, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement and such failure (i) continues after
written notice from the other party or parties specifying such failure to
perform for a period of thirty (30) days unless such failure cannot reasonably
be cured within such 30-day period, (ii) the defaulting party fails to endeavor
vigorously and continuously to cure such default as promptly as is practicable;
it being understood and agreed that Operators' obligations under this Agreement
may be performed by one or more of Glenn Kaplan, Wayne Kaplan and Evan Kaplan,
and that performance of such obligations by one or more of such individuals
shall constitute performance by the Operators.
3. If an Event of Default shall be committed or suffered by Manager
under any other agreement (as defined therein) pursuant to which Manager
provides management services for any adult-care facility (whether or not owned
by an Owner) for which operators act as the licensed operators.
4. If Manager is dissolved or liquidated, applies for or consents to
the appointment of a receiver, trustee or liquidator of all or a substantial
part of its assets, files a voluntary petition in bankruptcy or is the subject
of an involuntary bankruptcy filing, makes a general assignment for the benefit
of creditors, or files a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law, or if an
order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of a creditor, adjudicating Manager bankrupt or
insolvent or approving a petition seeking reorganization of Manager or
appointing a receiver, trustee or liquidator for such party of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) consecutive days.
5. If Operators transfer or terminate the operating certificate or
other material licenses or permits of the Facility other than pursuant to
Section I(A) of this Agreement, or as required by the Owner or by law.
B. REMEDIES. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or suffered
the Event of Default (with any Event of Default of an Owner being deemed to be
an Event of Default by Operators for this purpose) may, at its option, terminate
this Agreement by giving written notice to the other party and shall be entitled
to exercise all rights and remedies available under applicable law.
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<PAGE>
C. LIQUIDATED DAMAGES UNDER OPERATING AGREEMENT. Operators and Manager
shall use reasonable best efforts not to cause an Event of Default under the
terms of the operating Agreements. If an Operating Agreement terminates by
action or default on the part of the Owner, Operators shall pay to Manager an
amount equal to the liquidated damages Operators may receive, if any, pursuant
to the applicable Operating Agreement, within thirty (30) days following the
receipt of such payment.
VI. FACILITY OPERATIONS.
A. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In performing
its obligations under this Agreement, Manager shall use its reasonable best
efforts and act in good faith and with professionalism in accordance with the
Annual Budgets and the prevailing standards of the adult-care facilities
industry in each area in which a Facility is located and in accordance with
applicable law.
B. FORCE MAJEURE. The parties will not be deemed to be in
violation of this Agreement if they are prevented from performing any of their
respective obligations hereunder for any reason beyond their control, including,
without limitation, strikes, shortages, war, acts of God, or any statute,
regulation or rule or action of a federal, state or local government or an
agency thereof.
VII. FEES.
A. Commencing at the Effective Time, if any Facility has not
yet begun admitting residents for occupancy, Operators shall pay Manager a
start-up fee equal to forty thousand ($40,000) dollars payable in equal monthly
installments for such Facility.
B. Commencing on the day a Facility begins admitting residents
for occupancy and until an Operating Agreement is amended or superseded pursuant
to Section I(A) of this Agreement, Manager shall be entitled to receive fees
from Operators equal to: the greater of (1) the sum of five (5*1) percent of
total gross revenues less $1,000 or (2) $11,500, payable to Manager monthly on
the fifteenth (15th) day of each month.
Such fees shall be paid to Manager contemporaneously with the
payment of the fees paid to Operators. Operators shall have no liability to
Manager hereunder to the extent fees are not paid by owner to Operators, but in
such event at the election of Manager, (a) Operators shall assign to Manager its
rights to seek redress against owner for nonpayment of its fees to the extent
that such rights are assignable or (b) Operators shall continue to pursue fees
from owner at the expense of Manager.
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<PAGE>
VIII. ASSIGNMENT; DELEGATION.
A. MANAGEMENT SERVICES AGREEMENT. This Agreement shall not be
assigned (including by operation of law, whether by merger or consolidation
(excluding a merger effected solely for the purpose of changing Manager's
jurisdiction of incorporation that does not affect the stock ownership of
Manager in any material respect) or otherwise) by Manager, on the one hand, or
by any of the Operators, on the other, without the prior written consent of the
other party or parties.
B. DELEGATION. Notwithstanding any other provision of this
Agreement to the contrary, Operators hereby delegate to Manager only those
powers, duties or responsibilities set forth herein. All other powers and duties
remain with the Operators. The Manager shall not exercise any powers, duties or
responsibilities that it is prohibited by applicable law or regulations from
exercising.
IX. NOTICES. All notices required or permitted hereunder shall in
writing by hand delivery, by registered or certified mail, postage prepaid, by
overnight delivery or by facsimile transmission (with receipt confirmed with the
recipient). Notices given by Operators may be signed by any of the Operators.
Notices shall be delivered or mailed to the parties at the addresses specified
below or at such other places as either party shall designate in writing:
To Operators: Glenn Kaplan, Wayne L. Kaplan and Evan
A. Kaplan
125 Froehlich Farm Boulevard
Woodbury, New York 11797
Telephone: (516) 921-8900
Telecopier: (516) 921-8360
Copy to:
Arnold J. Levine, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Telephone: (212) 969-3000
Telecopier No: (212) 969-2900
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To Manager: Senior Quarters Management Corp.
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
Telephone: (212) 632-6026
Telecopier: (212) 332-5980
Copy to: Jonathan L. Mechanic, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Telephone: (212) 859-8000
Telecopier:(212) 859-4000
X. RELATIONSHIP OF THE PARTIES. The relationship of Manager to
Operators in connection with this Agreement shall be that of an independent
contractor and all acts performed by Manager during the term hereof shall be
deemed to be performed in its capacity as an independent contractor. To the
fullest extent permitted under applicable law, the Operators shall not be deemed
to have any fiduciary duties to Manager or its stockholders in connection with
Managers' provision of services hereunder or any matters arising out of or
related thereto. Nothing contained in this Agreement is intended to or shall be
construed to give rise or create a partnership or joint venture or lease between
Manager, its successors and assigns on the one hand, and Operators and their
assigns on the other hand.
XI. ENTIRE AGREEMENT. As of the Effective Time, this Agreement and any
documents executed in connection herewith shall supersede all previous
management services agreements between the parties and relating to the
Facilities, contain the entire agreement among the parties and be binding upon
the respective successors and assigns of the parties, provided however that any
successor or successors of the Operators shall be approved in advance by an
Owner under the terms of the Operating Agreement applicable to such Owner. This
Agreement shall be construed in accordance with the laws of the State of New
York (without regard to the State of New York choice of law provisions). This
Agreement may not be modified or amended except by written instrument signed by
the parties hereto.
XII. CAPTIONS. The captions used herein are for convenience of
reference only and shall not be construed in any manner to limit or modify any
of the terms hereof.
XIII. SEVERABILITY. In the event one or more of the provisions contained
in this Agreement is deemed to be invalid,
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illegal or unenforceable in any respect under applicable law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be impaired thereby.
XIV. CUMULATIVE. NO WAIVER. No right or remedy herein conferred upon or
reserved to any of the parties hereto is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder, or now or hereafter
legally existing upon the occurrence of an Event of Default hereunder. The
failure of any party hereto to insist at any time upon the strict observance or
performance of any of the provisions of this Agreement or to exercise any right
or remedy as provided in this Agreement shall not impair any such right or
remedy or be construed as a waiver or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given by this Agreement to the
respective parties hereto may be exercised from time to time and as often as may
be deemed expedient by such parties.
XV. PROSPECTIVE LEGAL EVENTS. CONTRACT MODIFICATIONS FOR PROSPECTIVE
LEGAL EVENTS.
A. The parties hereto agree that in the event that applicable
regulatory agencies request modifications to the text hereof prior to the
Effective Time, the parties shall work in good faith to make modifications to
this Agreement or to cooperate in restructuring their relationship as
appropriate, provided that any such restructuring shall, to the maximum extent
possible, preserve the underlying economic, financial and general business
arrangements between Owner and Operators. The parties acknowledge that such
agencies may require either or both parties to obtain appropriate regulatory
licenses and approvals.
B. In the event any state or federal laws or regulations, now existing
or enacted or promulgated after the Effective Date, are interpreted by judicial
decision, a regulatory agency or legal counsel of either party in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, Manager and Operators shall use reasonable best efforts to
amend this Agreement, to the maximum extent possible, to preserve the underlying
economic and financial arrangements between Manager and Operators. The parties
acknowledge that such amendment may require reorganization of Manager or
Operators, or both, and may require either or both parties to obtain appropriate
regulatory licenses and approvals.
XVI. RIGHT OF FIRST REFUSAL. Operators agrees that in the event that
Operators receive an opportunity to purchase a Facility pursuant to a Right of
First Refusal set forth in the Operating Agreements, Operators shall immediately
inform Manager; if Manager determines that Manager wishes to acquire such
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Facility itself or through a designee, Manager shall so inform Operators within
fifteen (15) business days and Operators shall negotiate in good faith as the
agent of Manager in obtaining the Facility on behalf of Manager.
XVII. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement. Operators shall retain
a copy of this Agreement on file, to be available for inspection by regulatory
authorities.
XVIII. COSTS AND EXPENSES OF FACTLITY: INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner. Operators, by reason
of the execution of this Agreement and the performance of their services to the
Facility, shall not be liable for or deemed to have assumed any liability for
such fees, costs, and expenses, or any other liability or debt of Owner
whatsoever, arising out of or relating to the Facility or incurred in its
operation. Operators agree to indemnify, defend, pay on behalf of, and hold
Owner, Manager and their officers, directors, agents and employees harmless from
and against all losses, claims, damages and other liabilities arising out of the
willful misconduct, misappropriation of funds or fraud of Operators. Manager
agrees to indemnify, defend, pay on behalf of, and hold Operators and their
officers, directors, agents and employees harmless from and against all losses,
claims, damages and other liabilities arising out of the operation of the
Facility (except those resulting from the willful misconduct, misappropriation
of funds, fraud or gross negligence of Operators), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, agents and employees by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder. The terms of
this Section XVIII shall survive the expiration or earlier termination of this
Agreement.
XIX. FURTHER ASSURANCES. Notwithstanding any other provisions of this
Agreement, Operators shall not (A) take or permit any action or (B) refrain from
taking or permitting any action, if such act or refusal would cause Operators to
violate, either immediately or with the passage of time, any law, rule,
regulation, code of ethics or fiduciary obligation in their capacity as licensed
Operators. Any decision by Operators to override any action or recommendation of
Manager shall not be deemed a breach of this Agreement, and shall not be an
Event of Default, if such action or refusal is necessary for Operators to
-13-
<PAGE>
maintain compliance with any such law, rule, regulation, code of ethics or
fiduciary obligation.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
duly executed, as of the day and year first above written.
MANAGER:
SENIOR QUARTERS MANAGEMENT CORP.
By: /s/ Wayne L. Kaplan
-----------------------------
Wayne L. Kaplan
Vice President/Secretary
OPERATORS:
G.W.E. PARTNERSHIP
/s/ Glenn Kaplan
---------------------------------
Glenn Kaplan
/s/ Wayne L. Kaplan
---------------------------------
Wayne L. Kaplan
/s/ Evan A. Kaplan
---------------------------------
Evan A. Kaplan
-14-
<PAGE>
EXHIBIT 6
KAPSON SENIOR QUARTERS CORP.
February 23, 1998
Glenn Kaplan
Wayne L. Kaplan
Evan A. Kaplan
G.W.E. Partnership
125 Froelich Farm Boulevard
Woodbury, NY 11797
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Agreement and Plan of
Merger (the "Amended and Restated Merger Agreement") of even date herewith,
among Prometheus Senior Quarters LLC (the "Parent"), Prometheus Acquisition
Corp. (the "Merging Corporation"), and Kapson Senior Quarters Corp. (the
"Company"), pursuant to which the Merging Corporation shall merge with and
into the Company. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in the Amended and Restated Merger
Agreement, or, if not defined therein, in the Ancillary Agreements (as defined
in the Escrow Agreement between the Parent, the Merging Corporation, the
Company, Harris Trust and Savings Bank and the Partners entered into as of
even date herewith).
As an accommodation to the Parent and Merging Corporation, Glenn Kaplan, Wayne
L. Kaplan and Evan A. Kaplan (each individually, a "Partner", and
collectively, the "Partners", and, for the purposes of the indemnity to be
provided by the Company hereunder the term Partner shall include the Partners,
or any partnership, corporation or other entity through which the Partners
operate any facility to the extent of any loss or costs to the Partners' in
their interest in such partnership, corporation or other entity as a result of
any Losses (as defined below)) have agreed to continue to operate certain of
the Facilities for a period of two (2) years, or until qualification of a
person or entity to replace them as operators, whichever shall occur sooner.
In consideration of the foregoing accommodation, and the entry of the Partners
into the Ancillary Agreements, the Company hereby agrees to indemnify, defend,
pay on behalf of, and hold the Partners and their principals, agents and
employees harmless from and against all losses, claims, damages and other
liabilities (including reasonable attorney's fees) arising out of or relating
to their operation of any facility it (or any of its affiliates) owns,
controls, or manages (each, a "Facility") (except those resulting from the
willful misconduct, misappropriation of funds or fraud by the Partners),
including, without limitation, any liabilities asserted against the Partners
or any of their principals, agents or employees by reason of any action or
inaction taken by any of the foregoing while performing the duties of
operators ("Losses") (i) with respect to Losses relating to or arising out of
the Partners' operation of any Facility at or subsequent to the Effective
Time, and (ii) with respect to Losses arising out of or related to the
Partners' operation of any Facility
1
<PAGE>
for which Partners would have been indemnified by any Owner but for which
Partners cannot receive indemnification from an Owner because of an act or
inducement of the Company at or after the Purchase Date (or its affiliates)
(excluding the act of the Company merging with Merging Corporation).
Indemnification from Company under (ii) of the previous sentence shall be
limited to the amount Partners could otherwise have received from an Owner but
for the act or inducement of the Company.
The Company's obligation hereunder shall survive the termination of all or any
of the Ancillary Agreements or any other agreements entered into between the
Partners and any or all of the Parent, the Merging Corporation, or the Company
dated on or about September 30, 1997 or of even date herewith. In addition,
the obligation under this letter agreement shall not be assignable by the
Company, and shall be binding on any successor thereto.
The terms of this letter agreement shall not be modified or waived except by
written consent of the Partners. This letter may be signed in two or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument. (For the purposes of
this letter agreement only, Purchase Date is defined as the date of the
purchase of the Shares pursuant to the Offer under the Amended and Restated
Merger Agreement.)
The Company hereby recognizes that the Partners would not enter into the
above-referenced Amended and Restated Merger Agreement and Ancillary
Agreements without the indemnification provided hereby. In consideration
therefor, and for other good and valuable consideration, the Company, by
signing below, hereby agrees to indemnify the Partners as provided
hereinabove.
2
<PAGE>
IN WITNESS WHEREOF, the Company has entered into this agreement by signing
below, as of the date first written above, and this agreement shall be
effective as of the Purchase Date.
KAPSON SENIOR QUARTERS CORP.
/s/ Glenn Kaplan
- ------------------------------------
By: Glenn Kaplan
Title: Chairman and Chief Executive Officer
3
<PAGE>
EXHIBIT 7
KAPSON SENIOR QUARTERS CORP.
February 23, 1998
PROMETHEUS SENIOR QUARTERS LLC
PROMETHEUS ACQUISITION CORP.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Agreement and Plan of
Merger (the "Amended and Restated Merger Agreement") of even date herewith,
among Prometheus Senior Quarters LLC (the "Parent"), Prometheus Acquisition
Corp. (the "Merging Corporation"), and Kapson Senior Quarters Corp. (the
"Company"), pursuant to which Investor shall acquire Company pursuant to a
tender offer of all of the outstanding shares of the Company and the Merging
Corporation shall merge with and into the Company. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Amended and Restated Merger Agreement.
The Kapson Licensed Home Care Services Agency ("KLHCSA") provides services to
several of the New York facilities and is seeking to expand its license to
additional counties in order to provide services to additional New York
facilities. KLHCSA's license, which is granted by the New York Department of
Health ("NYDOH"), is held in the name of the Kapson Group, a partnership
comprised of Wayne, Evan and Glenn Kaplan (the "Kaplans") jointly. The Kaplans
agree to use their reasonable best efforts to obtain regulatory approval for
and to arrange for the transfer of responsibility for the operation of KLHCSA
to the Company promptly after the Effective Time. Review of such transfer
application by NYDOH may take a considerable period of time. The Kaplans shall
cause KLHCSA to maintain its existing business arrangements with the Company
or any of its subsidiaries until the ownership of KLHCSA is transferred to the
Company.
<PAGE>
Please confirm that this letter correctly sets forth our agreement by signing
a counterpart copy where designated below.
Very truly yours,
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
---------------------------
Title: Chairman and Chief Executive Officer
GLENN KAPLAN
/s/ Glenn Kaplan
- --------------------------------
WAYNE L. KAPLAN
/s/ Wayne L. Kaplan
- --------------------------------
EVAN A. KAPLAN
/s/ Evan A. Kaplan
- ---------------------------------
AGREED:
PROMETHEUS SENIOR QUARTERS LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE PROMETHEUS ACQUISITION CORP.
