<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
ILM II SENIOR LIVING, INC.
(NAME OF THE ISSUER)
ILM II SENIOR LIVING, INC.
CAPITAL SENIOR LIVING CORPORATION
CAPITAL SENIOR LIVING ACQUISITION, LLC
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
None
------------------------------------------
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
<TABLE>
<S> <C>
J. WILLIAM SHARMAN, JR.
CHAIRMAN OF THE BOARD OF DIRECTORS, DAVID R. BRICKMAN
CHIEF EXECUTIVE OFFICER AND PRESIDENT VICE PRESIDENT AND GENERAL COUNSEL
ILM II SENIOR LIVING, INC. CAPITAL SENIOR LIVING CORPORATION
1750 TYSONS BOULEVARD, SUITE 1200 14160 DALLAS PARKWAY, SUITE 300
TYSONS CORNER, VIRGINIA 22102 DALLAS, TEXAS 75240
(888) 257-3550 (972) 770-5600
</TABLE>
------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
With Copies to:
<TABLE>
<S> <C>
CLIFFORD E. NEIMETH, ESQ. WINSTON W. WALP, II, ESQ.
GREENBERG TRAURIG, LLP JENKENS & GILCHRIST
THE METLIFE BUILDING 1445 ROSS AVENUE
200 PARK AVENUE SUITE 3200
NEW YORK, NEW YORK 10166 DALLAS, TEXAS 75202
(212) 801-9200 (214) 855-4500
</TABLE>
This statement is filed in connection with (check the appropriate box):
a. /x/ The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or Rule
13e-3(c) under the Securities Exchange Act of 1934, as
amended.
b. / / The filing of a registration statement under the Securities
Act of 1933, as amended.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: / /
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUE* AMOUNT OF FILING FEE
------------------ --------------------
<S> <C>
$67,571,000 $15,808.10
</TABLE>
* For purposes of calculating the fee only. Assumes the purchase of 5,181,236
shares of ILM II Common Stock, $.01 par value, at $13.04 per share in cash.
/x/ Check box if any of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
<TABLE>
<S> <C>
Amount previously paid: $15,808.10 (In connection with a transaction
having a transaction value of $67,571,000) Filing party: ILM II Senior Living, Inc.
Form or Registration No.: Definitive Proxy Statement on Schedule 14A Date filed: April 28, 1999
</TABLE>
================================================================================
<PAGE>
This amendment to the Rule 13e-3 Transaction Statement on Schedule 13E-3
(this "Statement") is filed jointly by ILM II Senior Living, Inc., a Virginia
finite life corporation ("ILM II"), and Capital Senior Living Corporation, a
Delaware corporation ("Capital"), on behalf of itself and its wholly owned
subsidiary Capital Senior Living Acquisition, LLC, a Delaware limited liability
company and wholly owned subsidiary of Capital ("Acquisition"), relating to the
merger (the "Merger") of ILM II with and into Acquisition, with Acquisition
continuing as the surviving entity. The Merger will be effected pursuant to the
Amended and Restated Agreement and Plan of Merger dated October 19, 1999, as
amended on April 18, 2000 (the "Merger Agreement"), among ILM II, Capital and
Acquisition. Upon the terms and subject to the conditions of the Merger
Agreement, at the effective time of the Merger, each outstanding share of common
stock, $0.01 par value, of ILM II ("ILM II Common Stock"), will be converted
into the right to receive $13.04 in cash (less applicable withholding taxes),
without any interest thereon.
Concurrently with the filing of this Statement, ILM II has filed with the
Commission, pursuant to Rule 101(a)(iii) of Regulation S-T and Rule 14a-6(a), of
Regulation 14A, its definitive proxy statement (the "Proxy Statement") and
related solicitation materials under cover of Schedule 14A in connection with
the special meeting of holders of ILM II Common Stock to be convened to enable
such holders to vote upon approval of the Merger Agreement (and the transactions
contemplated thereby).
A copy of the Proxy Statement is attached to this Statement as Exhibit (d)
and a copy of the Merger Agreement is attached to the Proxy Statement as
Appendix A. All of the information in this Statement and in the Proxy Statement
concerning ILM II was supplied by ILM II and all of the information therein
concerning Capital and Acquisition was supplied by Capital.
The cross reference sheet set forth below is supplied pursuant to General
Instruction F to Schedule 13E-3 and indicates the location in the Proxy
Statement of the information required to be included in response to the items of
this Statement. The information in the Proxy Statement, including all appendices
thereto, is incorporated herein by reference and the responses to each item of
this Statement are qualified in their entirety by such disclosures in the Proxy
Statement.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
- - - - - ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
Item 1(a)..................... Cover Page; "Letter to Shareholders;" "Summary--The Parties in the Merger;"
"Special Factors--The Merger Agreement"
Item 1(b)..................... "Summary--The Parties in the Merger;" "The Special Meeting--Record Date for the
Special Meeting;" "Special Factors--The Merger Agreement"
Item 1(c)..................... "There is No Established Market for ILM II's Common Stock; Dividends"
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
- - - - - ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
Item 1(d)..................... "There is No Established Market for ILM II's Common Stock; Dividends"
Item 1(e)..................... Not Applicable
Item 1(f)..................... Not Applicable
Item 2(a)..................... Cover Page; "Summary--The Parties in the Merger;" "Directors and Executive
Officers"
Item 2(b)-(g)................. "Directors and Executive Officers"
Item 3(a)(1).................. "ILM II's Corporate Structure;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations of ILM II--Results of Operations
for ILM II;" "Special Factors--Background of the Merger"
Item 3(a)(2).................. "Special Factors--History;" "Special Factors--Background of the Merger"
Item 3(b)..................... "Special Factors--History;" "Special Factors--Interests of Certain Persons in the
Merger;" "Special Factors--Background of the Merger;" "Management's Discussion
and Analysis of Financial Condition and Results of Operations of ILM II--Results
of Operations for ILM II"
Item 4(a)..................... Cover Page; "Questions and Answers About the Merger;" "Summary--The Merger;"
"Summary--Purposes and Reasons for the Merger;" "Special Factors--The Merger
Agreement;" "Special Factors--The Merger--General;" "Special Factors--Background
of the Merger"
Item 4(b)..................... Not Applicable