INVESTORS L.L.C.,
its General Partner
By: /s/ Robert P. Freeman By: /s/ Robert P. Freeman
------------------------ --------------------------
Robert P. Freeman Robert P. Freeman
Principal President
<PAGE>
EXHIBIT 8
STOCKHOLDERS AGREEMENT
----------------------
Second Amended and Restated Stockholders Agreement (this "Agreement"),
dated as of February 23, 1998, 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, Investor and each Stockholder previously entered into that certain
Stockholders Agreement, dated as of September 30, 1997, which was amended and
restated in its entirety as of October 14, 1997 (as so previously amended and
restated, the "Prior Agreement") and Investor and each Stockholder now desire to
amend and restate the Prior Agreement in its entirety;
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;
WHEREAS, each Stockholder may be deemed to own beneficially an additional
230,001 shares of Common Stock of the Company that are owned of record by
Herbert Kaplan and an additional 70,000 shares of Common Stock of the Company
that are owned of record by Jean Kaplan (together with the shares specified in
Exhibit A hereto, the "Shares");
WHEREAS, concurrently herewith, Investor and a wholly owned subsidiary of
Investor ("Sub") are entering into an amended and restated agreement and plan of
merger with the Company, dated as of February 23, 1998 (the "Merger Agreement"),
pursuant to which Sub will (i) offer to purchase pursuant to a tender offer all
of the outstanding shares of Common Stock at a price of $14.50 per share and all
of the outstanding shares of the $2.00 Convertible Exchangeable Preferred Stock
of the Company at a price of $27.93 per share (the "Offer") and (ii) subsequent
to the consummation of the Offer, merge with and into the Company (the
"Merger"), each upon the terms and subject to the conditions set forth in the
Merger Agreement; 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 tender the Shares in the Offer, (iii) to appoint Investor as
Stockholders' proxy to vote the Shares, and (iv) 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.
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 $14.50 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 and prior to
the earlier to occur (the "Expiration Date") of (i) one year after the date
hereof, (ii) if the Merger Agreement is terminated, or the Investor provides
written or oral notice to the Company that it elects not to consummate the Offer
or close the transactions contemplated by the Merger Agreement, as a result of
the failure of any of the conditions specified in Exhibit A, 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 $14.50 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, or the Investor provides written or oral notice to the Company that
it elects not to consummate the Offer or close the transactions contemplated by
the Merger Agreements, as a result of the failure of any of the conditions
specified in Exhibit A and at the time of such termination or notice there shall
exist any Alternative Proposal at $14.50 or more per share of Common Stock for
75% or more of the outstanding Common Stock of the Company, the sixth monthly
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
<PAGE>
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 Investor
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 (b)
below, 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.
(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 $14.50 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) $14.50 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 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
<PAGE>
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 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 by 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.
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 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
<PAGE>
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.
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
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. Tender of Shares; Automatic Exercise of Option.
----------------------------------------------
6.1. Tender of Shares. Each Stockholder hereby agrees that, during the
time this Agreement is in effect, each Stockholder shall, to the extent
applicable, tender (and/or cause to be tendered) all of the Shares to Investor
immediately upon consummation of the Offer.
6.2. Automatic Exercise. Each Stockholder agrees that, in the event
such Stockholder shall fail to comply with the provisions of Section 6.1 hereof
as determined by Investor in its sole discretion, such failure shall result,
without any further action by such Stockholder or Investor, in the automatic and
irrevocable exercise of the Stock Option by Investor and the provisions of this
Agreement applicable to such exercise, the delivery of the Shares and the Stock
Option Closing shall take effect as though an Exercise Notice had been delivered
to the Stockholders pursuant to Section 1.2(b) of this Agreement.
7. 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.
8. Miscellaneous.
-------------
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
<PAGE>
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 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 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) 632-6000
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 Stockholders:
Glenn Kaplan
Kapson Senior Quarters Corp.
125 Froehlich Farm Blvd.
Woodbury, New York 11797
Facsimile: (516) 921-8367
Telephone: (516) 921-8900
with a copy to:
<PAGE>
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.
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: LF STRATEGIC REALTY INVESTORS II
L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE INVESTORS
L.L.C., its General Partner
By: /s/ Robert P. Freeman
---------------------------------
Robert P. Freeman
Principal
EXHIBIT A
---------
Stockholder Number of Shares
----------- ----------------
Glenn Kaplan 1,283,333
Wayne L. Kaplan 1,283,333
Evan A. Kaplan 1,283,333
=========
TOTAL: 3,849,999
<PAGE>
EXHIBIT 9
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 23rd day of February, 1998, by and between
Kapson Senior Quarters Corp., a Delaware corporation (the "Company") and Glenn
Kaplan (the "Employee").
WHEREAS, the Employee has been and is presently employed by the
Company; and
WHEREAS, the Employee possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
and
WHEREAS, pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of the date hereof by and among Prometheus Senior Quarters LLC
("Investor"), Prometheus Acquisition Corp. ("PAC") and the Company (the "Merger
Agreement") PAC will be merged into the Company as of the Effective Time (as
defined in the Merger Agreement); and
WHEREAS, Employee was employed pursuant to an employment agreement with
the Company dated as of September 25, 1996 (the "Former Employment Agreement")
and this Agreement as in effect prior to the date hereof superseded the Former
Employment Agreement; and
WHEREAS, the Employee is a partner of the G.W.E. Partnership which
partnership is a party to various operating agreements (the "Operating
Agreements") pursuant to which the Employee, as the holder of one or more
operating certificates has agreed to operate certain facilities of the Company;
WHEREAS, the Company desires to amend and restate this Agreement to
ensure the continued services and employment of the Employee on behalf of the
Company and the Employee is willing to render such continued services on the
terms and conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Employee and Employee hereby
agrees to be employed by the Company for the period commencing on the date on
which the Effective Time occurs (the "Effective Date") and ending on the second
anniversary of the date hereof, unless renewed or terminated sooner as
hereinafter provided (the "Employment Term"). The Employment Term shall be
automatically renewed for successive one-year terms unless either party gives
written notice to the other at least six (6) months prior to the expiration of
the then Employment Term of such party's intention that the Employment Term
shall not be so extended. The term of this Agreement shall be coincident with
the Employment Term.
2. Duties. During the Employment Term the Employee shall serve as Chief
Executive Officer of the Company or such other position as may be agreed upon by
Company and Employee and shall perform such duties, services and
responsibilities incident to such position(s) as determined from time to time by
the Board of Directors of the Company (the "Board"). The Employee also agrees to
perform such other duties, services and responsibilities which are consistent
with his position as may from time to time be reasonably requested by the Board.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his best efforts to promote the interests of the Company. The Employee will not,
without the prior written approval of the Board, engage in any other business
activity which would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established from
time to time by the Company. Notwithstanding the foregoing, the Employee shall
be entitled to: (a) serve on corporate, civic or charitable
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boards or committees, (b) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (c) manage personal investments (but in
no event may the Employee own more than 5% of the shares of any publicly traded
company or entity), so long as such activities do not materially interfere with
the performance of Employee's duties or responsibilities pursuant to this
Agreement.
3. Compensation. (a) Salary. In consideration of the performance
by the Employee of the Employee's obligations during the Employment Term
(including any services as an officer, director, employee, member of any
committee of the Company, or otherwise), the Company will during the Employment
Term pay the Employee a salary (the "Salary") at an annual rate of not less than
$250,000. The Employee's salary shall be reviewed annually by the Company and
shall be increased as of the first day of each fiscal year beginning on or after
January 1, 1999 by no less than the increase in the Consumer Price Index - Urban
Wage Earners (or, in the event such index is no longer published, such other
index as is determined in good faith by the Board to be comparable) from the
penultimate month prior to the beginning of the fiscal year being completed to
the penultimate month of the fiscal year being completed (as so increased,
"Salary"). The Salary will be reduced by any amounts paid to the Employee under
any of the Operating Agreements, the manner in which such reductions are to be
effected shall be determined by the Board taking into account the expected
timing of payments pursuant to the Operating Agreements .
(b) Bonus. (i) In further consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will pay the Employee an annual bonus (the
"Bonus") in respect of each fiscal year beginning on or after January 1, 1998 of
up to 75% of the Employee's Salary (the "Target Bonus"). Any bonus payable in
respect of the fiscal
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<PAGE>
year beginning January 1, 1998, shall be payable, with interest at an annual
rate equal to four percent (4%), within five (5) days following the end of the
fiscal year 1999; provided, however, that no bonus shall be payable for such
fiscal year in the event the Employee's employment with the Company shall have
been terminated by the Company for Cause (as defined below) or voluntarily by
the Employee without Good Reason (as defined below) on or prior to December 31,
1999. The actual amount paid will be determined in accordance with the following
provisions of this Section 3(b).
(ii) If the Company's actual performance for an applicable
fiscal year is at least 90% or more of the budgeted performance (as set forth in
clause (iii) below), the Employee shall be entitled to receive 100% of the
Target Bonus. If the Company's actual performance for an applicable fiscal year
is 85% or more but less than 90% of the budgeted performance, the Employee shall
be entitled to receive 50% of the Target Bonus. If the Company's actual
performance for an applicable fiscal year is less than 85% of the budgeted
performance, the Employee shall not be entitled to any portion of the Target
Bonus. Notwithstanding the foregoing, if for any fiscal year the Employee is
entitled to less than 100% of the Target Bonus, the Board, in its sole
discretion, may award the Employee with a bonus equal to all or any portion of
the amount by which the amount, if any, to which he is entitled pursuant to this
Section 3(b)(ii) is less than the Target Bonus. If the Company's actual
performance for an applicable fiscal year is greater than 95% of the budgeted
performance, the Board may in its sole discretion determine to increase the
Employee's Bonus to an amount greater than 100% of the Target Bonus.
(iii) For purposes of this Section 3(b), the budget for each
of the fiscal years beginning January 1, 1998 and 1999 is set forth on Appendix
A hereto. The budget for any future fiscal year shall be established by the
Board in a manner
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<PAGE>
consistent with past practice. It is understood that the budget is prepared on a
property by property basis but that the Company's actual performance versus
budgeted performance is to be measured on an overall basis. If during any fiscal
year new properties are acquired or development is commenced with respect to any
new properties not contemplated by the budget, appropriate adjustments to the
budget as established pursuant to this Section 3(b)(iii) will be made by the
Board.
(iv) The Employee's Salary and any bonus shall be payable in
accordance with the normal payroll practices of the Company then in effect and
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state or local law. The Employee shall be solely responsible for
taxes imposed on the Employee by reason of any compensation and benefits
provided hereunder.
4. Disability. If the Employee is unable to substantially
perform his duties, services and responsibilities hereunder by reason of a
physical or mental infirmity for a total of 180 calendar days in any
twelve-month period during the Employment Term ("Disability"), the Company shall
not be obligated to pay the Employee any Salary or Bonus for any period of
absence in excess of such 180 calendar days.
5. Benefits. (a) In addition to the payment of the Salary and
Bonus described above, the Employee shall be entitled to participate in any
employee benefit plans then in effect for similarly situated employees and
receive any other fringe benefits that the Company then provides to similarly
situated employees to the extent the Employee meets the eligibility requirements
for any such plan or benefit. In no event shall the employee benefits provided
to the Employee be, in the aggregate, less favorable to the Employee than the
employee benefits provided to the Employee by the
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<PAGE>
Company as of the date hereof. Stock options shall not be taken into account for
purposes of the foregoing sentence.
(b) The Company shall, during the Employment Term, provide
Employee with a leased automobile at a level and under arrangements commensurate
with the automobile provided under the Former Employment Agreement immediately
prior to the Effective Date.
(c) The Company shall, during the Employment Term, provide
long term disability coverage for the Employee providing for a benefit of at
least sixty-five (65%) of the Employee's Salary based on his own occupation or
comparable occupation level and with a waiting period of not longer than six (6)
months ("Long Term Disability Coverage"), provided such level of Long Term
Disability Coverage is obtainable on commercially reasonable terms.
(d) The Company shall, during the Employment Term, pay any
dues or other fees for the Employee's membership in the country club of which he
is a member as of the Effective Date, or such other club as is approved by the
Board. The Employee shall be responsible for any income tax due as a result of
his personal use of such country club. The Company, to the extent permitted by
law, shall not treat the Employee's business use of such country club as
compensation to him.
6. Vacations. During the Employment Term the Employee shall be entitled
to the number of paid vacation days in each calendar year determined by the
Company from time to time, but not less than four (4) weeks in any calendar
year.
7. Expenses. The Company shall reimburse the Employee in accordance
with its expense reimbursement policy as in effect from time to time for all
reasonable expenses incurred by the Employee in connection with the performance
of
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<PAGE>
his duties under this Agreement upon the presentation by the Employee of an
itemized account of such expenses and appropriate receipts.
8. Termination. The Employee's employment with the Company and the
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events:
(a) The death of the Employee ("Death").
(b) The mutual agreement between the Company and the Employee
on an early termination date.
(c) The termination of employment by the Company for Cause.
"Cause" shall mean (a) the Employee being convicted of (or pleading nolo
contendere to) a felony (other than a traffic violation); (b) the repeated
refusal of the Employee to attempt to properly perform his obligations under
this Agreement, or follow any direction of the Board consistent with this
Agreement, which in either case is not remedied within ten (10) business days
after receipt by the Employee of written notice from the Company specifying the
details thereof, provided the refusal to follow a direction shall not be Cause
if the Employee in good faith believes that such direction is not legal, ethical
or moral or not within the scope of his duties pursuant to this Agreement and
promptly notifies the Board in writing of such belief; and provided further
that, upon his request, the Employee shall be entitled to a hearing before the
Board within seven (7) business days following his receipt of written notice
from the Company; (c) the Employee's gross negligence with regard to his duties
or willful misconduct with regard to the business, assets or employees of the
Company which in either event has a material adverse effect on the Company and
its subsidiaries in the aggregate; (d) any other breach by the Employee of a
material provision of this Agreement that remains uncured for twenty (20)
business days after written notice thereof is given to the Employee or such
longer period as may reasonably
-7-
<PAGE>
be required to remedy the default, provided that the Employee endeavors in good
faith to remedy the default; or (e) any act of fraud or misappropriation of
funds involving the Company.
(d) The termination of employment by the Company for
Disability.
(e) The termination of employment by the Company other than
for Cause, Disability or Death.
(f) The termination of the Employee's employment upon the date
specified in the written resignation of the Employee for Good Reason stating
with specificity the details of the Good Reason, if the stated Good Reason is
not cured within twenty (20) days of the giving of such notice. Notice of Good
Reason shall be given within one hundred eighty (180) days of occurrence of the
Good Reason event. "Good Reason" shall mean (a) any reduction in title or a
material reduction in authority, duties or responsibilities (except temporarily
during any period of physical or mental illness); (b) failure to elect the
Employee to the Board of Directors; (c) relocation of the Company's principal
place of business more than thirty (30) miles from the Company's current
principal place of business located at Woodbury, New York; (d) the Employee
being required to report to other than the Board or (e) any other material
breach of any provision of this Agreement by the Company.
In the event of termination of this Agreement, for whatever
reason, the Employee agrees to cooperate with the Company and to be reasonably
available to the Company with respect to continuing and/or future matters
arising out of the Employee's employment or any other relationship with the
Company, whether such matters are business-related, legal or otherwise. The
Company shall not require the Employee to make himself available to the Company
pursuant to this paragraph in any manner that will materially interfere with his
then existing employment relationship. The provisions of this paragraph shall
survive termination of this Agreement.
-8-
<PAGE>
9. Termination Payments. (a) If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid to the Employee as of such date.
(b) If the Employee's termination is pursuant to Section 8(e)
or Section 8(f), the Company shall continue to pay the Employee an amount equal
to his Salary (at the rate in effect at the time of his termination of
employment) during the period commencing on the effective date of the Employee's
termination of employment and ending on the second anniversary of the Effective
Date (or the expiration of the then current Employment Term if the Agreement has
been extended pursuant to Section 1). In addition, the Company shall continue
the Employee's then current medical coverage for a period of two (2) years
following termination of the Employee's employment.
(c) If the Employee's termination is pursuant to Section 8(a),
the Company shall pay the Employee's Beneficiary (as defined below) an amount
equal to his Salary (at the rate in effect at the time of the Employee's
termination of employment) for a period of six months following the date of the
Employee's Death. For purposes of this provision, the Employee's Beneficiary
shall be the Employee's spouse; if the Employee is not married on his date of
Death, the Employee's children, per stirpes; and otherwise, the Employee's
estate.
(d) If the Employee's termination is pursuant to Section 8(d),
the Company shall continue to pay the Employee an amount equal to his Salary (at
the rate in effect at the time of his termination of employment) for a period of
six months following the effective date of the Employee's termination of
employment.
The foregoing payments upon termination shall constitute the exclusive
payments due to or in respect of the Employee upon the termination of his
employment under this Agreement, but shall have no effect on any benefits which
may be due the
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<PAGE>
Employee under any plan of the Company which provides benefits after termination
of employment, other than severance pay or salary continuation which shall be
reduced by the amount of any payment received by the Employee following his
termination pursuant to this Agreement. In the event any payments are required
to be made to the Employee pursuant to this Section 9, the Employee shall be
under no obligation to seek other employment and, in such case, there shall be
no offset against any amounts due to the Employee under this Agreement on
account of any remuneration attributable to any subsequent employment that the
Employee may obtain.
10. Transfer of License. (a) The Employee agrees and understands that
the operating certificates (the "Certificates") issued to and held by him
individually and in his capacity as a partner of G.W.E. Partnership are
essential to the operation of the business of the Company. Accordingly, the
Employee agrees that (i) he shall continue as an Operator under each Operating
Agreement for so long as he is employed by the Company and (ii) if, immediately
following his termination of employment with the Company for any reason, the
Company would have no other officer or agent who is a holder of a valid
operating certificate in respect of each of the Company's facilities, he shall
continue to act in his capacity as an operator under any Operating Agreements
with facilities that the Company or an affiliate operates or manages until the
earlier of the fifth anniversary of the Effective Date or the date on which a
Replacement Operator (as such term is defined in that certain letter agreement
dated October 1, 1997) shall have been installed and shall have been approved by
all appropriate regulatory authorities to operate the Company's facilities. In
the event of a termination that triggers the provisions of the foregoing
sentence, the Company shall use its best efforts to ensure that one of its
officers or agents secures a valid operating certificate in respect of each of
the Company's facilities as soon as reasonably possible following such
termination.
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<PAGE>
(b) The Employee agrees that any breach of the terms of this
Section 10 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorney's fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The Employee
also agrees that in the event of a breach of this Section 10 he shall not be
entitled to any payments that he might otherwise be entitled to under Section 9.
The terms of this paragraph shall not prevent the Company from pursuing any
other available remedies for any breach or threatened breach hereof, including
but not limited to the recovery of damages from the Employee and those remedies
set forth in the Escrow Agreement, dated as of the date hereof, by and among
Prometheus Senior Quarters LLC, Prometheus Acquisition Corp. and Glenn Kaplan,
Wayne L. Kaplan and Evan A. Kaplan d/b/a G.W.E. Partnership and Harris Trust and
Savings Bank.
11. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and understands
that in the Employee's position with the Company, the Employee has been and will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and/or in the nature of trade secrets. The
Employee agrees that during the Employment Term and thereafter, the Employee
will keep such information confidential and not
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<PAGE>
disclose such information, either directly or indirectly, to any third person or
entity without the prior written consent of the Company. This confidentiality
covenant has no temporal, geographical or territorial restriction. Upon
termination of this Agreement, the Employee will promptly supply to the Company
all material property, keys, notes, memoranda, writings, lists, files, reports,
customer lists, correspondence, tapes, disks, cards, surveys, maps, logs,
machines, technical data or any other tangible product or document which has
been produced by, received by or otherwise submitted to the Employee during or
prior to the Employment Term. Any material breach of the terms of this paragraph
shall be considered Cause.
(b) Non-competition. By and in consideration of the Company's
entering into this Agreement and the Salary, Bonus and benefits to be provided
by the Company hereunder, and further in consideration of the Employee's
exposure to the proprietary information of the Company, the Employee agrees that
the Employee will not, during the Employment Term and for a period of three (3)
years thereafter (or five (5) years thereafter if he is terminated by the
Company for Cause), directly or indirectly own, manage, operate, join, control,
be employed by, or participate in the ownership, management, operation or
control of, or be connected in any manner, including but not limited to holding,
the positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, with any Competing Enterprise. For
purposes of this paragraph, the term "Competing Enterprise" shall mean any
person, corporation, partnership or other entity engaged in any Competitive
Business within a twenty-five (25) mile radius of any such business operated, or
in the pipeline to be operated (to the extent the Employee has knowledge after
due inquiry of such proposal), by the Company, Lazard Freres Real Estate
Investors LLC ("LFREI") or any affiliate of LFREI. For purposes of this
paragraph, the term "Competitive Business" shall mean assisted living,
independent living, skilled nursing facilities and continuing care retirement
centers
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(containing assisted living, independent living and skilled nursing facilities
in one campus). During the five years following termination of this Agreement,
upon request, the Employee shall notify the Company of the Employee's then
current employment status.
(c) Non-solicitation. During the Employment Term and for a period
of two years thereafter, the Employee shall not interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person who
at any time during the Employment Term was an employee (other than the
Employee's secretary or Raymond DioGuardi ("Mr. DioGuardi") but, with respect to
Mr. DioGuardi, only if (i) Mr. DioGuardi's employment with the Company shall
have been terminated by the Company giving notice to Mr. DioGuardi of its
intention not to extend his Employment Term past the second anniversary of the
Effective Date (each, as defined in the Employment Agreement, dated as of the
date hereof, between the Company and Mr. DioGuardi); and (ii) Mr. DioGuardi
shall not be employed in any Competitive Business)) or customer of the Company
or otherwise had a material business relationship with the Company.
(d) Remedies. The Employee agrees that any breach of the terms of
this Section 11 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
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<PAGE>
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee. The Employee and the Company
further agree that the provisions of the covenant not to compete are reasonable.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period of time, geographical
area, or otherwise, the parties hereto agree that the covenant should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable.
The provisions of this Section 11 shall survive any termination of this
Agreement and the Employment Term and the existence of any claim or cause of
action by the Employee against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of the covenants and agreements of this Section 11.
12. Proprietary Rights. The Employee represents and warrants that all
patents, patent applications, rights to inventions, copyright registrations and
other license, trademark and trade name rights heretofore owned by the Employee
and relating to the business of the Company or any of its subsidiaries have been
duly transferred to such corporation.
13. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms.
14. Notices. Every notice relating to this Agreement shall be in
writing and shall be given by personal delivery or by overnight courier or
registered or certified mail, postage prepaid, return receipt requested, as
follows:
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(i) If to the Company
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
(i) If to the Employee
Glenn Kaplan
c/o Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Notices shall be considered effective when received.
15. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions or the
immediately preceding sentence, the Employee shall not assign all or any portion
of this Agreement without the prior written consent of the Company.
16. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter including without limitation the Former Employment Agreement
which shall be null and void as of the date hereof, and the Employee agrees that
he is not entitled to any further benefits thereunder, including, without
limitation, benefits that would or may otherwise have been payable thereunder
upon or following the Merger. This Agreement may not be amended, nor may any
provision hereof be modified or waived, except by an instrument in writing duly
signed by the party to be charged.
17. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application
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shall to that extent be severable and shall not affect other provisions or
applications of this Agreement.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
the principles of conflict of laws.
19. Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions at the time
or at any prior or subsequent time.
20. Headings. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
22. Excise Tax Limitation
(a) Notwithstanding anything contained in this Agreement to the
contrary, to the Fextent that any payment or distribution of any type to or for
the benefit of the Employee by the Company, any affiliate of the Company, any
person who acquires ownership or effective control of the Company or ownership
of a substantial portion of the Company's assets (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder), or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments") is or will be subject to the excise tax
imposed under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments
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shall be reduced (but not below zero) if and to the extent that a reduction in
the Total Payments would result in the Employee retaining a larger amount, on an
after-tax basis (taking into account federal, state and local income taxes and
the Excise Tax), than if the Employee received the entire amount of such Total
Payments. Unless the Employee shall have given prior written notice specifying a
different order to the Company to effectuate the foregoing, the Company shall
reduce or eliminate the Total Payments, by first reducing or eliminating the
portion of the Total Payments which are not payable in cash and then by reducing
or eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as hereinafter defined). Any notice given by the Employee
pursuant to the preceding sentence shall take precedence over the provisions of
any other plan, arrangement or agreement governing the Employee's rights and
entitlements to any benefits or compensation.
(b) The determination of whether the Total Payments shall be
reduced as provided in Section 22(a) and the amount of such reduction shall be
made at the Company's expense by an accounting firm selected by the Company from
among the six largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within ten (10) days of the
Termination Date. If the Accounting Firm determines that no Excise Tax is
payable by the Employee with respect to the Total Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee that no Excise
Tax will be imposed with respect to any such payments and, absent manifest
error, such Determination shall be binding, final and conclusive upon the
Company and the Employee. If the Accounting Firm determines that an Excise Tax
would be payable, the Employee shall have the right to accept the Determination
of the Accounting Firm as to
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the extent of the reduction, if any, pursuant to Section 22(a), or to have such
Determination reviewed by an accounting firm selected by the Employee from among
the six largest accounting firms in the United States, at the expense of the
Employee, in which case the determination of such second accounting firm shall
be binding, final and conclusive upon the Company and the Employee.
23. Indemnification. During the Employment Term and thereafter, the
Company shall indemnify the Employee to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees), and advance amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted by law, in connection
with any claim, action or proceeding (whether civil or criminal) against the
Employee as a result of the Employee serving as an officer or director of the
Company or in any capacity at the request of the Company, in or with regard to
any other entity, employee benefit plan or enterprise (other than arising out of
the employee's acts of willful misconduct, misappropriation of funds or fraud).
This indemnification shall be in addition to, and not in lieu of, any other
indemnification the Employee shall be entitled to pursuant to the Company's
Certificate of Incorporation or By-laws or otherwise. Following the Employee's
termination of employment, the Company shall continue to cover the Employee
under the Company's directors and officers insurance for the period during which
the Employee may be subject to potential liability for any claim, action or
proceeding (whether civil or criminal) as a result of his service as an officer
or director of the Company or in any capacity at the request of the Company, at
the highest level then maintained for any then or former officer or director.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, the day and year first above written.
Kapson Senior Quarters Corp.
By: /s/ Wayne L. Kaplan
------------------------------------
Name: Wayne L. Kaplan
Title: Senior Executive Vice President
By: /s/ Glenn Kaplan
-------------------------------------
Glenn Kaplan
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<PAGE>
EXHIBIT 10
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 23rd day of February, 1998, by and between
Kapson Senior Quarters Corp., a Delaware corporation (the "Company") and Wayne
L. Kaplan (the "Employee").
WHEREAS, the Employee has been and is presently employed by the
Company; and
WHEREAS, the Employee possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
and
WHEREAS, pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of the date hereof by and among Prometheus Senior Quarters LLC
("Investor"), Prometheus Acquisition Corp. ("PAC") and the Company (the "Merger
Agreement") PAC will be merged into the Company as of the Effective Time (as
defined in the Merger Agreement); and
WHEREAS, Employee was employed pursuant to an employment agreement with
the Company dated as of September 25, 1996 (the "Former Employment Agreement")
and this Agreement as in effect prior to the date hereof superseded the Former
Employment Agreement; and
WHEREAS, the Employee is a partner of the G.W.E. Partnership which
partnership is a party to various operating agreements (the "Operating
Agreements") pursuant to which the Employee, as the holder of one or more
operating certificates has agreed to operate certain facilities of the Company;
WHEREAS, the Company desires to amend and restate this Agreement to
ensure the continued services and employment of the Employee on behalf of the
Company and the Employee is willing to render such continued services on the
terms and conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Employee and Employee hereby
agrees to be employed by the Company for the period commencing on the date on
which the Effective Time occurs (the "Effective Date") and ending on the second
anniversary of the date hereof, unless renewed or terminated sooner as
hereinafter provided (the "Employment Term"). The Employment Term shall be
automatically renewed for successive one-year terms unless either party gives
written notice to the other at least six (6) months prior to the expiration of
the then Employment Term of such party's intention that the Employment Term
shall not be so extended. The term of this Agreement shall be coincident with
the Employment Term.
2. Duties. During the Employment Term the Employee shall serve as
Senior Executive Vice President, Secretary or General Counsel of the Company or
such other position as may be agreed upon by Company and Employee and shall
perform such duties, services and responsibilities incident to such position(s)
as determined from time to time by the Board of Directors of the Company (the
"Board"). The Employee also agrees to perform such other duties, services and
responsibilities which are consistent with his position as may from time to time
be reasonably requested by the Board.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his best efforts to promote the interests of the Company. The Employee will not,
without the prior written approval of the Board, engage in any other business
activity which would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established from
time to time by the Company. Notwithstanding the foregoing, the Employee shall
be entitled to: (a) serve on corporate, civic or charitable
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boards or committees, (b) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (c) manage personal investments (but in
no event may the Employee own more than 5% of the shares of any publicly traded
company or entity), so long as such activities do not materially interfere with
the performance of Employee's duties or responsibilities pursuant to this
Agreement.
3. Compensation. (a) Salary. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will during the Employment Term pay the
Employee a salary (the "Salary") at an annual rate of not less than $200,000.
The Employee's salary shall be reviewed annually by the Company and shall be
increased as of the first day of each fiscal year beginning on or after January
1, 1999 by no less than the increase in the Consumer Price Index - Urban Wage
Earners (or, in the event such index is no longer published, such other index as
is determined in good faith by the Board to be comparable) from the penultimate
month prior to the beginning of the fiscal year being completed to the
penultimate month of the fiscal year being completed (as so increased,
"Salary"). The Salary will be reduced by any amounts paid to the Employee under
any of the Operating Agreements, the manner in which such reductions are to be
effected shall be determined by the Board taking into account the expected
timing of payments pursuant to the Operating Agreements.
(b) Bonus. (i) In further consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will pay the Employee an annual bonus (the
"Bonus") in respect of each fiscal year beginning on or after January 1, 1998 of
up to 75% of the Employee's Salary (the "Target Bonus"). Any bonus payable in
respect of the fiscal
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<PAGE>
year beginning January 1, 1998, shall be payable, with interest at an annual
rate equal to four percent (4%), within five (5) days following the end of the
fiscal year 1999; provided, however, that no bonus shall be payable for such
fiscal year in the event the Employee's employment with the Company shall have
been terminated by the Company for Cause (as defined below) or voluntarily by
the Employee without Good Reason (as defined below) on or prior to December 31,
1999. The actual amount paid will be determined in accordance with the following
provisions of this Section 3(b).
(ii) If the Company's actual performance for an applicable
fiscal year is at least 90% or more of the budgeted performance (as set forth in
clause (iii) below), the Employee shall be entitled to receive 100% of the
Target Bonus. If the Company's actual performance for an applicable fiscal year
is 85% or more but less than 90% of the budgeted performance, the Employee shall
be entitled to receive 50% of the Target Bonus. If the Company's actual
performance for an applicable fiscal year is less than 85% of the budgeted
performance, the Employee shall not be entitled to any portion of the Target
Bonus. Notwithstanding the foregoing, if for any fiscal year the Employee is
entitled to less than 100% of the Target Bonus, the Board, in its sole
discretion, may award the Employee with a bonus equal to all or any portion of
the amount by which the amount, if any, to which he is entitled pursuant to this
Section 3(b)(ii) is less than the Target Bonus. If the Company's actual
performance for an applicable fiscal year is greater than 95% of the budgeted
performance, the Board may in its sole discretion determine to increase the
Employee's Bonus to an amount greater than 100% of the Target Bonus.
(iii) For purposes of this Section 3(b), the budget for each
of the fiscal years beginning January 1, 1998 and 1999 is set forth on Appendix
A hereto. The budget for any future fiscal year shall be established by the
Board in a manner
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consistent with past practice. It is understood that the budget is prepared on a
property by property basis but that the Company's actual performance versus
budgeted performance is to be measured on an overall basis. If during any fiscal
year new properties are acquired or development is commenced with respect to any
new properties not contemplated by the budget, appropriate adjustments to the
budget as established pursuant to this Section 3(b)(iii) will be made by the
Board.
(iv) The Employee's Salary and any bonus shall be payable in
accordance with the normal payroll practices of the Company then in effect and
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state or local law. The Employee shall be solely responsible for
taxes imposed on the Employee by reason of any compensation and benefits
provided hereunder.
4. Disability. If the Employee is unable to substantially perform his
duties, services and responsibilities hereunder by reason of a physical or
mental infirmity for a total of 180 calendar days in any twelve-month period
during the Employment Term ("Disability"), the Company shall not be obligated to
pay the Employee any Salary or Bonus for any period of absence in excess of such
180 calendar days.
5. Benefits. (a) In addition to the payment of the Salary and Bonus
described above, the Employee shall be entitled to participate in any employee
benefit plans then in effect for similarly situated employees and receive any
other fringe benefits that the Company then provides to similarly situated
employees to the extent the Employee meets the eligibility requirements for any
such plan or benefit. In no event shall the employee benefits provided to the
Employee be, in the aggregate, less favorable to the Employee than the employee
benefits provided to the Employee by the
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<PAGE>
Company as of the date hereof. Stock options shall not be taken into account for
purposes of the foregoing sentence.
(b) The Company shall, during the Employment Term, provide
Employee with a leased automobile at a level and under arrangements commensurate
with the automobile provided under the Former Employment Agreement immediately
prior to the Effective Date.
(c) The Company shall, during the Employment Term, provide
long term disability coverage for the Employee providing for a benefit of at
least sixty-five (65%) of the Employee's Salary based on his own occupation or
comparable occupation level and with a waiting period of not longer than six (6)
months ("Long Term Disability Coverage"), provided such level of Long Term
Disability Coverage is obtainable on commercially reasonable terms.
(d) The Company shall, during the Employment Term, pay any
dues or other fees for the Employee's membership in the country club of which he
is a member as of the Effective Date, or such other club as is approved by the
Board. The Employee shall be responsible for any income tax due as a result of
his personal use of such country club. The Company, to the extent permitted by
law, shall not treat the Employee's business use of such country club as
compensation to him.
6. Vacations. During the Employment Term the Employee shall be entitled
to the number of paid vacation days in each calendar year determined by the
Company from time to time, but not less than four (4) weeks in any calendar
year.
7. Expenses. The Company shall reimburse the Employee in accordance
with its expense reimbursement policy as in effect from time to time for all
reasonable expenses incurred by the Employee in connection with the performance
of
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<PAGE>
his duties under this Agreement upon the presentation by the Employee of an
itemized account of such expenses and appropriate receipts.