Item 5(a), (b)................ "Summary--The Merger;" "Special Factors--The Merger--General;" "Special
Factors--The Merger Agreement"
Item 5(c)..................... "Summary--Conflicts of Interest of ILM II Management;" "Special Factors--Plans
and Proposals of ILM II and Capital"
Item 5(d)..................... "Summary--Plans and Proposals of ILM II and Capital if the Merger Occurs;"
"Special Factors--The Merger--General;" "Special Factors--The Merger Agreement"
Item 5(e)..................... "Summary--Plans and Proposals of ILM II and Capital if the Merger Occurs;"
"Special Factors--The Merger--General;" "Special Factors--The Merger Agreement"
Item 5(f)..................... "The Special Meeting--Record Date for the Special Meeting;" "Special
Factors--Plans and Proposals of ILM II and Capital"
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
- - - - - ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
Item 5(g)..................... "Summary--The Merger;" "Special Factors--The Merger Agreement;" "Special
Factors--Plans and Proposals of ILM II and Capital"
Item 6(a)..................... "Questions and Answers About the Merger;" "Summary--The Merger--The payment you
will receive for your shares of ILM II common stock;" "Special Factors--The
Merger--General;" "Summary--Third Party Financing of the Merger;" "Estimated
Costs and Financing of the Merger"
Item 6(b)..................... "Summary--The Merger--Termination Fees;" "Summary--Payments to our Financial
Advisors;" "Special Factors--Termination Fees; Reimbursement of Expenses;"
"Estimated Costs and Financing of the Merger"
Item 6(c)..................... "Summary--Third Party Financing of the Merger;" "Estimated Costs and Financing of
the Merger"
Item 6(d)..................... "Summary--Third Party Financing of the Merger;" "Estimated Costs and Financing of
the Merger"
Item 7(a)-(c)................. "Questions and Answers About the Merger;" "Summary--Purposes and Reasons for the
Merger;" "Special Factors--Recommendation of the ILM II Board;" "Special
Factors--Background of the Merger;" "Special Factors--Purposes, Alternatives,
Timing and Reasons for the Merger"
Item 7(d)..................... "Summary--The Merger Agreement;" "Special Factors--The Merger--General;"
"Material Federal Income Tax Consequences of the Merger" "Special Factors--Plans
and Proposals of ILM II and Capital"
Item 8(a), (b)................ "Summary--Opinion of Our Financial Advisor;" "Questions and Answers About the
Merger;" "Special Factors--The Merger--History;" "Special Factors--Recommendation
of the ILM II Board;" "Special Factors--Background of the Merger;" "Special
Factors--Opinion of Cohen & Steers"
Item 8(c)..................... Cover Page; "Questions and Answers About the Merger;" "Summary--The Merger--There
are conditions to completing the merger;" "The Special Meeting;" "Special
Factors--The Merger Agreement"
Item 8(d)..................... "Special Factors--Interests of Certain Persons in the Merger"
Item 8(e)..................... "Letter to Shareholders;" "Special Factors--Recommendation of the ILM II Board"
Item 8(f)..................... "Special Factors--Background of the Merger"
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ITEM IN SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PROXY STATEMENT
- - - - - ------------------------------ ---------------------------------------------------------------------------------
<S> <C>
Item 9(a)-(c)................. "Summary--Opinion of Our Financial Advisor;" "Special Factors--Recommendation of
the ILM II Board;" "Special Factors--Opinion of Cohen & Steers"
Item 10(a).................... "The Special Meeting--Beneficial Ownership by Directors;" "Special
Factors--Interests of Certain Persons in the Merger"
Item 10(b).................... Not Applicable
Item 11....................... "Special Factors--Interests of Certain Persons in the Merger"
Item 12(a).................... "Summary--Plans and Proposals of ILM II and Capital if the Merger Occurs;"
"Special Factors--Plans and Proposals of ILM II and Capital"
Item 12(b).................... "Special Factors--Plans and Proposals of ILM II and Capital"
Item 13(a).................... "Questions and Answers About the Merger;" "No Appraisal Rights"
Item 13(b).................... Not Applicable
Item 13(c).................... Not Applicable
Item 14(a).................... "Selected Historical Financial Data;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations of ILM II"
Item 14(b).................... Not Applicable
Item 15(a).................... "Summary--Conflicts of Interest of ILM II Management;" "Special
Factors--Interests of Certain Persons in the Merger;" "Directors and Executive
Officers;" "The Special Meeting -- Solicitation of Proxies by Soliciting Agent"
Item 15(b).................... "Notice of Special Meeting to Shareholders;" "Special Factors--Recommendation of
the ILM II Board;" "Special Factors--Interests of Certain Persons in the Merger;"
"The Special Meeting--Solicitation of Proxies by Soliciting Agent"
Item 16....................... The Proxy Statement and the appendices attached hereto.
Item 17(a)-(f)................ Exhibits
(a) Not Applicable
(b) Opinion of Cohen & Steers Capital Advisors LLC
(c) Amended and Restated Agreement and Plan of Merger dated October 19, 1999, as
amended by the First Amendment dated April 18, 2000.
(d) Definitive Proxy Statement on Schedule 14A of ILM II Senior Living, Inc.
(e) Not Applicable
</TABLE>
5
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the Cover Page and in the sections titled
"Letter to Shareholders;" "Summary--The Parties in the Merger" and "Special
Factors--The Merger Agreement" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in the sections titled "Summary--The Parties
in the Merger;" "The Special Meeting--Record Date for the Special Meeting" and
"Special Factors--The Merger Agreement" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in the section titled "There is No
Established Market for ILM II's Common Stock; Dividends" of the Proxy Statement
incorporated herein by reference.
(d) The information set forth in the section titled "There is No
Established Market for ILM II's Common Stock; Dividends" of the Proxy Statement
incorporated herein by reference.
(e) Not Applicable
(f) Not Applicable
ITEM 2. IDENTITY AND BACKGROUND.
(a) The information set forth on the Cover Page and in the sections titled
"Summary--The Parties in the Merger" and "Directors and Executive Officers" of
the Proxy Statement is incorporated herein by reference.
(b)-(g) The information set forth in the section titled "Directors and
Executive Officers" of the Proxy Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the sections titled "ILM II's Corporate
Structure;" "Management's Discussion and Analysis of Financial Condition and
Results of Operations of ILM II--Results of Operations for ILM II" and "Special
Factors--Background of the Merger" of the Proxy Statement is herein incorporated
by reference.
(a)(2) The information set forth in the sections titled "Special
Factors--History" and "Special Factors--Background of the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the sections titled "Special
Factors--History;" "Special Factors--Interests of Certain Persons in the
Merger;" "Special Factors--Background of the Merger" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of ILM
II--Results of Operations for ILM II" of the Proxy Statement is incorporated
herein by reference.
6
<PAGE>
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth on the Cover Page and in the sections titled,
"Questions and Answers About the Merger;" "Summary--The Merger;"
"Summary--Purposes and Reasons for the Merger;" "Special Factors--The Merger
Agreement;" "Special Factors--The Merger--General" and "Special
Factors--Background of the Merger" of the Proxy Statement is incorporated herein
by reference.
(b) Not Applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a), (b) The information set forth in the sections titled "Summary--The
Merger;" "Special Factors--The Merger--General" and "Special Factors--The Merger
Agreement" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in the sections titled "Summary--Conflicts of
Interest of ILM II Management" and "Special Factors--Plans and Proposals of ILM
II and Capital" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in the sections titled "Summary--Plans and
Proposals of ILM II and Capital if the Merger Occurs;" "Special Factors--The
Merger--General" and "Special Factors--The Merger Agreement" of the Proxy
Statement is incorporated herein by reference.
(e) The information set forth in the sections titled "Summary--Plans and
Proposals of ILM II and Capital if the Merger Occurs;" "Special Factors--The
Merger--General" and "Special Factors--The Merger Agreement" of the Proxy
Statement is incorporated herein by reference.
(f) The information set forth in the sections titled "The Special
Meeting--Record Date for the Special Meeting" and "Special Factors--Plans and
Proposals of ILM II and Capital" of the Proxy Statement is incorporated herein
by reference.
(g) The information set forth in the sections titled "Summary--The Merger;"
"Special Factors--The Merger Agreement" and "Special Factors--Plans and
Proposals of ILM II and Capital" of the Proxy Statement is incorporated herein
by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the sections titled "Summary--The
Merger--The payment you will receive for your shares of ILM II common stock;"
"Summary--Third Party Financing of the Merger;" "Special Factors--The
Merger--General" and "Estimated Costs and Financing of the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the sections titled "Summary--The Merger--
Termination Fees;" "Summary--Payments to our Financial Advisors;" "Special
Factors--Termination Fees; Reimbursement of Expenses" and "Estimated Costs and
Financing of the Merger" of the Proxy Statement is incorporated herein by
reference.
7
<PAGE>
(c) The information set forth in the section titled "Summary--Third Party
Financing of the Merger;" "Estimated Costs and Financing of the Merger" of the
Proxy Statement is incorporated herein by reference.
(d) The information set forth in the section titled "Summary--Third Party
Financing of the Merger;" and "Estimated Costs and Financing of the Merger" of
the Proxy Statement is incorporated herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections titled "Questions and
Answers About the Merger;" "Summary--Purposes and Reasons for the Merger;"
"Special Factors--Recommendation of the ILM II Board;" "Special
Factors--Background of the Merger" and "Special Factors--Purposes, Alternatives,
Timing and Reasons for the Merger" of the Proxy Statement is incorporated herein
by reference.
(d) The information set forth in the sections titled "Summary--The Merger
Agreement;" "Special Factors--The Merger--General;" "Material Federal Income Tax
Consequences of the Merger" and "Special Factors--Plans and Proposals of ILM II
and Capital" of the Proxy Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a), (b) The information set forth in the sections titled "Summary--Opinion
of Our Financial Advisor;" "Questions and Answers About the Merger;" "Special
Factors--The Merger--History;" "Special Factors--Recommendation of the ILM II
Board;" "Special Factors--Background of the Merger" and "Special
Factors--Opinion of Cohen & Steers" of the Proxy Statement are incorporated
herein by reference.
(c) The information set forth on the Cover Page and in the sections titled;
"Questions and Answers About the Merger;" "Summary--The Merger--There are
conditions to completing the merger;" "The Special Meeting" and "Special
Factors--The Merger Agreement" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in the section titled "Special
Factors--Interests of Certain Persons in the Merger" of the Proxy Statement is
incorporated herein by reference.
(e) The information set forth in the sections titled "Letter to
Shareholders" and "Special Factors--Recommendation of the ILM II Board" of the
Proxy Statement is incorporated herein by reference.
(f) The information set forth in the section titled "Special
Factors--Background of the Merger" of the Proxy Statement is incorporated herein
by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the sections titled "Summary--Opinion
of Our Financial Advisor;" "Special Factors--Recommendation of the ILM II Board"
and "Special Factors--Opinion of Cohen & Steers" of the Proxy Statement is
incorporated herein by reference.
8
<PAGE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the sections titled "The Special
Meeting--Beneficial Ownership by Directors" and "Special Factors--Interests of
Certain Persons in the Merger" of the Proxy Statement is incorporated herein by
reference.
(b) Not applicable
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in the section titled "Special Factors--Interests
of Certain Persons in the Merger" of the Proxy Statement is incorporated herein
by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in the sections titled "Summary--Plans and
Proposals of ILM II and Capital if the Merger Occurs" and "Special
Factors--Plans and Proposals of ILM II and Capital" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in the section titled "Special Factors--Plans
and Proposals of ILM II and Capital" of the Proxy Statement is incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections titled "Questions and Answers
About The Merger;" and "No Appraisal Rights" of the Proxy Statement is
incorporated herein by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the sections titled "Selected Historical
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of ILM II" of the Proxy Statement is incorporated
herein by reference.