8. Termination. The Employee's employment with the Company and the
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events:
(a) The death of the Employee ("Death").
(b) The mutual agreement between the Company and the Employee
on an early termination date.
(c) The termination of employment by the Company for Cause.
"Cause" shall mean (a) the Employee being convicted of (or pleading nolo
contendere to) a felony (other than a traffic violation); (b) the repeated
refusal of the Employee to attempt to properly perform his obligations under
this Agreement, or follow any direction of the Board consistent with this
Agreement, which in either case is not remedied within ten (10) business days
after receipt by the Employee of written notice from the Company specifying the
details thereof, provided the refusal to follow a direction shall not be Cause
if the Employee in good faith believes that such direction is not legal, ethical
or moral or not within the scope of his duties pursuant to this Agreement and
promptly notifies the Board in writing of such belief; and provided further
that, upon his request, the Employee shall be entitled to a hearing before the
Board within seven (7) business days following his receipt of written notice
from the Company; (c) the Employee's gross negligence with regard to his duties
or willful misconduct with regard to the business, assets or employees of the
Company which in either event has a material adverse effect on the Company and
its subsidiaries in the aggregate; (d) any other breach by the Employee of a
material provision of this Agreement that remains uncured for twenty (20)
business days after written notice thereof is given to the Employee or such
longer period as may reasonably
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<PAGE>
be required to remedy the default, provided that the Employee endeavors in good
faith to remedy the default; or (e) any act of fraud or misappropriation of
funds involving the Company.
(d) The termination of employment by the Company for
Disability.
(e) The termination of employment by the Company other than
for Cause, Disability or Death.
(f) The termination of the Employee's employment upon the date
specified in the written resignation of the Employee for Good Reason stating
with specificity the details of the Good Reason, if the stated Good Reason is
not cured within twenty (20) days of the giving of such notice. Notice of Good
Reason shall be given within one hundred eighty (180) days of occurrence of the
Good Reason event. "Good Reason" shall mean (a) any reduction in title or a
material reduction in authority, duties or responsibilities (except temporarily
during any period of physical or mental illness); (b) relocation of the
Company's principal place of business more than thirty (30) miles from the
Company's current principal place of business located at Woodbury, New York; or
(c) any other material breach of any provision of this Agreement by the Company.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. The Company shall not require
the Employee to make himself available to the Company pursuant to this paragraph
in any manner that will materially interfere with his then existing employment
relationship. The provisions of this paragraph shall survive termination of this
Agreement.
9. Termination Payments. (a) If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
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<PAGE>
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid to the Employee as of such date.
(b) If the Employee's termination is pursuant to Section 8(e)
or Section 8(f), the Company shall continue to pay the Employee an amount equal
to his Salary (at the rate in effect at the time of his termination of
employment) during the period commencing on the effective date of the Employee's
termination of employment and ending on the second anniversary of the Effective
Date (or the expiration of the then current Employment Term if the Agreement has
been extended pursuant to Section 1). In addition, the Company shall continue
the Employee's then current medical coverage for a period of two (2) years
following termination of the Employee's employment.
(c) If the Employee's termination is pursuant to Section 8(a),
the Company shall pay the Employee's Beneficiary (as defined below) an amount
equal to his Salary (at the rate in effect at the time of the Employee's
termination of employment) for a period of six months following the date of the
Employee's Death. For purposes of this provision, the Employee's Beneficiary
shall be the Employee's spouse; if the Employee is not married on his date of
Death, the Employee's children, per stirpes; and otherwise, the Employee's
estate.
(d) If the Employee's termination is pursuant to Section 8(d),
the Company shall continue to pay the Employee an amount equal to his Salary (at
the rate in effect at the time of his termination of employment) for a period of
six months following the effective date of the Employee's termination of
employment.
The foregoing payments upon termination shall constitute the exclusive
payments due to or in respect of the Employee upon the termination of his
employment under this Agreement, but shall have no effect on any benefits which
may be due the Employee under any plan of the Company which provides benefits
after termination of employment, other than severance pay or salary continuation
which shall be reduced by
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<PAGE>
the amount of any payment received by the Employee
following his termination pursuant to this Agreement. In the event any payments
are required to be made to the Employee pursuant to this Section 9, the Employee
shall be under no obligation to seek other employment and, in such case, there
shall be no offset against any amounts due to the Employee under this Agreement
on account of any remuneration attributable to any subsequent employment that
the Employee may obtain.
10. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and understands
that in the Employee's position with the Company, the Employee has been and will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and/or in the nature of trade secrets. The
Employee agrees that during the Employment Term and thereafter, the Employee
will keep such information confidential and not disclose such information,
either directly or indirectly, to any third person or entity without the prior
written consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this Agreement, the
Employee will promptly supply to the Company all material property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term. Any
material breach of the terms of this paragraph shall be considered Cause.
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<PAGE>
(b) Non-competition. By and in consideration of the Company's
entering into this Agreement and the Salary, Bonus and benefits to be provided
by the Company hereunder, and further in consideration of the Employee's
exposure to the proprietary information of the Company, the Employee agrees that
the Employee will not, during the Employment Term and for a period of three (3)
years thereafter (or five (5) years thereafter if he is terminated by the
Company for Cause), directly or indirectly own, manage, operate, join, control,
be employed by, or participate in the ownership, management, operation or
control of, or be connected in any manner, including but not limited to holding,
the positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, with any Competing Enterprise. For
purposes of this paragraph, the term "Competing Enterprise" shall mean any
person, corporation, partnership or other entity engaged in any Competitive
Business within a twenty-five (25) mile radius of any such business operated, or
in the pipeline to be operated (to the extent the Employee has knowledge after
due inquiry of such proposal), by the Company, Lazard Freres Real Estate
Investors LLC ("LFREI") or any affiliate of LFREI. For purposes of this
paragraph, the term "Competitive Business" shall mean assisted living,
independent living, skilled nursing facilities and continuing care retirement
centers (containing assisted living, independent living and skilled nursing
facilities in one campus). During the five years following termination of this
Agreement, upon request, the Employee shall notify the Company of the Employee's
then current employment status.
(c) Non-solicitation. During the Employment Term and for a period of
two years thereafter, the Employee shall not interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person who
at any time during the Employment Term was an employee (other than the
Employee's secretary or Raymond DioGuardi ("Mr. DioGuardi") but, with respect to
Mr. DioGuardi, only if (i)
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Mr. DioGuardi's employment with the Company shall have been terminated by the
Company giving notice to Mr. DioGuardi of its intention not to extend his
Employment Term past the second anniversary of the Effective Date (each, as
defined in the Employment Agreement, dated as of the date hereof, between the
Company and Mr. DioGuardi); and (ii) Mr. DioGuardi shall not be employed in any
Competitive Business)) or customer of the Company or otherwise had a material
business relationship with the Company.
(d) Remedies. The Employee agrees that any breach of the terms of
this Section 10 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee. The Employee and the Company
further agree that the provisions of the covenant not to compete are reasonable.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period of time, geographical
area, or otherwise, the parties hereto agree that the covenant should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable.
The provisions of this Section 10 shall survive any termination of this
Agreement and the Employment Term and the existence of any claim or cause of
action
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by the Employee against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of the covenants and agreements of this Section 10.
11. Proprietary Rights. The Employee represents and warrants that all
patents, patent applications, rights to inventions, copyright registrations and
other license, trademark and trade name rights heretofore owned by the Employee
and relating to the business of the Company or any of its subsidiaries have been
duly transferred to such corporation.
12. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms.
13. Notices. Every notice relating to this Agreement shall be in
writing and shall be given by personal delivery or by overnight courier or
registered or certified mail, postage prepaid, return receipt requested, as
follows:
(i) If to the Company
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
(i) If to the Employee
Wayne L. Kaplan
c/o Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Notices shall be considered effective when received.
14. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal
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representatives, estates, successors (including, without limitation, by way of
merger) and assigns. Notwithstanding the provisions or the immediately preceding
sentence, the Employee shall not assign all or any portion of this Agreement
without the prior written consent of the Company.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter including without limitation the Former Employment Agreement
which shall be null and void as of the date hereof, and the Employee agrees that
he is not entitled to any further benefits thereunder, including, without
limitation, benefits that would or may otherwise have been payable thereunder
upon or following the Merger. This Agreement may not be amended, nor may any
provision hereof be modified or waived, except by an instrument in writing duly
signed by the party to be charged.
16. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
the principles of conflict of laws.
18. Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions at the time
or at any prior or subsequent time.
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19. Headings. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
21. Excise Tax Limitation
(a) Notwithstanding anything contained in this Agreement to the
contrary, to the extent that any payment or distribution of any type to or for
the benefit of the Employee by the Company, any affiliate of the Company, any
person who acquires ownership or effective control of the Company or ownership
of a substantial portion of the Company's assets (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder), or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments") is or will be subject to the excise tax
imposed under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Employee retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Employee received the entire
amount of such Total Payments. Unless the Employee shall have given prior
written notice specifying a different order to the Company to effectuate the
foregoing, the Company shall reduce or eliminate the Total Payments, by first
reducing or eliminating the portion of the Total Payments which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by the Employee pursuant to
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the preceding sentence shall take precedence over the provisions of any other
plan, arrangement or agreement governing the Employee's rights and entitlements
to any benefits or compensation.
(b) The determination of whether the Total Payments shall be
reduced as provided in Section 21(a) and the amount of such reduction shall be
made at the Company's expense by an accounting firm selected by the Company from
among the six largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within ten (10) days of the
Termination Date. If the Accounting Firm determines that no Excise Tax is
payable by the Employee with respect to the Total Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee that no Excise
Tax will be imposed with respect to any such payments and, absent manifest
error, such Determination shall be binding, final and conclusive upon the
Company and the Employee. If the Accounting Firm determines that an Excise Tax
would be payable, the Employee shall have the right to accept the Determination
of the Accounting Firm as to the extent of the reduction, if any, pursuant to
Section 21(a), or to have such Determination reviewed by an accounting firm
selected by the Employee from among the six largest accounting firms in the
United States, at the expense of the Employee, in which case the determination
of such second accounting firm shall be binding, final and conclusive upon the
Company and the Employee.
22. Indemnification. During the Employment Term and thereafter, the
Company shall indemnify the Employee to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees), and advance amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted by law, in connection
with any claim, action or
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proceeding (whether civil or criminal) against the Employee as a result of the
Employee serving as an officer or director of the Company or in any capacity at
the request of the Company, in or with regard to any other entity, employee
benefit plan or enterprise (other than arising out of the employee's acts of
willful misconduct, misappropriation of funds or fraud) . This indemnification
shall be in addition to, and not in lieu of, any other indemnification the
Employee shall be entitled to pursuant to the Company's Certificate of
Incorporation or By-laws or otherwise. Following the Employee's termination of
employment, the Company shall continue to cover the Employee under the Company's
directors and officers insurance for the period during which the Employee may be
subject to potential liability for any claim, action or proceeding (whether
civil or criminal) as a result of his service as an officer or director of the
Company or in any capacity at the request of the Company, at the highest level
then maintained for any then or former officer or director.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, the day and year first above written.
Kapson Senior Quarters Corp.
By: /s/ Glenn Kaplan
----------------------------------
Name: Glenn Kaplan
Title: Chairman and Chief
Executive Officer
By: /s/ Wayne L. Kaplan
----------------------------------
Wayne L. Kaplan
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<PAGE>
EXHIBIT 11
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 23rd day of February, 1998, by and
between Kapson Senior Quarters Corp., a Delaware corporation (the "Company") and
Evan A. Kaplan (the "Employee").
WHEREAS, the Employee has been and is presently employed by the
Company; and
WHEREAS, the Employee possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
and
WHEREAS, pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of the date hereof by and among Prometheus Senior Quarters LLC
("Investor"), Prometheus Acquisition Corp. ("PAC") and the Company (the "Merger
Agreement") PAC will be merged into the Company as of the Effective Time (as
defined in the Merger Agreement); and
WHEREAS, Employee was employed pursuant to an employment agreement with
the Company dated as of September 25, 1996 (the "Former Employment Agreement")
and this Agreement as in effect prior to the date hereof superseded the Former
Employment Agreement; and
WHEREAS, the Employee is a partner of the G.W.E. Partnership which
partnership is a party to various operating agreements (the "Operating
Agreements") pursuant to which the Employee, as the holder of one or more
operating certificates has agreed to operate certain facilities of the Company;
WHEREAS, the Company desires to amend and restate this Agreement to
ensure the continued services and employment of the Employee on behalf of the
Company and the Employee is willing to render such continued services on the
terms and conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Employee and Employee hereby
agrees to be employed by the Company for the period commencing on the date on
which the Effective Time occurs (the "Effective Date") and ending on the second
anniversary of the date hereof, unless renewed or terminated sooner as
hereinafter provided (the "Employment Term"). The Employment Term shall be
automatically renewed for successive one-year terms unless either party gives
written notice to the other at least six (6) months prior to the expiration of
the then Employment Term of such party's intention that the Employment Term
shall not be so extended. The term of this Agreement shall be coincident with
the Employment Term.
2. Duties. During the Employment Term the Employee shall serve as Chief
Operating Officer of the Company or such other position as may be agreed upon by
Company and Employee and shall perform such duties, services and
responsibilities incident to such position(s) as determined from time to time by
the Board of Directors of the Company (the "Board"). The Employee also agrees to
perform such other duties, services and responsibilities which are consistent
with his position as may from time to time be reasonably requested by the Board.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his best efforts to promote the interests of the Company. The Employee will not,
without the prior written approval of the Board, engage in any other business
activity which would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established from
time to time by the Company. Notwithstanding the foregoing, the Employee shall
be entitled to: (a) serve on corporate, civic or charitable
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<PAGE>
boards or committees, (b) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (c) manage personal investments (but in
no event may the Employee own more than 5% of the shares of any publicly traded
company or entity), so long as such activities do not materially interfere with
the performance of Employee's duties or responsibilities pursuant to this
Agreement.
3. Compensation. (a) Salary. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will during the Employment Term pay the
Employee a salary (the "Salary") at an annual rate of not less than $225,000.
The Employee's salary shall be reviewed annually by the Company and shall be
increased as of the first day of each fiscal year beginning on or after January
1, 1999 by no less than the increase in the Consumer Price Index - Urban Wage
Earners (or, in the event such index is no longer published, such other index as
is determined in good faith by the Board to be comparable) from the penultimate
month prior to the beginning of the fiscal year being completed to the
penultimate month of the fiscal year being completed (as so increased,
"Salary"). The Salary will be reduced by any amounts paid to the Employee under
any of the Operating Agreements, the manner in which such reductions are to be
effected shall be determined by the Board taking into account the expected
timing of payments pursuant to the Operating Agreements .
(b) Bonus. (i) In further consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will pay the Employee an annual bonus (the
"Bonus") in respect of each fiscal year beginning on or after January 1, 1998 of
up to 100% of the Employee's Salary (the "Target Bonus"). Any bonus payable in
respect of the fiscal
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<PAGE>
year beginning January 1, 1998, shall be payable, with interest at an annual
rate equal to four percent (4%), within five (5) days following the end of the
fiscal year 1999; provided, however, that no bonus shall be payable for such
fiscal year in the event the Employee's employment with the Company shall have
been terminated by the Company for Cause (as defined below) or voluntarily by
the Employee without Good Reason (as defined below) on or prior to December 31,
1999. The actual amount paid will be determined in accordance with the following
provisions of this Section 3(b).
(ii) If the Company's actual performance for an applicable
fiscal year is at least 90% or more of the budgeted performance (as set forth in
clause (iii) below), the Employee shall be entitled to receive 100% of the
Target Bonus. If the Company's actual performance for an applicable fiscal year
is 85% or more but less than 90% of the budgeted performance, the Employee shall
be entitled to receive 50% of the Target Bonus. If the Company's actual
performance for an applicable fiscal year is less than 85% of the budgeted
performance, the Employee shall not be entitled to any portion of the Target
Bonus. Notwithstanding the foregoing, if for any fiscal year the Employee is
entitled to less than 100% of the Target Bonus, the Board, in its sole
discretion, may award the Employee with a bonus equal to all or any portion of
the amount by which the amount, if any, to which he is entitled pursuant to this
Section 3(b)(ii) is less than the Target Bonus. If the Company's actual
performance for an applicable fiscal year is greater than 95% of the budgeted
performance, the Board may in its sole discretion determine to increase the
Employee's Bonus to an amount greater than 100% of the Target Bonus.
(iii) For purposes of this Section 3(b), the
budget for each of the fiscal years beginning January 1, 1998 and 1999 is set
forth on Appendix A hereto. The budget for any future fiscal year shall be
established by the Board in a manner
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<PAGE>
consistent with past practice. It is understood that the budget is prepared on a
property by property basis but that the Company's actual performance versus
budgeted performance is to be measured on an overall basis. If during any fiscal
year new properties are acquired or development is commenced with respect to any
new properties not contemplated by the budget, appropriate adjustments to the
budget as established pursuant to this Section 3(b)(iii) will be made by the
Board.
(iv) The Employee's Salary and any bonus shall be payable in
accordance with the normal payroll practices of the Company then in effect and
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state or local law. The Employee shall be solely responsible for
taxes imposed on the Employee by reason of any compensation and benefits
provided hereunder.