(b) Not Applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the sections titled "Summary--Conflicts of
Interest of ILM II Management;" "Special Factors--Interests of Certain Persons
in the Merger;" "Directors and Executive Officers" and "The Special
Meeting--Solicitation of Proxies by Soliciting Agent" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in the sections titled "Notice of Special
Meeting to Shareholders;" "Special Factors--Recommendation of the ILM II Board;"
"Special
9
<PAGE>
Factors--Interests of Certain Persons in the Merger" and "The Special Meeting--
Solicitation of Proxies by Soliciting Agent" of the Proxy Statement is
incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The entirety of the Proxy Statement, including appendices, is incorporated
herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Exhibits
<TABLE>
<S> <C>
(a) Not Applicable
(b) Opinion of Cohen & Steers Capital Advisors LLC.
(c) Amended and Restated Agreement and Plan of Merger dated October 19, 1999, as amended by the First Amendment
dated April 18, 2000.
(d) Definitive Proxy Statement on Schedule 14A of ILM II Senior Living, Inc.
(e) Not Applicable
</TABLE>
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, correct and completed.
Dated: May 18, 2000
ILM II SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
---------------------------
Name: J. William Sharman, Jr.
Title: Chairman of the Board, Chief
Executive Officer
and President
CAPITAL SENIOR LIVING CORPORATION
By: /s/ Lawrence A. Cohen
---------------------------
Name: Lawrence A. Cohen
Title: Chief Executive Officer
CAPITAL SENIOR LIVING ACQUISITION, LLC
By: /s/ Lawrence A. Cohen
---------------------------
Name: Lawrence A. Cohen
Title: Chief Executive Officer
10
<PAGE>
May 18, 2000
Board of Directors
ILM II Senior Living, Inc.
1750 Tysons Boulevard; Suite 1200
Tysons Corner, Virginia 22102
Members of the Board of Directors:
On April 17, 2000, Cohen & Steers Capital Advisors LLC ("Cohen &
Steers") delivered to you its oral opinion as of said date, confirmed in writing
by Cohen & Steers' letter to you dated April 18, 2000 (the "April 18 Letter")
that, subject to the matters stated below, the merger consideration of
$13.041483 per share in cash (the "Merger Consideration") provided for in the
then proposed First Amendment to be dated as of April 18, 2000 (the "First
Amendment") to the Amended and Restated Agreement and Plan of Merger among ILM
II Senior Living, Inc., a Virginia finite life corporation (the "Company"),
Capital Senior Living Corporation, a Delaware corporation ("CSLC") and Capital
Senior Living Acquisition, LLC, a Delaware limited liability company ("Sub"),
dated October 19, 1999 (as amended, the "Merger Agreement") was fair to the
stockholders of the Company, from a financial point of view.
We understand that the Company, CSLC and Sub, entered into the First
Amendment on April 18, 2000. Pursuant to the Merger Agreement, the Company will
merge with and into Sub (the "Merger"), and the separate corporate existence of
the Company shall cease. In the Merger, each outstanding share of common stock
of the Company ("Company Common Stock") shall be converted into the right to
receive $13.041483 in cash (the "Merger Consideration"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
The Board of Directors of the Company (the "Board") has requested our
opinion as at the date hereof as to the fairness, from a financial point of
view, of the Merger Consideration to the holders of Company Common Stock (the
"Stockholders").
In arriving at our opinion expressed herein, we have, among other
things:
(1) reviewed the First Amendment and the Merger Agreement;
<PAGE>
(2) reviewed certain publicly available historical
consolidated financial and operating data with respect to the Company
and ILM II Lease Corporation;
(3) reviewed certain internal business plans and financial and
operating forecasts with respect to the Company and ILM II Lease
Corporation, as prepared by management;
(4) reviewed certain pro forma historical financial
information of the Company on a C-corporation basis prepared by the
Company, and certain projected financial information of the Company on
a C-corporation basis prepared by management;
(5) reviewed publicly available information of certain
companies engaged in businesses we deemed comparable to the Company;
(6) considered the terms, to the extent publicly available, of
selected recent transactions we deemed comparable;
(7) visited certain facilities of the Company and held
discussions with the Company and its representatives and consultants
regarding its business, operations and prospects;
(8) performed various financial analyses, as we deemed
appropriate, using generally accepted analytical methodologies; and
(9) conducted such other financial studies, analyses and
financial investigations as we deemed appropriate.
We were not requested to and, therefore, did not verify independently
the accuracy or completeness of any information furnished by the Company or any
publicly available information which we reviewed in arriving at our opinion
expressed herein. With the permission of the Board, we assumed and relied,
without independent verification, upon the accuracy and completeness of all such
information and upon the assurance of the Company that it was not aware of any
information or facts that would make the information provided to us materially
incomplete or misleading. With the permission of the Board, we assumed further
that the financial and operating forecasts of the Company reviewed by us were
reasonably prepared on a basis reflecting the best current estimates and good
faith judgment of management as to its anticipated future financial condition
and operating results, and we express no opinion with respect to such forecasts.
We were not engaged to conduct a physical inspection of any properties or make
an independent valuation or appraisal of any assets or liabilities, contingent
or otherwise, of the Company and we were not furnished with any such valuations
or
2
<PAGE>
appraisals. We were not engaged to review any legal, accounting or tax aspects
of the Merger.
Our opinion herein is necessarily based on our assessment of economic,
monetary, market and regulatory conditions as they exist and which can be
evaluated on the date hereof. The Board has not requested that we conduct any
review or analysis with respect to the Company after the date hereof, and we
disclaim any undertaking or obligation to update or revise our opinion or advise
the Board of any matter affecting our opinion after the date hereof unless we
are specifically requested to do so pursuant to an agreement with the Company.
We express no opinion concerning the future financial condition and operating
results of the Company or the price or trading range at which the Company Common
Stock may trade following the date hereof. Our opinion does not address and we
hereby make no recommendation as to the Companys underlying decision to proceed
with the Merger or the relative merits of its decision not to proceed with any
alternative financial strategies that may be available to the Company.
Our opinion expressed herein is provided at the Board's request and for
its use in connection with evaluating the Merger Consideration, and for no other
purpose. We have not been engaged as an agent or fiduciary of the Stockholders
or any third person. Our opinion does not constitute a recommendation concerning
any action the Board, any Stockholder or any third person should take concerning
the Merger, the Merger Agreement or any aspect thereof or alternative thereto
(including whether to vote in favor of the Merger or take or refrain from taking
any other action), and should not be relied upon as such. We express no opinion
with respect to the desirability of pursuing any alternative to the Merger.
The Company and ILM Senior Living, Inc. ("ILM") agreed to pay Cohen &
Steers fees in the total amount of $125,000 at the time we rendered the opinion
expressed in the April 18 Letter and a similar opinion addressed to the Board of
Directors of ILM in connection with the merger involving ILM (the "ILM Merger").
In addition, the Company and ILM have agreed to pay us a $900,000 cash success
fee conditional upon consummation of the Merger and the ILM Merger. In the past,
Cohen & Steers has provided financial advisory services to the Company and has
received fees for such services. In the ordinary course of business, we and our
affiliates may actively trade the securities of CSLC for the accounts of our
clients and, accordingly, they may at any time hold a long or short position in
such securities.
Neither this letter nor our opinion expressed herein may be reproduced,
summarized, excerpted, quoted from, referred to or disclosed in any filing,
report, document, release or other communication, whether written or oral, made,
prepared, issued or transmitted by the Company, CSLC or Sub without our prior
written approval; provided, however, that this letter may be submitted to and
filed
3
<PAGE>
with the Securities Exchange Commission in connection with its review of
the Merger, and may be reproduced without alteration in the definitive proxy
statement disseminated to the Stockholders relating to the Merger and referred
to in such proxy statement if reproduced without alteration therein.
Based upon and subject to the foregoing, we are of the opinion that as
of the date hereof the Merger Consideration is fair to the Stockholders, from a
financial point of view.
Very truly yours,
Cohen & Steers Capital Advisors LLC
4
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
dated April 18, 2000 (this "Amendment"), among CAPITAL SENIOR LIVING
CORPORATION, a Delaware corporation ("CSLC"); CAPITAL SENIOR LIVING ACQUISITION,
LLC, a Delaware limited liability company, all of the outstanding membership
interests in which are wholly-owned by CSLC ("Sub"); and ILM II SENIOR LIVING,
INC., a Virginia finite-life corporation (the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, CSLC, Sub and the Company entered into an Amended and Restated
Agreement and Plan of Merger dated October 19, 1999 (the "Original Agreement");
WHEREAS, the parties to the Original Agreement desire to amend certain
terms of the Original Agreement as hereinafter set forth;
WHEREAS, the respective Boards of Directors of CSLC and the Company
have determined that it is fair to and in the best interests of their respective
stockholders to consummate the acquisition of the Company by CSLC, by means of a
cash out merger of the Company with and into Sub, upon the terms and subject to
the conditions set forth in the Original Agreement as amended by this Amendment
(the "Merger");
WHEREAS, the respective Boards of Directors of CSLC and the Company,
and CSLC as sole member of Sub, have approved the Merger and the Original
Agreement as amended by this Amendment and the transactions contemplated hereby
and thereby;
NOW, THEREFORE, in consideration of the mutual premises and the
representations, warranties, agreements and covenants herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. The Original Agreement is hereby amended as follows:
(a) The Merger Consideration set forth in Section 2.1(c) of
the Original Agreement is hereby amended by deleting the number "$14.471836" and
inserting in its place $13.041483";
(b) The termination fee (to CSLC) set forth in both the second
and third paragraphs of Section 5.6(b) of the Original Agreement is hereby
amended by deleting the number "$2,964,400" in each of such second and third
paragraphs and inserting in its place "$1,858,200";
<PAGE>
(c) The tern4nation fee (to the Company) set forth in Section
5.6(e) of The Original Agreement is hereby amended by deleting the number
"$850,000" and inserting in its place "$1,540,000";
(d) Section 3.1(m) of the Original Agreement is hereby amended
by deleting therefrom the words "October 6, 1999" and inserting is their place
"April 17, 2000."
(e) Section 3.2(j) of the Original Agreement is hereby amended
by deleting the provisions thereof in their entirety and inserting in their
place;
"(j) Receipt of Financing Commitment. CSLC has paid for and
obtained, and heretofore has provided the Company with true
and complete executed copies of that certain commitment letter
of GMAC Commercial Mortgage Corporation ("GMAC") dated April
14, 2000 and addressed to CSLC, pursuant to which GMAC has
committed, upon the terms and subject to the conditions
specified therein, to provide to CSLC an aggregate sum in cash
which, together with funds segregated by CSLC, will be
sufficient in amount to pay, in full at the Effective Time,
but not later than July 31, 2000, to the holders of Company
Common Stock, the Exchange Funds (the "Financing
Commitment")."
(f) Section 5.6(c) of the Original Agreement is hereby amended
by deleting the second sentence thereof in its entirety.
(g) Section 5.17 of the Original Agreement is hereby amended
by deleting the provisions thereof in their entirety.
(h) Section 6.3(d) of the Original Agreement is hereby amended
by deleting the provisions thereof in their entirety and inserting in their
place,
(d) payment of Exchange Funds. CSLC shall have received the
proceeds of the Financing Commitment, or otherwise shall have
obtained and segregated for payment to the Company sufficient
cash funds, to pay in full at the Effective Time to the
holders of the Company Common Stock, the Exchange Funds."
(i) All references to the Original Agreement shall hereafter
refer to the Original Agreement as amended by this Amendment.
2. Except as amended is this Amendment, the Original Agreement remains
in full force and effect. All capitalized terms used in this Amendment which are
not otherwise defined in this Amendment shall be as defined in the Original
Agreement.
3. This Amendment may be executed in one or more counterparts
(including by facsimile transmission), all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by all of the parties hereto and
2
<PAGE>
delivered to the other parties; it being hereby understood that all parties need
not sign the same counterpart.
IN WITNESS WHEREOF, CSLC, Sub, and the Company have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all on this 18th day of April 2000.
CAPITAL SENIOR LIVING CORPORATION
By: /s/ James A. Stroud
------------------------------
Name: James A. Stroud
Title: Chairman of the Company
CAPITAL SENIOR LIVING ACQUISITION, LLC
By: /s/ Lawrence A. Cohen
-----------------------------------
Name: Lawrence A. Cohen
Title: Chief Executive Officer
ILM II SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
--------------------------
Name: J. William Sharman, Jr.