4. Disability. If the Employee is unable to substantially perform his
duties, services and responsibilities hereunder by reason of a physical or
mental infirmity for a total of 180 calendar days in any twelve-month period
during the Employment Term ("Disability"), the Company shall not be obligated to
pay the Employee any Salary or Bonus for any period of absence in excess of such
180 calendar days.
5. Benefits. (a) In addition to the payment of the Salary and Bonus
described above, the Employee shall be entitled to participate in any employee
benefit plans then in effect for similarly situated employees and receive any
other fringe benefits that the Company then provides to similarly situated
employees to the extent the Employee meets the eligibility requirements for any
such plan or benefit. In no event shall the employee benefits provided to the
Employee be, in the aggregate, less favorable to the Employee than the employee
benefits provided to the Employee by the
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<PAGE>
Company as of the date hereof. Stock options shall not be taken into account for
purposes of the foregoing sentence.
(b) The Company shall, during the Employment Term, provide Employee
with a leased automobile at a level and under arrangements commensurate with the
automobile provided under the Former Employment Agreement immediately prior to
the Effective Date.
(c) The Company shall, during the Employment Term, provide long
term disability coverage for the Employee providing for a benefit of at least
sixty-five (65%) of the Employee's Salary based on his own occupation or
comparable occupation level and with a waiting period of not longer than six (6)
months ("Long Term Disability Coverage"), provided such level of Long Term
Disability Coverage is obtainable on commercially reasonable terms.
(d) The Company shall, during the Employment Term, pay any dues or
other fees for the Employee's membership in the country club of which he is a
member as of the Effective Date, or such other club as is approved by the Board.
The Employee shall be responsible for any income tax due as a result of his
personal use of such country club. The Company, to the extent permitted by law,
shall not treat the Employee's business use of such country club as compensation
to him.
6. Vacations. During the Employment Term the Employee shall be entitled
to the number of paid vacation days in each calendar year determined by the
Company from time to time, but not less than four (4) weeks in any calendar
year.
7. Expenses. The Company shall reimburse the Employee in accordance
with its expense reimbursement policy as in effect from time to time for all
reasonable expenses incurred by the Employee in connection with the performance
of
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<PAGE>
his duties under this Agreement upon the presentation by the Employee of an
itemized account of such expenses and appropriate receipts.
8. Termination. The Employee's employment with the Company and the
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events:
(a) The death of the Employee ("Death").
(b) The mutual agreement between the Company and the Employee on an
early termination date.
(c) The termination of employment by the Company for Cause. "Cause"
shall mean (a) the Employee being convicted of (or pleading nolo contendere to)
a felony (other than a traffic violation); (b) the repeated refusal of the
Employee to attempt to properly perform his obligations under this Agreement, or
follow any direction of the Board consistent with this Agreement, which in
either case is not remedied within ten (10) business days after receipt by the
Employee of written notice from the Company specifying the details thereof,
provided the refusal to follow a direction shall not be Cause if the Employee in
good faith believes that such direction is not legal, ethical or moral or not
within the scope of his duties pursuant to this Agreement and promptly notifies
the Board in writing of such belief; and provided further that, upon his
request, the Employee shall be entitled to a hearing before the Board within
seven (7) business days following his receipt of written notice from the
Company; (c) the Employee's gross negligence with regard to his duties or
willful misconduct with regard to the business, assets or employees of the
Company which in either event has a material adverse effect on the Company and
its subsidiaries in the aggregate; (d) any other breach by the Employee of a
material provision of this Agreement that remains uncured for twenty (20)
business days after written notice thereof is given to the Employee or such
longer period as may reasonably
-7-
<PAGE>
be required to remedy the default, provided that the Employee endeavors in good
faith to remedy the default; or (e) any act of fraud or misappropriation of
funds involving the Company.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for
Cause, Disability or Death.
(f) The termination of the Employee's employment upon the date
specified in the written resignation of the Employee for Good Reason stating
with specificity the details of the Good Reason, if the stated Good Reason is
not cured within twenty (20) days of the giving of such notice. Notice of Good
Reason shall be given within one hundred eighty (180) days of occurrence of the
Good Reason event. "Good Reason" shall mean (a) any reduction in title or a
material reduction in authority, duties or responsibilities (except temporarily
during any period of physical or mental illness); (b) failure to elect the
Employee to the Board of Directors; (c) relocation of the Company's principal
place of business more than thirty (30) miles from the Company's current
principal place of business located at Woodbury, New York; or (d) any other
material breach of any provision of this Agreement by the Company.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. The Company shall not require
the Employee to make himself available to the Company pursuant to this paragraph
in any manner that will materially interfere with his then existing employment
relationship. The provisions of this paragraph shall survive termination of this
Agreement.
-8-
<PAGE>
9. Termination Payments. (a) If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid to the Employee as of such date.
(b) If the Employee's termination is pursuant to Section 8(e) or
Section 8(f), the Company shall continue to pay the Employee an amount equal to
his Salary (at the rate in effect at the time of his termination of employment)
during the period commencing on the effective date of the Employee's termination
of employment and ending on the second anniversary of the Effective Date (or the
expiration of the then current Employment Term if the Agreement has been
extended pursuant to Section 1). In addition, the Company shall continue the
Employee's then current medical coverage for a period of two (2) years following
termination of the Employee's employment.
(c) If the Employee's termination is pursuant to Section 8(a), the
Company shall pay the Employee's Beneficiary (as defined below) an amount equal
to his Salary (at the rate in effect at the time of the Employee's termination
of employment) for a period of six months following the date of the Employee's
Death. For purposes of this provision, the Employee's Beneficiary shall be the
Employee's spouse; if the Employee is not married on his date of Death, the
Employee's children, per stirpes; and otherwise, the Employee's estate.
(d) If the Employee's termination is pursuant to Section 8(d), the
Company shall continue to pay the Employee an amount equal to his Salary (at the
rate in effect at the time of his termination of employment) for a period of six
months following the effective date of the Employee's termination of employment.
The foregoing payments upon termination shall constitute the exclusive
payments due to or in respect of the Employee upon the termination of his
employment under this Agreement, but shall have no effect on any benefits which
may be due the
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<PAGE>
Employee under any plan of the Company which provides benefits after termination
of employment, other than severance pay or salary continuation which shall be
reduced by the amount of any payment received by the Employee following his
termination pursuant to this Agreement. In the event any payments are required
to be made to the Employee pursuant to this Section 9, the Employee shall be
under no obligation to seek other employment and, in such case, there shall be
no offset against any amounts due to the Employee under this Agreement on
account of any remuneration attributable to any subsequent employment that the
Employee may obtain.
10. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and understands
that in the Employee's position with the Company, the Employee has been and will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and/or in the nature of trade secrets. The
Employee agrees that during the Employment Term and thereafter, the Employee
will keep such information confidential and not disclose such information,
either directly or indirectly, to any third person or entity without the prior
written consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this Agreement, the
Employee will promptly supply to the Company all material property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the
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<PAGE>
Employee during or prior to the Employment Term. Any material breach of the
terms of this paragraph shall be considered Cause.
(b) Non-competition. By and in consideration of the Company's
entering into this Agreement and the Salary, Bonus and benefits to be provided
by the Company hereunder, and further in consideration of the Employee's
exposure to the proprietary information of the Company, the Employee agrees that
the Employee will not, during the Employment Term and for a period of three (3)
years thereafter (or five (5) years thereafter if he is terminated by the
Company for Cause), directly or indirectly own, manage, operate, join, control,
be employed by, or participate in the ownership, management, operation or
control of, or be connected in any manner, including but not limited to holding,
the positions of shareholder, director, officer, consultant, independent
contractor, employee, partner, or investor, with any Competing Enterprise. For
purposes of this paragraph, the term "Competing Enterprise" shall mean any
person, corporation, partnership or other entity engaged in any Competitive
Business within a twenty-five (25) mile radius of any such business operated, or
in the pipeline to be operated (to the extent the Employee has knowledge after
due inquiry of such proposal), by the Company, Lazard Freres Real Estate
Investors LLC ("LFREI") or any affiliate of LFREI. For purposes of this
paragraph, the term "Competitive Business" shall mean assisted living,
independent living, skilled nursing facilities and continuing care retirement
centers (containing assisted living, independent living and skilled nursing
facilities in one campus). During the five years following termination of this
Agreement, upon request, the Employee shall notify the Company of the Employee's
then current employment status.
(c) Non-solicitation. During the Employment Term and for a period
of two years thereafter, the Employee shall not interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person who
at any
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<PAGE>
time during the Employment Term was an employee (other than the Employee's
secretary or Raymond DioGuardi ("Mr. DioGuardi") but, with respect to Mr.
DioGuardi, only if (i) Mr. DioGuardi's employment with the Company shall have
been terminated by the Company giving notice to Mr. DioGuardi of its intention
not to extend his Employment Term past the second anniversary of the Effective
Date (each, as defined in the Employment Agreement, dated as of the date hereof,
between the Company and Mr. DioGuardi); and (ii) Mr. DioGuardi shall not be
employed in any Competitive Business) or customer of the Company or otherwise
had a material business relationship with the Company.
(d) Remedies. The Employee agrees that any breach of the terms of
this Section 10 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee. The Employee and the Company
further agree that the provisions of the covenant not to compete are reasonable.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period of time, geographical
area, or otherwise, the parties hereto agree that the covenant should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable.
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<PAGE>
The provisions of this Section 10 shall survive any termination of this
Agreement and the Employment Term and the existence of any claim or cause of
action by the Employee against the Company, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of the covenants and agreements of this Section 10.
11. Proprietary Rights. The Employee represents and warrants that all
patents, patent applications, rights to inventions, copyright registrations and
other license, trademark and trade name rights heretofore owned by the Employee
and relating to the business of the Company or any of its subsidiaries have been
duly transferred to such corporation.
12. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms.
13. Notices. Every notice relating to this Agreement shall be in
writing and shall be given by personal delivery or by overnight courier or
registered or certified mail, postage prepaid, return receipt requested, as
follows:
(i) If to the Company
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
(i) If to the Employee
Evan A. Kaplan
c/o Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Notices shall be considered effective when received.
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<PAGE>
14. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions or the
immediately preceding sentence, the Employee shall not assign all or any portion
of this Agreement without the prior written consent of the Company.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter including without limitation the Former Employment Agreement
which shall be null and void as of the date hereof, and the Employee agrees that
he is not entitled to any further benefits thereunder, including, without
limitation, benefits that would or may otherwise have been payable thereunder
upon or following the Merger. This Agreement may not be amended, nor may any
provision hereof be modified or waived, except by an instrument in writing duly
signed by the party to be charged.
16. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
the principles of conflict of laws.
18. Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any
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<PAGE>
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions at the time or at any prior or
subsequent time.
19. Headings. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
21. Excise Tax Limitation
(a) Notwithstanding anything contained in this Agreement to the
contrary, to the extent that any payment or distribution of any type to or for
the benefit of the Employee by the Company, any affiliate of the Company, any
person who acquires ownership or effective control of the Company or ownership
of a substantial portion of the Company's assets (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder), or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments") is or will be subject to the excise tax
imposed under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Employee retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Employee received the entire
amount of such Total Payments. Unless the Employee shall have given prior
written notice specifying a different order to the Company to effectuate the
foregoing, the Company shall reduce or eliminate the Total Payments, by first
reducing or eliminating the portion of the Total Payments which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order
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<PAGE>
beginning with payments or benefits which are to be paid the farthest in time
from the Determination (as hereinafter defined). Any notice given by the
Employee pursuant to the preceding sentence shall take precedence over the
provisions of any other plan, arrangement or agreement governing the Employee's
rights and entitlements to any benefits or compensation.
(b) The determination of whether the Total Payments shall be
reduced as provided in Section 21(a) and the amount of such reduction shall be
made at the Company's expense by an accounting firm selected by the Company from
among the six largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within ten (10) days of the
Termination Date. If the Accounting Firm determines that no Excise Tax is
payable by the Employee with respect to the Total Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee that no Excise
Tax will be imposed with respect to any such payments and, absent manifest
error, such Determination shall be binding, final and conclusive upon the
Company and the Employee. If the Accounting Firm determines that an Excise Tax
would be payable, the Employee shall have the right to accept the Determination
of the Accounting Firm as to the extent of the reduction, if any, pursuant to
Section 21(a), or to have such Determination reviewed by an accounting firm
selected by the Employee from among the six largest accounting firms in the
United States, at the expense of the Employee, in which case the determination
of such second accounting firm shall be binding, final and conclusive upon the
Company and the Employee.
22. Indemnification. During the Employment Term and thereafter, the
Company shall indemnify the Employee to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including
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<PAGE>
attorneys' fees), and advance amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted by law, in connection with any
claim, action or proceeding (whether civil or criminal) against the Employee as
a result of the Employee serving as an officer or director of the Company or in
any capacity at the request of the Company, in or with regard to any other
entity, employee benefit plan or enterprise (other than arising out the
employee's acts of willful misconduct, misappropriation of funds or fraud). This
indemnification shall be in addition to, and not in lieu of, any other
indemnification the Employee shall be entitled to pursuant to the Company's
Certificate of Incorporation or By-laws or otherwise. Following the Employee's
termination of employment, the Company shall continue to cover the Employee
under the Company's directors and officers insurance for the period during which
the Employee may be subject to potential liability for any claim, action or
proceeding (whether civil or criminal) as a result of his service as an officer
or director of the Company or in any capacity at the request of the Company, at
the highest level then maintained for any then or former officer or director.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, the day and year first above written.
Kapson Senior Quarters Corp.
By: /s/ Glenn Kaplan
-------------------------------------
Name: Glenn Kaplan
Title: Chairman and
Chief Executive Officer
By: /s/ Evan A. Kaplan
------------------------------------
Evan A. Kaplan
<PAGE>
EXHIBIT 12
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 23rd day of February, 1998, by and between
Kapson Senior Quarters Corp., a Delaware corporation (the "Company") and Raymond
DioGuardi (the "Employee").
WHEREAS, the Employee has been and is presently employed by the
Company; and
WHEREAS, the Employee possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
and
WHEREAS, pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of the date hereof by and among Prometheus Senior Quarters LLC
("Investor"), Prometheus Acquisition Corp. ("PAC") and the Company (the "Merger
Agreement") PAC will be merged into the Company as of the Effective Time (as
defined in the Merger Agreement); and
WHEREAS, Employee was employed pursuant to an employment agreement with
the Company dated as of ____________, 199_ (the "Former Employment Agreement")
and this Agreement as in effect prior to the date hereof superseded the Former
Employment Agreement; and
WHEREAS, the Company desires to amend and restate this Agreement to
ensure the continued services and employment of the Employee on behalf of the
Company and the Employee is willing to render such continued services on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Employee and Employee hereby
<PAGE>
agrees to be employed by the Company for the period commencing on the date on
which the Effective Time occurs (the "Effective Date") and ending on the second
anniversary of the date hereof, unless renewed or terminated sooner as
hereinafter provided (the "Employment Term"). The Employment Term shall be
automatically renewed for successive one-year terms unless either party gives
written notice to the other at least six (6) months prior to the expiration of
the then Employment Term of such party's intention that the Employment Term
shall not be so extended. The term of this Agreement shall be coincident with
the Employment Term.
2. Duties. During the Employment Term the Employee shall serve as Chief
Financial Officer of the Company or such other position as may be agreed upon by
Company and Employee and shall perform such duties, services and
responsibilities incident to such position(s) as determined from time to time by
the Board of Directors of the Company (the "Board"). The Employee also agrees to
perform such other duties, services and responsibilities which are consistent
with his position as may from time to time be reasonably requested by the Board.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his best efforts to promote the interests of the Company. The Employee will not,
without the prior written approval of the Board, engage in any other business
activity which would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established from
time to time by the Company. Notwithstanding the foregoing, the Employee shall
be entitled to: (a) serve on corporate, civic or charitable boards or
committees, (b) deliver lectures, fulfill speaking engagements or teach at
educational institutions, and (c) manage personal investments (but in no event
may the Employee own more than 5% of the shares of any publicly traded company
or entity), so
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long as such activities do not materially interfere with the performance of
Employee's duties or responsibilities pursuant to this Agreement.
3. Compensation. (a) Salary. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will during the Employment Term pay the
Employee a salary (the "Salary") at an annual rate of not less than $175,000.
The Employee's salary shall be reviewed annually by the Company and shall be
increased as of the first day of each fiscal year beginning on or after January
1, 1999 by no less than the increase in the Consumer Price Index - Urban Wage
Earners (or, in the event such index is no longer published, such other index as
is determined in good faith by the Board to be comparable) from the penultimate
month prior to the beginning of the fiscal year being completed to the
penultimate month of the fiscal year being completed (as so increased,
"Salary"). The Salary will be reduced by any amounts paid to the Employee under
any of the Operating Agreements, the manner in which such reductions are to be
effected shall be determined by the Board taking into account the expected
timing of payments pursuant to the Operating Agreements .
(b) Bonus. (i) In further consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee, member of any committee of the
Company, or otherwise), the Company will pay the Employee an annual bonus (the
"Bonus") in respect of each fiscal year beginning on or after January 1, 1998 of
up to 50% of the Employee's Salary (the "Target Bonus"). The actual amount paid
will be determined in accordance with the following provisions of this Section
3(b).