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
3
<PAGE>
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
CAPITAL SENIOR LIVING CORPORATION,
CAPITAL SENIOR LIVING ACQUISITION, LLC
and
ILM II SENIOR LIVING, INC.
October 19, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.1 Effective Time of the Merger......................................................2
SECTION 1.2 Closing...........................................................................2
SECTION 1.3 Effects of the Merger.............................................................2
SECTION 1.4 Organizational Instruments........................................................3
SECTION 1.5 Member............................................................................3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK AND MEMBERSHIP INTERESTS OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock and Membership Interests..................................3
SECTION 2.2 Letters of Transmittal............................................................4
SECTION 2.3 Exchange Procedures...............................................................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company.....................................6
SECTION 3.2 Representations and Warranties of CSLC and Sub...................................17
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Covenants of the Company CSLC and Sub............................................20
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Company Proxy Statement and the
Schedule 13E-3...................................................................26
SECTION 5.2 Access to Information............................................................26
SECTION 5.3 Stockholder's Meeting............................................................27
SECTION 5.4 Consents and Approvals...........................................................27
SECTION 5.6 Expenses; Liquidated Damages.....................................................28
SECTION 5.7 Brokers or Finders...............................................................29
SECTION 5.8 CSLC Advisory Board..............................................................30
SECTION 5.9 Indemnification; Directors'and Officers'Insurance................................30
SECTION 5.10 Proposed Simultaneous Acquisition................................................32
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 5.11 Additional Agreements; Best Efforts..............................................33
SECTION 5.12 Conveyance Taxes.................................................................33
SECTION 5.13 Public Announcements.............................................................34
SECTION 5.14 Notification of Certain Matters..................................................35
SECTION 5.15 Company Taxes....................................................................35
SECTION 5.16 Original Agreement...............................................................35
SECTION 5.17 Financing Commitments............................................................35
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.......................36
SECTION 6.2 Conditions of Obligations of CSLC and Sub........................................36
SECTION 6.3 Conditions of Obligations of the Company.........................................37
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination......................................................................38
SECTION 7.2 Effect of Termination............................................................39
SECTION 7.3 Amendment........................................................................40
SECTION 7.4 Extension; Waiver................................................................40
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations, Warranties and Agreements........................40
SECTION 8.2 Notices..........................................................................40
SECTION 8.3 Interpretation...................................................................42
SECTION 8.4 Counterparts.....................................................................42
SECTION 8.5 Entire Agreement; No Third Party Beneficiaries...................................42
SECTION 8.6 Governing Law....................................................................43
SECTION 8.7 No Remedy in Certain Circumstances...............................................43
SECTION 8.8 Assignment.......................................................................43
SECTION 8.9 Gender and Number Classification.................................................43
SECTION 8.10 Knowledge........................................................................43
</TABLE>
(ii)
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated October 19,
1999 (this "Agreement"), among CAPITAL SENIOR LIVING CORPORATION, a Delaware
corporation ("CSLC"); CAPITAL SENIOR LIVING ACQUISITION, LLC, a Delaware limited
liability company, all of the outstanding membership interests in which are
wholly-owned by CSLC ("Sub"); and ILM II SENIOR LIVING, INC., a Virginia
finite-life corporation (the "Company").
W I T N E S S E T H :
WHEREAS, CSLC, Sub, Capital Senior Living Trust I, a grantor trust
established under the laws of the State of Delaware and a wholly owned
subsidiary of CSLC, and the Company, entered into an Agreement and Plan of
Merger dated as of February 7, 1999 (the "Original Agreement");
WHEREAS, the parties to the Original Agreement desire to amend and
restate in their entirety the terms and conditions of the Original Agreement as
hereinafter set forth;
WHEREAS, the respective Boards of Directors of CSLC and the Company
have determined that it is fair to and in the best interests of their respective
stockholders to consummate the acquisition of the Company by CSLC, by means of a
cash out merger of the Company with and into Sub, upon the terms and subject to
the conditions set forth herein (the "Merger");
WHEREAS, the respective Boards of Directors of CSLC and the Company,
and CSLC as sole member of Sub, have approved the Merger and this Agreement and
the transactions contemplated hereby;
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a purchase of the Company by CSLC, and the Merger shall
be reported for federal, state and local income tax purposes as a fully taxable
acquisition by CSLC of all of the assets of the Company;
WHEREAS, CSLC, Sub, and the Company desire to make certain
representations, warranties, agreements and covenants in respect of the Merger
and also to prescribe various conditions thereto, all as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises and the
representations, warranties, agreements and covenants herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 Effective Time of the Merger. Upon the terms and subject to
the conditions of this Agreement, articles of merger (the "Articles of Merger")
and a certificate of merger (the "Certificate of Merger"), respectively, shall
be duly prepared, executed and acknowledged by the "Surviving Entity" (as
defined in Section 1.3) and delivered to the Secretary of the Commonwealth of
Virginia (the "Virginia Secretary") and to the Secretary of State of Delaware
(the "Delaware Secretary") for filing as provided in the Virginia Stock
Corporation Act, as amended (the "Va Act"), and as provided in the Delaware
Limited Liability Company Act, as amended (the "DLLCA"), as soon as practicable
on or after the "Closing Date" (as defined in Section 1.2). The Merger shall
become effective upon the filing of the Articles of Merger and the Certificate
of Merger with the Virginia Secretary and the Delaware Secretary, respectively,
or at such other date and time subsequent thereto as mutually agreed by CSLC and
the Company and expressly provided in the Articles of Merger and the Certificate
of Merger (the "Effective Time").
SECTION 1.2 Closing. The closing of the Merger (the "Closing") shall
occur at 10:00 a.m., Eastern time, on a date to be mutually specified by the
parties hereto, which date shall be the first day of the calendar month
(provided that if such day is not a business day, then the Closing shall occur
on the first business day next following such day but nonetheless shall be
deemed to have occurred on the first day of such calendar month) next following
the waiver or satisfaction, as applicable, of the last to occur of the
conditions set forth in Article VI hereof (the "Closing Date"), at the offices
of Greenberg Traurig, The MetLife Building, 200 Park Avenue, 15th Floor, New
York, NY 10166, unless another date, time or place is agreed to by the parties
hereto.