(ii) If the Company's actual performance for an applicable
fiscal year is at least 90% or more of the budgeted performance (as set forth in
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clause (iii) below), the Employee shall be entitled to receive 100% of the
Target Bonus. If the Company's actual performance for an applicable fiscal year
is 85% or more but less than 90% of the budgeted performance, the Employee shall
be entitled to receive 75% of the Target Bonus. If the Company's actual
performance for an applicable fiscal year is less than 85% of the budgeted
performance, the Employee shall not be entitled to any portion of the Target
Bonus. Notwithstanding the foregoing, if for any fiscal year the Employee is
entitled to less than 100% of the Target Bonus, the Board, in its sole
discretion, may award the Employee with a bonus equal to all or any portion of
the amount by which the amount, if any, to which he is entitled pursuant to this
Section 3(b)(ii) is less than the Target Bonus. If the Company's actual
performance for an applicable fiscal year is greater than 95% of the budgeted
performance, the Board may in its sole discretion determine to increase the
Employee's Bonus to an amount greater than 100% of the Target Bonus.
(iii) For purposes of this Section 3(b), the budget for each
of the fiscal years beginning January 1, 1998 and 1999 is set forth on Appendix
A hereto. The budget for any future fiscal year shall be established by the
Board in a manner consistent with past practice. It is understood that the
budget is prepared on a property by property basis but that the Company's actual
performance versus budgeted performance is to be measured on an overall basis.
If during any fiscal year new properties are acquired or development is
commenced with respect to any new properties not contemplated by the budget,
appropriate adjustments to the budget as established pursuant to this Section
3(b)(iii) will be made by the Board.
(iv) The Employee's Salary and any bonus shall be payable in
accordance with the normal payroll practices of the Company then in effect and
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state
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or local law. The Employee shall be solely responsible for taxes imposed on the
Employee by reason of any compensation and benefits provided hereunder.
4. Disability. If the Employee is unable to substantially perform his
duties, services and responsibilities hereunder by reason of a physical or
mental infirmity for a total of 180 calendar days in any twelve-month period
during the Employment Term ("Disability"), the Company shall not be obligated to
pay the Employee any Salary or Bonus for any period of absence in excess of such
180 calendar days.
5. Benefits. (a) In addition to the payment of the Salary and Bonus
described above, the Employee shall be entitled to participate in any employee
benefit plans then in effect for similarly situated employees and receive any
other fringe benefits that the Company then provides to similarly situated
employees to the extent the Employee meets the eligibility requirements for any
such plan or benefit. In no event shall the employee benefits provided to the
Employee be, in the aggregate, less favorable to the Employee than the employee
benefits provided to the Employee by the Company as of the date hereof. Stock
options shall not be taken into account for purposes of the foregoing sentence.
(b) The Company shall, during the Employment Term, provide Employee
with a leased automobile at a level and under arrangements commensurate with the
automobile provided under the Former Employment Agreement immediately prior to
the Effective Date.
(c) The Company shall, during the Employment Term, provide long
term disability coverage for the Employee providing for a benefit of at least
sixty-five (65%) of the Employee's Salary based on his own occupation or
comparable
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occupation level and with a waiting period of not longer than six (6) months
("Long Term Disability Coverage"), provided such level of Long Term Disability
Coverage is obtainable on commercially reasonable terms.
(d) The Company shall, during the Employment Term, pay any dues or
other fees for the Employee's membership in the country club of which he is a
member as of the Effective Date, or such other club as is approved by the Board.
The Employee shall be responsible for any income tax due as a result of his
personal use of such country club. The Company, to the extent permitted by law,
shall not treat the Employee's business use of such country club as compensation
to him.
6. Vacations. During the Employment Term the Employee shall be entitled
to the number of paid vacation days in each calendar year determined by the
Company from time to time, but not less than four (4) weeks in any calendar
year.
7. Expenses. The Company shall reimburse the Employee in accordance
with its expense reimbursement policy as in effect from time to time for all
reasonable expenses incurred by the Employee in connection with the performance
of his duties under this Agreement upon the presentation by the Employee of an
itemized account of such expenses and appropriate receipts.
8. Termination. The Employee's employment with the Company and the
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events:
(a) The death of the Employee ("Death").
(b) The mutual agreement between the Company and the Employee on an
early termination date.
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<PAGE>
(c) The termination of employment by the Company for Cause. "Cause"
shall mean (a) the Employee being convicted of (or pleading nolo contendere to)
a felony (other than a traffic violation); (b) the repeated refusal of the
Employee to attempt to properly perform his obligations under this Agreement, or
follow any direction of the Board consistent with this Agreement, which in
either case is not remedied within ten (10) business days after receipt by the
Employee of written notice from the Company specifying the details thereof,
provided the refusal to follow a direction shall not be Cause if the Employee in
good faith believes that such direction is not legal, ethical or moral or not
within the scope of his duties pursuant to this Agreement and promptly notifies
the Board in writing of such belief; and provided further that, upon his
request, the Employee shall be entitled to a hearing before the Board within
seven (7) business days following his receipt of written notice from the
Company; (c) the Employee's gross negligence with regard to his duties or
willful misconduct with regard to the business, assets or employees of the
Company which in either event has a material adverse effect on the Company and
its subsidiaries in the aggregate; (d) any other breach by the Employee of a
material provision of this Agreement that remains uncured for twenty (20)
business days after written notice thereof is given to the Employee or such
longer period as may reasonably be required to remedy the default, provided that
the Employee endeavors in good faith to remedy the default; or (e) any act of
fraud or misappropriation of funds involving the Company.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for
Cause, Disability or Death.
(f) The termination of the Employee's employment upon the date
specified in the written resignation of the Employee for Good Reason stating
with specificity the details of the Good Reason, if the stated Good Reason is
not cured within
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<PAGE>
twenty (20) days of the giving of such notice. Notice of Good Reason shall be
given within one hundred eighty (180) days of occurrence of the Good Reason
event. "Good Reason" shall mean (a) any reduction in title or a material
reduction in authority, duties or responsibilities (except temporarily during
any period of physical or mental illness); (b) relocation of the Company's
principal place of business more than thirty (30) miles from the Company's
current principal place of business located at Woodbury, New York; or (c) any
other material breach of any provision of this Agreement by the Company.
In the event of termination of this Agreement, for whatever reason, the
Employee agrees to cooperate with the Company and to be reasonably available to
the Company with respect to continuing and/or future matters arising out of the
Employee's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise. The Company shall not require
the Employee to make himself available to the Company pursuant to this paragraph
in any manner that will materially interfere with his then existing employment
relationship. The provisions of this paragraph shall survive termination of this
Agreement.
9. Termination Payments. (a) If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid to the Employee as of such date.
(b) If the Employee's termination is pursuant to Section 8(e) or
Section 8(f), the Company shall continue to pay the Employee an amount equal to
his Salary (at the rate in effect at the time of his termination of employment)
during the period commencing on the effective date of the Employee's termination
of employment and ending on the second anniversary of the Effective Date (or the
expiration of the then current Employment Term if the Agreement has been
extended pursuant to Section 1). In
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<PAGE>
addition, the Company shall continue the Employee's then current medical
coverage for a period of two (2) years following termination of the Employee's
employment.
(c) If the Employee's termination is pursuant to Section 8(a), the
Company shall pay the Employee's Beneficiary (as defined below) an amount equal
to his Salary (at the rate in effect at the time of the Employee's termination
of employment) for a period of six months following the date of the Employee's
Death. For purposes of this provision, the Employee's Beneficiary shall be the
Employee's spouse; if the Employee is not married on his date of Death, the
Employee's children, per stirpes; and otherwise, the Employee's estate.
(d) If the Employee's termination is pursuant to Section 8(d), the
Company shall continue to pay the Employee an amount equal to his Salary (at the
rate in effect at the time of his termination of employment) for a period of six
months following the effective date of the Employee's termination of employment.
The foregoing payments upon termination shall constitute the exclusive
payments due to or in respect of the Employee upon the termination of his
employment under this Agreement, but shall have no effect on any benefits which
may be due the Employee under any plan of the Company which provides benefits
after termination of employment, other than severance pay or salary continuation
which shall be reduced by the amount of any payment received by the Employee
following his termination pursuant to this Agreement. In the event any payments
are required to be made to the Employee pursuant to this Section 9, the Employee
shall be under no obligation to seek other employment and, in such case, there
shall be no offset against any amounts due to the Employee under this Agreement
on account of any remuneration attributable to any subsequent employment that
the Employee may obtain.
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<PAGE>
10. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and understands
that in the Employee's position with the Company, the Employee has been and will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and/or in the nature of trade secrets. The
Employee agrees that during the Employment Term and thereafter, the Employee
will keep such information confidential and not disclose such information,
either directly or indirectly, to any third person or entity without the prior
written consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this Agreement, the
Employee will promptly supply to the Company all material property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term. Any
material breach of the terms of this paragraph shall be considered Cause.
(b) Non-competition. By and in consideration of the Company's
entering into this Agreement and the Salary, Bonus and benefits to be provided
by the Company hereunder, and further in consideration of the Employee's
exposure to the proprietary information of the Company, the Employee agrees that
the Employee will not, during the Employment Term and for a period of three (3)
years thereafter (or five (5) years thereafter if he is terminated by the
Company for Cause), directly or indirectly own, manage, operate, join, control,
be employed by, or participate in the ownership,
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management, operation or control of, or be connected in any manner, including
but not limited to holding, the positions of shareholder, director, officer,
consultant, independent contractor, employee, partner, or investor, with any
Competing Enterprise; provided, however, in the event the Employee's employment
with the Company shall have been terminated by the Employee giving notice to the
Company of his intention not to extend the Employment Term past the second
anniversary of the Effective Date, this Section 10(b) shall not prohibit the
Employee from accepting the position of "Chief Financial Officer" with any
Competing Enterprise but only if such position is equivalent in all respects to
the Employee's position with the Company including, without limitation, the
Employee's responsibilities and duties provided under this Agreement; provided,
further, in the event the Employee's employment with the Company shall have been
terminated by the Company giving notice to the Employee of its intention not to
extend the Employment Term past the second anniversary of the Effective Date,
this Section 10(b) shall be of no force and effect as of the expiration of the
Employment Term. For purposes of this paragraph, the term "Competing Enterprise"
shall mean any person, corporation, partnership or other entity engaged in any
Competitive Business within a twenty-five (25) mile radius of any such business
operated, or in the pipeline to be operated (to the extent the Employee has
knowledge after due inquiry of such proposal), by the Company, Lazard Freres
Real Estate Investors LLC ("LFREI") or any affiliate of LFREI. For purposes of
this paragraph, the term "Competitive Business" shall mean assisted living,
independent living, skilled nursing facilities and continuing care retirement
centers (containing assisted living, independent living and skilled nursing
facilities in one campus). During the five years following termination of this
Agreement, upon request, the Employee shall notify the Company of the Employee's
then current employment status.
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(c) Non-solicitation. During the Employment Term and for a period
of two years thereafter, the Employee shall not interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person who
at any time during the Employment Term was an employee (other than the
Employee's secretary) or customer of the Company or otherwise had a material
business relationship with the Company.
(d) Remedies. The Employee agrees that any breach of the terms of
this Section 10 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Employee and/or any and all persons and/or entities acting for and/or with the
Employee, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Employee. The Employee and the Company
further agree that the provisions of the covenant not to compete are reasonable.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period of time, geographical
area, or otherwise, the parties hereto agree that the covenant should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable.
The provisions of this Section 10 shall survive any termination of this
Agreement and the Employment Term and the existence of any claim or cause of
action by the Employee against the Company, whether predicated on this Agreement
or
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otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 10.
11. Proprietary Rights. The Employee represents and warrants that all
patents, patent applications, rights to inventions, copyright registrations and
other license, trademark and trade name rights heretofore owned by the Employee
and relating to the business of the Company or any of its subsidiaries have been
duly transferred to such corporation.
12. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms.
13. Notices. Every notice relating to this Agreement shall be in
writing and shall be given by personal delivery or by overnight courier or
registered or certified mail, postage prepaid, return receipt requested, as
follows:
(i) If to the Company
Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
(i) If to the Employee
Raymond DioGuardi
c/o Kapson Senior Quarters Corp.
125 Froelich Farm Blvd.
Woodbury, New York 11797
Notices shall be considered effective when received.
14. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal
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representatives, estates, successors (including, without limitation, by way of
merger) and assigns. Notwithstanding the provisions or the immediately preceding
sentence, the Employee shall not assign all or any portion of this Agreement
without the prior written consent of the Company.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter including without limitation the Former Employment Agreement
which shall be null and void as of the date hereof, and the Employee agrees that
he is not entitled to any further benefits thereunder, including, without
limitation, benefits that would or may otherwise have been payable thereunder
upon or following the Merger. This Agreement may not be amended, nor may any
provision hereof be modified or waived, except by an instrument in writing duly
signed by the party to be charged.
16. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
the principles of conflict of laws.
18. Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions at the time
or at any prior or subsequent time.
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19. Headings. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
21. Excise Tax Limitation
(a) Notwithstanding anything contained in this Agreement to the
contrary, to the extent that any payment or distribution of any type to or for
the benefit of the Employee by the Company, any affiliate of the Company, any
person who acquires ownership or effective control of the Company or ownership
of a substantial portion of the Company's assets (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder), or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments") is or will be subject to the excise tax
imposed under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Employee retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Employee received the entire
amount of such Total Payments. Unless the Employee shall have given prior
written notice specifying a different order to the Company to effectuate the
foregoing, the Company shall reduce or eliminate the Total Payments, by first
reducing or eliminating the portion of the Total Payments which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by the Employee pursuant to
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the preceding sentence shall take precedence over the provisions of any other
plan, arrangement or agreement governing the Employee's rights and entitlements
to any benefits or compensation.
(b) The determination of whether the Total Payments shall be
reduced as provided in Section 21(a) and the amount of such reduction shall be
made at the Company's expense by an accounting firm selected by the Company from
among the six largest accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and the Employee within ten (10) days of the
Termination Date. If the Accounting Firm determines that no Excise Tax is
payable by the Employee with respect to the Total Payments, it shall furnish the
Employee with an opinion reasonably acceptable to the Employee that no Excise
Tax will be imposed with respect to any such payments and, absent manifest
error, such Determination shall be binding, final and conclusive upon the
Company and the Employee. If the Accounting Firm determines that an Excise Tax
would be payable, the Employee shall have the right to accept the Determination
of the Accounting Firm as to the extent of the reduction, if any, pursuant to
Section 21(a), or to have such Determination reviewed by an accounting firm
selected by the Employee from among the six largest accounting firms in the
United States, at the expense of the Employee, in which case the determination
of such second accounting firm shall be binding, final and conclusive upon the
Company and the Employee.
22. Indemnification. During the Employment Term and thereafter, the
Company shall indemnify the Employee to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees), and advance amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted by law, in connection
with any claim, action or
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proceeding (whether civil or criminal) against the Employee as a result of the
Employee serving as an officer or director of the Company or in any capacity at
the request of the Company, in or with regard to any other entity, employee
benefit plan or enterprise (other than arising out of the employee's acts of
willful misconduct, misappropriation of funds or fraud) . This indemnification
shall be in addition to, and not in lieu of, any other indemnification the
Employee shall be entitled to pursuant to the Company's Certificate of
Incorporation or By-laws or otherwise. Following the Employee's termination of
employment, the Company shall continue to cover the Employee under the Company's
directors and officers insurance for the period during which the Employee may be
subject to potential liability for any claim, action or proceeding (whether
civil or criminal) as a result of his service as an officer or director of the
Company or in any capacity at the request of the Company, at the highest level
then maintained for any then or former officer or director.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, the day and year first above written.
Kapson Senior Quarters Corp.
By: /s/ Glenn Kaplan
-------------------------------------
Name: Glenn Kaplan
Title: Chairman and
Chief Executive Officer
By: /s/ Raymond DioGuardi
-------------------------------------
Raymond DioGuardi
<PAGE>
EXHIBIT 13
THE AMENDED AND RESTATED ESCROW AGREEMENT
This Amended and Restated Escrow Agreement (this "Agreement") is dated
as of February 23, 1998, by and among Prometheus Senior Quarters, LLC (the
"Parent"), Prometheus Acquisition Corp. (the "Merging Corporation"), Kapson
Senior Quarters Corp. (the "Company"), Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan, d/b/a G.W.E. Partnership, (each, a "Partner", and collectively, the
"Partners") and Harris Trust and Savings Bank, an Illinois banking corporation
(the "Escrow Agent").
RECITALS
WHEREAS, Parent, Merging Corporation, Company, Partners and Escrow
Agent (collectively, the "Parties") entered into that certain Escrow Agreement,
dated as of September 30, 1997 (the "Prior Escrow Agreement") relating to an
Agreement and Plan of Merger, dated as of September 30, 1997 among Parent,
Merging Corporation and Company (the "Merger Agreement"), pursuant to which the
Merging Corporation was to merge with and into Company (the "Merger");
WHEREAS, Parent, Merging Corporation and Company amended and restated
the Merger Agreement as of February 23, 1998 (the "Restated Merger Agreement")
to provide for a tender offer by Merging Corporation for all of the outstanding
shares of Common Stock, par value $.0l per share and $2.00 convertible
exchangeable preferred stock of the Company;
WHEREAS, the Parties contemplate establishing an escrow to give Company
recourse in the event that the Partners or any Partner licensed to operate any
facility (each a "Facility" and collectively, the "Facilities") listed on
Exhibit A hereto, incorporated herein by this reference (but including only the
licensed portion of each facility if the entire facility is not licensed), were
to lose their or his operating certificate or cause any Facility to be without a
licensed operator (to the extent, for Facilities that have not yet received such
certificates, that such operating certificates were obtained) due to a breach by
any of the Partners of his respective obligations (a "License Loss Breach")
under (i) an employment agreement with the Company, (ii) any Management
Agreement relating to a Facility, (iii) the Operating Agreement relating to a
Facility, or (iv) the Letter Agreement, dated as of September 30, 1997, as
amended and restated as of February 23, 1998, from Kapson Senior Quarters Corp.
to Prometheus Senior Quarters, LLC and Prometheus Acquisition Corp. (the "Escrow
Side Letter" and collectively, the "Ancillary Agreements");
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein, the Parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Restated Merger
Agreement.
<PAGE>
2. APPOINTMENT OF ESCROW AGENT. Parent, Merging Corporation, Company
and Partners hereby appoint the Escrow Agent as the escrow agent under this
Agreement, and the Escrow Agent hereby accepts such appointment.
3. COMPENSATION. Parent shall compensate the Escrow Agent for its
services hereunder in an amount as is reasonable and customary for such
services.
4. ESTABLISHMENT OF ESCROW. The Parties agree that $6,000,000 of funds
(the "Consideration") relating to the acquisition by Parent of shares of Common
Stock of the Company from or controlled by the Partners (the "Shares") shall be
deposited into escrow so that the Escrow Agent may carry out the terms and
conditions of this Agreement. Simultaneously with the execution hereof the
Partners shall give the irrevocable instructions in the form set forth as
Exhibit B hereto, incorporated herein by this reference (the "Instructions") to
the Paying Agent (as defined in the Restated Merger Agreement) that the Paying
Agent shall transfer $6,000,000 in consideration for the Shares to the Escrow
Agent in the event that the Partners tender the Shares to Parent pursuant to the
Second Amended and Restated Stockholders Agreement dated as of February 23, 1998
between Parent and the Partners (the "Stockholders Agreement"). In the event
that (a) the Paying Agent does not obtain Shares sufficient to provide at least
$6,000,000 to the Escrow Agent and (b) Parent purchases Shares by exercising the
Stock Option (as defined in the Stockholders Agreement), then (1) Paying Agent
shall transfer to the Escrow Agent all proceeds from the tendered Shares and (2)
Parent shall transfer to the Escrow Agent from the proceeds of the Shares it
purchased under the Stock option the difference between $6,000,000 and the sum
transferred by the Paying Agent.
Subject to and in accordance with the terms and conditions hereof, the
Escrow Agent shall hold the Consideration in escrow and release amounts
therefrom to the Partners and/or Company in accordance with Section 5 hereof
(the "Transferees") without further action by the Partners.
The Escrow Agent agrees to hold the Consideration for the benefit of
the Transferees and to invest such Consideration, according to the instructions
that follow. Upon the receipt of written instructions from at least two of the
Partners, the Escrow Agent shall invest the Consideration in any Merrill Lynch
money fund investing in securities with an average maturity of less than two
years. Upon the written instructions of at least two of the Partners and the
Parent, the Escrow Agent shall otherwise invest the Consideration as such
instructions may direct. Any interest and other income resulting from such
investments shall be paid out to the Partners each quarter. As and when any
amounts invested as above are needed for disbursement as herein provided, the
Escrow Agent shall cause a sufficient amount of such investments to be sold or
otherwise converted into cash to make such disbursement. The Escrow Agent shall
not be held liable for any loss of income due to the liquidation of any
investment which the Escrow Agent, in its sole discretion and acting in good
faith, believes necessary to make payments or disbursements in accordance with
this Agreement.
5. ESCROW RELEASE INSTRUCTIONS. The Escrow Agent shall make payments of
Consideration to the Partners or the Company, as applicable, upon receipt of a
letter executed by each of the Partners and the Company (or by an Arbitrator
they selected under Section 14(c) below)
2
<PAGE>
specifying an amount of Consideration that it shall pay in the name of the
Partners and/or the Company.
6. SCOPE OF UNDERTAKING. The Escrow Agent's duties and responsibilities
in connection with this Agreement shall be limited to those set forth in this
Agreement. The Escrow Agent is not a principal, participant or beneficiary in
any transaction underlying this Agreement. The Escrow Agent shall not be liable
for any error in judgment, any act or omission, any mistake of law or fact, or
for anything it may do or refrain from doing in accordance with this Agreement,
except for its own willful misconduct or negligence. The Escrow Agent may rely
on, and shall not be liable for following the Escrow Release Instructions set
forth in Section 5 or any other instructions contained in any written notice,
instruction or request furnished to it hereunder or pursuant hereto and
reasonably believed by it to have been signed or presented by the proper Party
or Parties. The Escrow Agent shall be responsible for holding and releasing the
Consideration pursuant to this Agreement. Escrow Agent is not responsible or
liable in any manner whatsoever for the transaction or transactions requiring or
underlying the execution of this Agreement.
7. INDEMNIFICATION. Each of Parent, Merging Corporation, Company and
Partners, jointly and severally, hereby indemnifies the Escrow Agent against,
and holds the Escrow Agent harmless from, any and all expenses reasonably
suffered or incurred by the Escrow Agent in connection with or arising from or
out of this Agreement, except such acts or omissions as may result from any
breach of this Agreement by the Escrow Agent or its willful misconduct or
negligence.
8. NOTICES. Any notice or other communication required or permitted to
be given under this Agreement by any Party hereto shall be given to all other
Parties hereto and shall be considered as properly given if in writing and (a)
delivered by hand, (b) mailed by registered or certified mail, return receipt
requested and postage prepaid, or (c) sent by telecopier, in each case addressed
as follows:
If to Parent, to:
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
Telecopier: (212) 332-5980
Telephone: (212) 632-6000
3
<PAGE>
Copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jonathan L. Mechanic, Esq.
Telephone: (212) 859-8000
Telecopier: (212) 859-4000
If to Merging Corporation, to:
Prometheus Acquisition Corp.
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
Telecopier: (212) 332-5980
Telephone: (212) 632-6000
Copy to:
Jonathan L. Mechanic, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Telephone: (212) 859-8000
Telecopier: (212) 859-4000
If to any Partner, to:
G.W.E. Partnership
125 Froehlich Farm Boulevard
Woodbury, New York 11797
Attention: Mr. Glenn Kaplan
Telephone: (516) 921-8900
Telecopier: (516) 921-8998
4
<PAGE>
Copy to:
Arnold J. Levine, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Telephone: (212) 969-3000
Telecopier: (212) 969-2900
If to Escrow Agent:
Harris Trust and Savings Bank
311 West Monroe Street, 14th Floor
Chicago, Illinois 60606
Attention: Mr. Palmer Haffner
Telephone: (312) 461-3565
Telecopier: (312) 461-1530
Delivery of any communication given in accordance herewith shall be effective
only upon actual receipt thereof by the Party or Parties to whom such
communication is directed. Any Party to this Agreement may change the address to
which communications hereunder are to be directed by giving written notice to
the other Party or Parties hereto in the manner provided in this Section 8.
9. RESIGNATION OR CHANGE IN ESCROW AGENTS. The Escrow Agent may resign
at any time by delivering written notice at least 30 days prior to the date upon
which such resignation is to become effective to the Parties, who hereby agree
to designate, by a written instrument delivered to the Escrow Agent, a successor
Escrow Agent. After the effective date of such resignation, the Escrow Agent
shall be under no further obligation to perform any of the duties of the Escrow
Agent under the terms of this Agreement other than to deliver the entire amount
of Consideration it then holds to a properly designated successor Escrow Agent.
Any successor Escrow Agent shall have all of the duties, powers, rights and
immunities conferred upon the Escrow Agent hereby. In addition, Parent may elect
at any time to transfer the responsibilities of Escrow Agent to the Paying
Agent, and Escrow Agent shall cooperate in such transfer of responsibilities.
10. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
choice of law principles.
11. ASSIGNMENT. This Agreement shall inure to the benefit of, and be
binding upon, the Parties and their respective heirs, devisees, executors,
administrators, personal representatives, successors, assigns, trustees and
receivers.
12. 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, such term or provision shall be
5
<PAGE>
ineffective to the extent of such invalidity or unenforceability without
rendering the remaining terms of this Agreement invalid or unenforceable. 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.
13. TERMINATION. This Agreement shall terminate upon (a) release of all
of the Consideration in accordance with Section 5 hereof and (b) unless the
Escrow Agent shall otherwise elect, full and final payment of all amounts
required to be paid to the Escrow Agent hereunder (whether fees, expenses, costs
or otherwise); provided, however, that in the event all such amounts required to
be paid to the Escrow Agent hereunder are not fully and finally paid prior to
termination, the provisions of Section 7 hereof shall survive the termination
hereof. This Agreement solely creates partial security for the obligations of
Partners pursuant to the Ancillary Agreements and does not limit the
availability of any remedy available to a Party by law or in equity pursuant to
any Ancillary Agreement of the Restated Merger Agreement.
14. PROPOSED INSTRUCTIONS AND DISPUTE RESOLUTION.
--------------------------------------------
(a) The Company and each of the Partners agree that they shall
execute a letter or letters to be delivered to the Escrow Agent under Section 5
on the earlier of the date that (i) a Replacement Operator (as defined in the
Escrow Side Letter) for each Facility has been installed and approved by the
necessary regulatory authorities in accordance with the Escrow Side Letter (in
which case all Consideration then in escrow shall be paid to the Partners); (ii)
the One Year No Fault Condition of the Escrow Side Letter (as defined in the
Escrow Side Letter) has been satisfied; (iii) there is a determination by an
Arbitrator that there has been a License Loss Breach (in which case an amount of
Consideration determined under Section 14(b), if any, shall be paid to the
Company); (iv) is the second (2nd) anniversary of the earlier to occur of the
Effective Time or December 31, 1998 if no claim related to a License Loss Breach
has been submitted to the Arbitrator prior thereto (in which case all
Consideration then in escrow shall be paid to the Partners) or (v) all claims
submitted to the Arbitrator by the second (2nd) anniversary of the earlier of
the Effective Time or December 31, 1998 have been resolved (in which case an
amount of Consideration determined under Section 14(b), if any, shall be paid to
the Company and any remaining Consideration shall be paid to the Partners).
(b) Any Party (other than the Escrow Agent) may submit escrow
release instructions to the other Parties for signature by the Company and all
of the Partners, and submission to the Escrow Agent for implementation. If any
Party fails to sign escrow release instructions presented to such Party, then
the presenting Party may submit such matter to arbitration within fifteen days
after such failure. The Arbitrator shall sign the escrow release instructions on
behalf of any Party, if he or she determines the escrow release instructions
appropriately should have been signed under Section 14(a). If any Party alleges
that there has been a License Loss Breach, the Arbitrator shall determine
whether there has been such a License Loss Breach and the financial damages
caused to Company by the License Loss Breach, based upon calculations of a
nationally recognized independent certified public accountant or valuation firm
jointly selected by Partners and Parent, or if no such independent valuation
firm can be agreed to by the Parties, selected by the
6
<PAGE>
Arbitrator pursuant to Section 14(c) hereof (the "Accountant"), made on the
assumption that any Facility affected by a License Loss Breach would have
otherwise continued to be as profitable absent such change in status as it
previously had been. The Arbitrator shall determine the amount of Consideration
to be transferred to Company to pay for damages from a License Loss Breach, if
any, and shall give the Escrow Agent appropriate instructions as to such
transfer under Section 5. All claims of a License Loss Breach shall be submitted
to the Arbitrator by the second (2nd) anniversary of the Effective Time. After
the final claim of License Loss Breach has been resolved, the Arbitrator shall
give notice to the Escrow Agent under Section 14(a)(iv).
(c) The Arbitrator is authorized to award reasonable fees in
whole or in part, to any Party, if the Arbitrator determines that another Party
has acted unreasonably in the conduct of the arbitration or in rejecting any
settlement proposed by the Arbitrator, and the Parties shall be bound by any
such award.
(d) Any dispute in connection with or relating to this
Agreement shall be submitted to binding arbitration under the auspices and rules
of the American Arbitration Association. A neutral arbitrator (the "Arbitrator")
shall be jointly chosen by the Parties hereto. If a single, neutral arbitrator
cannot be agreed upon by the Parties within ten (10) business days, the
Commercial Panel of the American Arbitration Association (the "CPAAA") shall
select a single neutral arbitrator as the Arbitrator.
15. GENERAL. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and any affidavit, certificate,
instrument, agreement or other document required to be provided hereunder (other
than the Certificate) may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument. Unless the context shall otherwise require, the
singular shall include the plural and each pronoun in any gender shall include
all other genders. This Agreement, or any provision hereof, may be amended,
modified, waived or terminated only by written instrument duly signed by the
Parties.
7
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement to be
effective as of the date first above written.
PROMETHEUS SENIOR QUARTERS, LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE INVESTORS,
L.L.C., its General Partner
By: /s/Robert P. Freeman
----------------------------------------
Robert P. Freeman
Principal
PROMETHEUS ACQUISITION CORP.
By: /s/Robert P. Freeman
-----------------------------------------
Robert P. Freeman
President
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
-----------------------------------------
Name: Glenn Kaplan
Title: Chairman and Chief Executive Officer
G.W.E. PARTNERSHIP
/s/ Glenn Kaplan
--------------------------------------
Glenn Kaplan
/s/ Wayne L. Kaplan
--------------------------------------
Wayne L. Kaplan
/s/ Evan A. Kaplan
--------------------------------------
Evan A. Kaplan
HARRIS TRUST AND SAVINGS BANK
By: /s/ Palmer Haffner
______________________________________
Name: Palmer Haffner
Title:
8
<PAGE>
EXHIBIT A TO
ESCROW AGREEMENT
The Facilities:
1. An adult care facility with approximately 149 units, all or most of
which will be enriched housing units under construction at the site known as
Plainview Plaza Hotel, located at 150 Sunnyside Boulevard, Plainview, New York.
2. An approximately 200 bed adult care facility known as Senior
Quarters, located at 1025 Pleasantville Road, Briarcliff Manor, New York 11797.
3. An approximately 125 unit, 200 bed adult care facility known as
Senior Quarters, located at 345 Northern Boulevard, Albany, New York.
4. An approximately 79 bed adult care facility known as Town Gate
Manor, located at 150 Towngate Road, Rochester, New York 14626.
5. An approximately 120 bed adult care facility known as Town Gate
East, located at 2006 Five Mile Line Road, Penfield, NewYork 14526.
6. An approximately 144 unit, 166 bed adult care facility, all or most
of which will be enriched housing program units currently under construction to
be known as Senior Quarters, located at 51 Great Neck Road, Great Neck Plaza,
New York 11024.
7. An approximately 198 bed, 99 unit adult care facility known as
Senior Quarters located at 165 Beverly Road, Huntington Station, New York 11746.
8. An approximately 200 bed adult care facility known as Senior
Quarters at East Northport, located at 10 Cheshire Place, East Northport, New
York 11731.
9. An approximately 200 bed adult care facility known a Senior
Quarters, located at 168 Red Schoolhouse Road, Chestnut Ridge, New York 10977.
10. An approximately 200 bed adult care facility known as North Shore
Lodge (Senior Quarters) (Centereach I), located at 4089 Nesconset Highway,
Centereach, New York 11720.
11. An approximately 238 bed facility (with a license for 46 enriched
housing program beds) known as Greenpoint Senior Living, located at 150 Old
Liverpool Road, Liverpool, New York 11797.
12. An approximately 111 bed facility with approximately 105 enriched
housing program beds known as Castle Gardens, located at 1715 Castle Gardens
Road, Vestal, New York 13850 (license pending).
A-1
<PAGE>
13. An approximately 90-bed facility known as Senior Quarters
Wellspring, located at 140 Washington Avenue Extension, Albany, New York 11203,
with a license application pending for 80 enriched housing beds.
14. Any adult care facility for which any Partner receives an operating
certificate prior to the Effective Time or for which a license application is
pending at the Effective Time which the Company (or an entity wholly-owned by
it) manages.
A-2
<PAGE>
EXHIBIT B TO
ESCROW AGREEMENT
Glenn Kaplan
Wayne L. Kaplan
Evan A. Kaplan
G.W.E. Partnership
125 Froehlich Farm Boulevard
Woodbury, New York 11797
February 23, 1998
IBJ Schroder Bank & Trust Company
One State Street
New York, New York
ATTN: Securities Processing Window Subcellar One
Dear Sir or Madam:
By this letter we hereby notify IBJ Schroder Bank & Trust Company (the
"Paying Agent") that in the event that we tender to Prometheus Senior Quarters,
LLC, a Delaware limited liability company ("Investor") Common Stock of Kapson
Senior Quarters Corp. (the "Shares") pursuant to the terms and conditions of a
Second Amended and Restated Stockholders Agreement, dated as of February 23,
1998, between Investor and Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan, you
are instructed to issue $6,000,000 (or such lesser amount of proceeds as are
derived from such tender) to Harris Trust and Savings Bank (the "Escrow Agent")
at the following address:
Harris Trust and Savings Bank
311 West Monroe Street, 14th Floor
Chicago, Illinois 60606
Attention: Mr. Palmer Haffner
Re: Escrow for Kapson Senior Quarters Corp., Glenn Kaplan,
Wayne L. Kaplan and Evan A. Kaplan, d/b/a G.W.E. Partnership
The above instructions regarding the payment of consideration from the
Shares are irrevocable. Any remaining proceeds from the Shares may be paid as
specified by us herewith or in the future.