SECTION 1.3 Effects of the Merger. (a) At the Effective Time, the
Company shall be merged with and into Sub, and thereupon, the separate corporate
existence of the Company shall cease (Sub and the Company being sometimes
hereafter referred to as the "Constituent Corporations" and Sub being sometimes
hereafter referred to as the "Surviving Entity").
(b) At the Effective Time, the effect of the Merger shall
be as provided in the Va Act and the DLLCA. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, interests, privileges, powers and franchises of the Company and Sub
thereupon shall vest in the Surviving Entity, and all debts, liabilities,
obligations, restrictions, disabilities and duties of each of the Company and
Sub ("Liabilities") thereupon shall become the Liabilities of the Surviving
Entity.
2
<PAGE>
SECTION 1.4 Organizational Instruments. The Certificate of Formation of
Sub in effect immediately prior to the Effective Time shall be the Certificate
of Formation of the Surviving Entity from and after the Effective Time until
thereafter duly amended or restated in accordance with applicable law. The
Operating Agreement of Sub in effect immediately prior to the Effective Time
shall be the Operating Agreement of the Surviving Entity from and after the
Effective Time until thereafter duly amended or restated in accordance with the
Certificate of Formation of the Surviving Entity and applicable law.
SECTION 1.5 Member. The sole member of Sub immediately prior to the
Effective Time shall continue as the sole member of the Surviving Entity from
and after the Effective Time until thereafter substituted or changed pursuant to
the Operating Agreement and the DLLCA.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK AND MEMBERSHIP
INTERESTS OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES
SECTION 2.1 Effect on Capital Stock and Membership Interests. At the
Effective Time, by virtue of the Merger and without any further action on the
part of the holder of any shares of capital stock or membership interests of the
Company, CSLC, or Sub:
(a) Membership Interests of Sub. Each membership interest
of Sub outstanding immediately prior to the Effective Time and owned by CSLC
automatically shall be converted into and become one duly authorized, validly
issued, fully paid and nonassessable membership interest of the Surviving
Entity.
(b) Cancellation of Certain Stock. All shares of common
stock, $.01 par value, of the Company (the "Company Common Stock") owned by the
Company as treasury stock and all shares of the Company Common Stock owned by
CSLC, Sub, or any other Subsidiary of the Company and CSLC, automatically shall
be canceled and retired and shall cease to exist and no capital stock or other
interests of CSLC, Sub, or any other Subsidiary of CSLC or other consideration
(whether consisting of cash or property) shall be delivered in exchange
therefor.
As used in this Agreement, the word "Subsidiary" means, with
respect to any person or entity, any person or entity of which more than 50% of
the securities or other ownership interests having ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions are owned directly, or indirectly through one or more intermediaries,
by such person or entity.
3
<PAGE>
(c) Merger Consideration. Each share of Company Common
Stock outstanding immediately prior to the Effective Time (other than any shares
to be canceled in accordance with Section 2.1(b)) shall, at the Effective Time,
automatically be converted into the right to receive $14.471836 in cash (the
"Merger Consideration"). All such shares of Company Common Stock, when converted
as provided in this Section 2.1(c), no longer shall be outstanding and
automatically shall be canceled and retired and shall cease to exist, and each
certificate previously evidencing such shares of Company Common Stock thereafter
shall represent only the right to receive the Merger Consideration. The holders
of certificates previously evidencing such shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights of beneficial ownership or otherwise with respect to such shares except
as otherwise provided in this Agreement or by law and upon the surrender of
certificates therefor in accordance with the provisions of Section 2.3 shall
only represent the right to receive the Merger Consideration, without any
interest thereon.
SECTION 2.2 Letters of Transmittal. On such date on which the Company
Proxy Statement (as defined in Section 3.1(c)) is mailed to holders of the
Company Common Stock, the Company shall mail to each such holder on the record
date established for such holders entitled to notice of and to vote at the
Company Stockholders' Meeting (as defined in Section 3.1(c)), a form of letter
of transmittal, and other appropriate materials instructing each such holder on
the procedures required to receive the Merger Consideration in respect of each
share of Company Common Stock.
SECTION 2.3 Exchange Procedures (a) Exchange Agent; Exchange Funds.
Immediately prior to the Effective Time, CSLC shall deposit (or cause to be
deposited) with ChaseMellon Shareholder Services, L.L.C., or such other bank or
trust company designated by CSLC and having net capital in excess of
$250,000,000 and reasonably acceptable to the Company (the "Exchange Agent"),
for the benefit of the holders of the Company Common Stock, for exchange in
accordance with this Article II, the aggregate Merger Consideration payable by
CSLC in the Merger to all holders of the Company Common Stock (the "Exchange
Funds").
(b) Surrender of Certificates. Promptly after the
Effective Time, the Exchange Agent shall distribute to each holder of the
Company Common Stock, upon surrender to the Exchange Agent of the certificate(s)
for cancellation in exchange for the Exchange Funds in accordance with this
Article II, the aggregate Merger Consideration to which each such holder is
entitled to receive in the Merger. In the event of a transfer of ownership of
the Company Common Stock which is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of the Company
Common Stock may be issued to a transferee if certificate(s) representing such
Company Common Stock are presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that all
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.3,
4
<PAGE>
each certificate shall be deemed from and after the Effective Time to represent
only the right to receive upon such surrender the Exchange Funds in accordance
with this Article II, without any interest thereon.
(c) No Further Ownership Rights in the Company Common
Stock. All Exchange Funds issued and paid upon the surrender for exchange of
shares of the Company Common Stock in accordance with the terms hereof shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to such shares, subject, however, to the Surviving Entity's
obligation to pay any dividends and make any other distributions having a record
date prior to the Effective Time which may have been declared or made by the
Company on such shares of Company Common Stock after the date hereof and
otherwise in accordance with the terms of this Agreement and which remain unpaid
at the Effective Time, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Entity of the shares of the Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificate(s) representing shares of the Company
Common Stock are presented to the Surviving Entity for any reason, they shall be
canceled and exchanged as provided in this Article II.