The undersigned will, upon request, execute and deliver any additional
documents deemed appropriate or necessary by the Paying Agent in connection
herewith.
B-1
<PAGE>
The instructions contained herein shall be binding upon the successors,
assigns, heirs, executors, administrators and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
- ------------- --------------------------
Date Glenn Kaplan
- ------------- --------------------------
Date Wayne L. Kaplan
- ------------- --------------------------
Date Evan A. Kaplan
B-2
<PAGE>
KAPSON SENIOR QUARTERS CORP.
February 23, 1998
PROMETHEUS SENIOR QUARTERS LLC
PROMETHEUS ACQUISITION CORP.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Agreement and Plan of
Merger (the "Amended and Restated Merger Agreement") of even date herewith,
among Prometheus Senior Quarters LLC (the "Parent"), Prometheus Acquisition
Corp. (the "Merging Corporation"), and Kapson Senior Quarters Corp. (the
"Company"), pursuant to which Investor shall acquire Company pursuant to a
tender offer of all of the outstanding shares of the Company and the Merging
Corporation shall merge with and into the Company. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Amended and Restated Merger Agreement.
As an accommodation to the Parent and Merging Corporation, Glenn Kaplan, Wayne
L. Kaplan and Evan A. Kaplan (collectively, the "Partners") have agreed to
continue to operate certain of the Facilities (as defined in the Amended and
Restated Escrow Agreement) for a period of two (2) years, or upon
qualification of a person or entity to replace them as operators in accordance
with the following paragraph, whichever is earlier.
The Parent and Merging Corporation had agreed to endeavor to arrange for
Robert P. Freeman or some other entity, person or persons to replace all the
Partners except Glenn Kaplan as operators of the Facilities (the "Replacement
Operator") as soon as reasonably practicable following the execution of the
Prior Merger Agreement. The parties have formed Senior Quarters Operating
Corporation ("SQOC"), a New York corporation, and have agreed that Glenn
Kaplan and Robert P. Freeman will serve as the sole shareholders and officers
of SQOC (the "New Operating Entity"). The parties are in the process of
seeking regulatory approval of the New Operating Entity as the Replacement
Operator. If for any reason Robert P. Freeman cannot or will not serve as a
shareholder and officer of the New Operating Entity to operate the Facilities
along with Glenn Kaplan, the Parent and Merging Corporation will promptly
identify some other person who will serve as shareholder and officer of SQOC.
The Parent, Merging Corporation and Partners will use reasonable best efforts
to cause SQOC to be approved by the appropriate regulatory authorities as the
Replacement Operator. Once the Replacement Operator is installed and approved
by all necessary regulatory authorities to operate the Facilities (the
"Approval"), all Consideration (as defined in the Amended and Restated Escrow
Agreement) will be released from escrow in accordance with the Amended and
Restated Escrow Agreement entered into simultaneously herewith. If the New
Operating Entity fails to receive Approval as the Replacement Operator on or
before the first anniversary of the date that is the later of (i) the date the
Partners have taken in good faith all actions required of them to obtain such
Approval, or (ii) the Effective Time (but in no event later than December 31,
1998) and such failure is primarily
<PAGE>
as a result of (i) the relationship or association of Lazard Freres Real
Estate Investors LLC ("LFREI") or any entity which it owns or controls with
any entity in the assisted living or adult care business, (ii) LFREI's failure
to take in good faith, or to cause any entity it owns or controls to take, in
good faith, any action reasonably required of it to effect such Approval, or
(iii) other improper acts or omissions of LFREI or any entity owned or
controlled by LFREI, the Consideration will also be released from such escrow
(the "One Year No Fault Condition"). If at the time the Consideration is
released from escrow the New Operating Entity has not received Approval as the
Replacement Operator, the Partners will use reasonable best efforts to obtain
such Approval.
<PAGE>
This letter is sometimes referred to as the Escrow Side Letter. Please confirm
that this Escrow Side Letter correctly sets forth our agreement by signing a
counterpart copy where designated below.
Very truly yours,
KAPSON SENIOR QUARTERS CORP.
By: /s/ Glenn Kaplan
----------------------------
Title: Chairman and Chief Executive Officer
GLENN KAPLAN
/s/ Glenn Kaplan
- --------------------------------
WAYNE L. KAPLAN
/s/ Wayne L. Kaplan
- ---------------------------------
EVAN A. KAPLAN
/s/ Evan A. Kaplan
- ---------------------------------
AGREED:
PROMETHEUS SENIOR QUARTERS LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P.,
its Sole Member
By: LAZARD FRERES REAL ESTATE PROMETHEUS ACQUISITION CORP.
INVESTORS L.L.C.,
its General Partner
By: /s/ Robert P. Freeman By: /s/ Robert P. Freeman
-------------------------- --------------------------
Robert P. Freeman Robert P. Freeman
Principal President
<PAGE>
EXHIBIT 14
FOR IMMEDIATE RELEASE Contact: Douglas Donsky
Principal Communications
(212) 303-7608
KAPSON SENIOR QUARTERS, LAZARD FRERES AFFILIATE
AMEND MERGER AGREEMENT
WOODBURY, N.Y., February 24, 1998 -- Kapson Senior Quarters Corp. (NASDAQ:
KPSQ) and Prometheus Senior Quarters LLC, an affiliate of Lazard Freres Real
Estate Investors, LLC, today announced that they have amended their previously
announced plan of merger. Under the amended agreement a subsidiary of
Prometheus will commence a tender offer within five business days to acquire
all of the outstanding shares of Kapson at $14.50 per share in cash and all of
the outstanding shares of preferred stock at $27.93 per share in cash.
The offer would be subject to certain customary conditions including a minimum
condition relating to the tender of shares of common and preferred stock
representing a majority of the outstanding shares of common stock on a fully
diluted basis. Certain shareholders of Kapson beneficially owning
approximately 54% of the outstanding common stock (approximately 33% on a
fully diluted basis) have agreed to tender their shares in the offer. The
offer is expected to close in approximately 30 days unless extended.
The transaction was unanimously approved by the Board of Directors of Kapson.
Kapson Senior Quarters Corp., founded in 1972, owns, manages and/or operates
23 assisted living facilities with 2,510 units in Connecticut, New Jersey, New
York and Pennsylvania. The company, based in Woodbury, Long Island, currently
has another 11 facilities under construction with 1,264 units and 18
facilities under development with 2,271 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.
Lazard Freres Real Estate Investors, LLC is the real estate investment
affiliate of Lazard Freres & Co. LLC, a leading global investment bank. Lazard
manages several real estate investment funds including the LF Strategic Realty
Advisors, LP, a strategic investment program capitalized with approximately $2
billion in equity capital. Since its inception, Lazard 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;
RF&P Corporation (renamed Commonwealth Atlantic Properties); and The
Rubenstein Company, LP.
<PAGE>
EXHIBIT 15
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
212-783-7000
------------------------
Salomon Brothers
------------------------
February 23, 1998
Board of Directors
Kapson Senior Quarters Corp.
242 Crossways Park Drive
Woodbury, NY 11797
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to
the fairness, from a financial point of view, to the holders of shares of
common stock, par value $0.01 per share ("Company Common Stock"), and to the
holders of shares of $2.00 Exchangeable Preferred Stock, par value $0.01 per
share ("Company Preferred Stock"), of Kapson Senior Quarters Corp. (the
"Company") of the consideration to be received by such holders in the proposed
acquisition of the Company by Prometheus Senior Quarters LLC ("Acquiror")
pursuant to the Amended and Restated Agreement and Plan of Merger (the
"Amended Agreement"), dated February 23, 1998, among Acquiror, Prometheus
Acquisition Corp. ("Sub") and the Company.
As more specifically set forth in the Amended Agreement, Sub
will commence a tender offer (the "Proposed Tender Offer") to purchase all
outstanding shares of Company Common Stock at a price of $14.50 per share and
all outstanding shares of Company Preferred Stock at a price of $27.93 per
share. Following consummation of the Proposed Tender Offer, Sub will be merged
with and into the Company (the "Proposed Merger" and, collectively with the
Proposed Tender Offer, the "Proposed Transaction") and each then outstanding
share of Company Common Stock and Company Preferred Stock (other than shares
held in the treasury of the Company, shares owned by Acquiror, Sub or any
other direct or indirect subsidiary of Acquiror or of the Company, and shares
as to which appraisal rights have been properly exercised under applicable
law) will be converted into the right to receive, in cash, the amount paid for
a share of Company Common Stock or Company Preferred Stock, as the case may
be, pursuant to the Proposed Tender Offer.
In connection with rendering our opinion, we have reviewed
and analyzed material bearing upon the financial and operating condition and
prospects of the Company including, among other things, the following: (i) the
final draft of the Amended Agreement; (ii) certain publicly available
information concerning the Company, including the Annual Report on Form 10-K
of the Company for the period ended December 31, 1996 and the Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997; (iii) the prospectus, dated September
26, 1996, relating to the initial public offering of Company Common Stock;
(iv) the prospectus, dated July 1, 1997, relating to the offering of Company
Preferred Stock; (v) certain internal information of the Company, primarily
financial in
<PAGE>
2
------------------------
Salomon Brothers
------------------------
nature, including projections, concerning the business and operations of the
Company furnished to us by the Company for purposes of our analysis; (vi)
certain publicly available information concerning the trading of, and the
trading market for, the Company Common Stock; (vii) certain publicly available
information with respect to certain publicly traded companies that we believe to
be comparable to the Company and the trading markets for certain of such other
companies' securities; and (viii) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant. We have also discussed the foregoing, as well
as other matters we believe relevant to our inquiry, with the management of the
Company and officers of Acquiror.
In our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly available and have
neither attempted independently to verify nor assumed any responsibility for
verifying any of such information and have further relied upon the assurances
of management of the Company that they are not aware of any facts that would
make any of such information inaccurate or misleading. We have not conducted a
physical inspection of any of the properties or facilities of the Company, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or appraisals.
With respect to projections, we have, upon the advice and consent of management
of the Company, assumed that such projections were reasonably prepared on bases
reflecting the best currently available estimates and judgment of the Company's
management as to the future financial performance of the Company and we express
no view with respect to such projections or the assumptions on which they were
based. We have also assumed that the definitive Amended Agreement will not, when
executed, contain any terms or conditions that differ materially from the terms
and conditions contained in the draft of such document we have reviewed and that
the Proposed Acquisition will be consummated in a timely manner and in
accordance with the terms of the Amended Agreement.
In conducting our analysis and arriving at our opinion as
expressed herein, we have considered such financial and other factors as we
have deemed appropriate under the circumstances including, among others, the
following: (i) the historical and current financial position and results of
operations of the Company; (ii) the business prospects of the Company; (iii)
the terms of the Company Preferred Stock; (iv) the historical and current
market for the Company Common Stock and for the equity securities of certain
other companies that we believe to be comparable to the Company; and (v) the
nature and terms of certain other acquisition
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Salomon Brothers
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transactions that we believe to be relevant. We have also taken into account
our assessment of general economic, market and financial conditions as well as
our experience in connection with similar transactions and securities
valuation generally. We have also considered the process that resulted in the
negotiation of the Amended Agreement, including the initial discussions with
other potential acquirors. Our opinion necessarily is based upon conditions as
they exist and can be evaluated on the date hereof and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion is, in any event, limited
to the fairness, from a financial point of view, of the consideration to be
received by the holders of Company Common Stock and Company Preferred Stock in
the Proposed Tender Offer and the Proposed Merger and does not address the
Company's underlying business decision to effect the Proposed Transaction or
constitute a recommendation to any holder of Company Common Stock or Company
Preferred Stock as to whether such holder should tender such stock in the
Proposed Tender Offer or to any holder of Company Common Stock or Company
Preferred Stock as to how such holder should vote with respect to the Proposed
Merger, if such a vote is taken.
As you are aware, Salomon Brothers Inc, now doing business
as Salomon Smith Barney (collectively with all other entities doing business
as Salomon Smith Barney, "Salomon Smith Barney"), is acting as financial
advisor to the Company in connection with the Proposed Transaction and will
receive a fee for its services, a substantial portion of which is contingent
upon consummation of the Proposed Transaction. Additionally, Salomon Smith
Barney or its affiliates have previously rendered certain investment banking
and financial advisory services to the Company and certain affiliates of
Acquiror, for which we received customary compensation. In addition, in the
ordinary course of our business, Salomon Smith Barney may actively trade the
debt and equity securities of the Company for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Salomon Smith Barney and its affiliates
(including Travelers Group Inc.) may have other business relationships with
the Company or Acquiror.
As you are aware, Salomon Smith Barney has acted as
financial advisor to ARV Assisted Living, Inc. ("ARV") in connection with an
investment by an affiliate of Acquiror in ARV. Salomon Smith Barney has not
advised ARV or the Company concerning the terms of, or the consideration
provided with respect to, the consent provided by ARV to permit Acquiror to
proceed with the Proposed Transaction and this opinion does not address the
fairness or appropriateness of such terms or consideration.
This opinion is intended solely for the benefit and use of
the Company (including its management and directors) in considering the
transaction to which it relates and may not be
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Salomon Brothers
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used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose, without the prior written
consent of Salomon Smith Barney.
Based upon and subject to the foregoing, it is our opinion
as investment bankers that, as of the date hereof, the consideration to be
received by the holders of Company Common Stock and Company Preferred Stock in
the Proposed Tender Offer and the Proposed Merger is fair, from a financial
point of view, to such holders.
Very truly yours,
/s/ Salomon Smith Barney
<PAGE>
EXHIBIT 16
J P Morgan
(LETTERHEAD)
February 23, 1998
The Board of Directors
Kapson Senior Quarters Corp.
242 Crossways Park West
Woodbury, NY 11797
Attention: Mr. Glenn Kaplan
Chairman and Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Kapson Senior Quarters Corp. (the "Company") of the
consideration proposed to be paid to them in connection with the proposed
acquisition of the Company by Prometheus Acquisition Corp. ("Sub"), a wholly
owned subsidiary of Prometheus Senior Quarters LLC (the "Buyer"). Pursuant to
the Amended and Restated Agreement and Plan of Merger, dated as of February, 23,
1998 (the "Agreement"), by and among the Company, the Buyer and Sub, Sub will
make a tender offer (the "Offer") for (i) all of the outstanding shares of
Common Stock, par value $0.01 per share, of the Company ("Common Stock") at a
price of $14.50 per share, net to the seller in cash, without interest (the
"Common Stock Offer Price") and (ii) all of the outstanding shares of the $2.00
Convertible Exchangeable Preferred Stock of the Company ("Exchangeable
Preferred") at a price per share of $27.93, net to the seller in cash, without
interest (the "Exchangeable Preferred Offer Price"). Pursuant to the Agreement,
upon consummation of the Offer, Sub will be merged with and into the Company
(the "Merger" and, together with the Offer, the "Transaction"), the Company will
become a wholly owned subsidiary of the Buyer, each outstanding share of Common
Stock will be converted into the right to receive the Common Stock Offer Price
and each outstanding share of Exchangeable Preferred will be converted into the
right to receive the Exchangeable Preferred Offer Price.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) the Tender
Offer Statement on Schedule 14D-1 with respect to the Offer (the "Offer to
Purchase"); (iii) certain publicly available information concerning the business
of the Company and of certain other companies engaged in businesses comparable
to those of the Company, and the reported market prices for certain other
companies' securities deemed comparable; (iv) publicly available terms of
certain transactions involving companies comparable to the Company and the
consideration received for such companies; (v) current and historical market
prices of the common stock of the Company; (vi) the audited financial statements
of the Company for the fiscal year ended December 31, 1996, and the unaudited
financial statements of the Company for the period ended December 31, 1997;
(vii) certain agreements with respect to outstanding indebtedness or obligations
of the Company; (viii)
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J P Morgan
-2-
certain internal financial analyses and forecasts prepared by the Company and
its respective management; and (ix) the terms of other business combinations
that we deemed relevant.
In addition, we have held discussions with certain members of the management of
the Company and the Buyer with respect to certain aspects of the Transaction,
and the past and current business operations of the Company, the financial
condition and future prospects and operations of the Company and the Buyer, the
effects of the Transaction on the financial condition and future prospects of
the Company and the Buyer, and certain other matters we believed necessary or
appropriate to our inquiry. We have reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Buyer or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company to which
such analyses or forecasts relate. We have also assumed that the Transaction
will have the tax consequences described in the Offer to Purchase, and in
discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
consummated as described in the Agreement and the Offer to Purchase. We have
relied as to all legal matters relevant to rendering our opinion upon the advice
of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Company with respect to the proposed
Transaction and will receive a fee from the Company for our services. Please be
advised that, except for the recent open market purchase of common stock of ARV
Assisted Living, Inc. on behalf of Lazard Freres Real Estate Investors, LLC, an
affiliate of the Buyer, we have no other financial advisory or other
relationships with the Company or the Buyer. In the ordinary course of their
businesses, our affiliates may actively trade the debt and equity securities of
the Company for its own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Transaction is fair, from a financial point of view, to such
stockholders.
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J P Morgan
-3-
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Transaction. This opinion
does not constitute a recommendation to any stockholder of the Company as to
whether such stockholder should tender shares of Common Stock or Exchangeable
Preferred in the Offer or how such stockholder should vote with respect to the
Merger. This opinion may be reproduced in full in the Solicitation/
Recommendation Statement on Schedule 14D-9 to be filed by the Company with the
Securities and Exchange Commission.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ John D. Fowler
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John D. Fowler
Managing Director