(d) Termination of Exchange Funds. Any portion of the
Exchange Funds which remains undistributed to the holders of the Company Common
Stock on the first anniversary of the Effective Time shall be delivered to CSLC
or the Surviving Entity, upon demand by CSLC, and any holders of the Company
Common Stock who have not theretofore surrendered their shares (in accordance
with this Article II and the instructions set forth in the letter of transmittal
received by such holders) thereafter shall look only to CSLC and the Surviving
Entity for payment of the aggregate Merger Consideration to which they are
entitled in the Merger.
(e) No Liability. Neither CSLC, Sub, nor the Company
shall be liable to any holder of Company Common Stock for any cash or property
in respect thereof delivered to a public official pursuant to any applicable
abandoned property, escheat or other similar law.
(f) Lost or Stolen, etc. Certificates. If any certificate
evidencing shares of the Company Common Stock shall have been lost, stolen or
destroyed, then in such event, upon the submission of a duly notarized affidavit
of that fact by the person claiming such certificate(s) to be lost, stolen or
destroyed and, if required by the Surviving Entity, the posting by such person
of a bond, indemnity or similar surety in such reasonable amount as the
Surviving Entity may direct as indemnity against any claim that may be made
against it with respect to such certificate(s), the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed certificate the applicable Merger
Consideration.
5
<PAGE>
(g) Withholding Taxes. CSLC and Sub shall be entitled to
deduct and withhold (or cause the Exchange Agent to deduct and withhold) from
the Merger Consideration payable to a holder of the Company Common Stock, all
withholding and stock transfer taxes, including, without limitation, withholding
taxes imposed by the Foreign Investors Real Property Tax Act of 1980. To the
extent such amounts are so withheld, they shall be treated for all purposes of
this Agreement as having been paid to the holder of the Company Common Stock in
respect of whom such deduction and withholding was made by CSLC and Sub.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. The Company
represents and warrants to each of CSLC and Sub as follows:
(a) Organization, Standing and Power. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to transact business in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification necessary, except where the failure to be in good
standing or so to qualify would not have a material adverse effect on the
properties, assets, financial condition or operations of the Company and its
Subsidiaries taken as a whole and/or would prevent or materially impair the
consummation by the Company of the Merger and the transactions contemplated
thereby and hereby (a "Material Adverse Effect").
(b) Capital Structure. The authorized capital stock of
the Company consists of 12,500,000 shares of the Company Common Stock, $.01 par
value. At the close of business on the date hereof, 5,181,236 shares of the
Company Common Stock were issued and outstanding. Except as provided in this
Agreement, there are no shares of capital stock of the Company outstanding and
there are no options, warrants, calls, rights or agreements to which the Company
or any Subsidiary of the Company is a party or by which it is bound obligating
the Company or any Subsidiary of the Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or any
voting debt securities of the Company or of any Subsidiary of the Company, or
obligating the Company or any Subsidiary of the Company to grant, extend or
enter into any such option, warrant, call, right or agreement. All outstanding
shares of the Company Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable.
6
<PAGE>
The authorized capital stock of ILM II Holding, Inc. ("ILM II
Holding") consists of 50,000 shares of common stock, $.01 par value ("Holding
Common Stock") and 275 shares of Series A Preferred Stock, no par value
("Holding Preferred Stock"). At the close of business on the date hereof, 50,000
shares of Holding Common Stock and 275 shares of Holding Preferred Stock,
respectively, were issued and outstanding. All outstanding shares of Holding
Common Stock have been duly authorized and are validly issued, fully paid,
nonassessable and wholly owned by the Company. All outstanding shares of Holding
Preferred Stock have been duly authorized and are validly issued, fully paid and
nonassessable.
(c) Authority. The Company has all requisite corporate
power and authority to enter into this Agreement and, subject to the adoption of
this Agreement and the Merger by the holders of not less than 66-2/3% of the
outstanding Company Common Stock (the "Company Stockholder Approval Condition"),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement has been duly authorized by all necessary corporate action on
the part of the Company, and the consummation by it of the transactions
contemplated hereby has been duly authorized by all necessary corporate action
on the part of the Company, subject to the Company Stockholder Approval
Condition. This Agreement has been duly executed and delivered by the Company
and, subject to the Company Stockholder Approval Condition, constitutes a valid
and binding obligation of the Company enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The execution and delivery of this Agreement does not, and
the consummation by the Company of the transactions contemplated hereby 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 the loss of a material right
or benefit under, or the creation or imposition of any lien, pledge, adverse
claim, security interest, charge or other encumbrance ("Lien") on or against any
assets or properties of the Company or any of its Subsidiaries (any such
conflict, violation, default, right of termination, cancellation, acceleration,
loss, creation or imposition, hereafter a "Violation"), pursuant to, (i) any
provision of the Articles of Incorporation or By-laws or analogous instruments
of governance or formation of the Company or any of its Subsidiaries presently
in effect, or (ii) any loan or credit agreement, note, mortgage, indenture,
lease, Company Benefit Plan (as defined in Section 3.1(j)(i)) or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, writ, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, or their respective
properties or assets, except in the case of this clause (ii), for any such
Violation which insofar as reasonably can be foreseen would not have a Material
Adverse Effect.
No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency,
commission or other public or
7
<PAGE>
governmental authority (a "Governmental Entity") is required by or with respect
to the Company or any of its Subsidiaries in connection with the execution and
delivery by the Company of this Agreement or the consummation by the Company of
the transactions contemplated hereby, the failure to obtain which insofar as
reasonably can be foreseen would have a Material Adverse Effect, except for (i)
the filing with the Securities and Exchange Commission ("SEC") of a proxy
statement (the "Company Proxy Statement") in definitive form on Schedule 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
relating to the special meeting (the "Company Stockholders' Meeting") of holders
of the Company Common Stock to be convened as required by the Va Act and in
accordance with the Company's Articles of Incorporation and By-laws to vote upon
the adoption and approval of this Agreement and the Merger and the transactions
contemplated hereby and thereby, the related Transaction Statement of the
Company and CSLC on Schedule 13E-3 (the "Schedule 13E-3"), and such reports and
other transaction statements under the Exchange Act as may be required in
connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby, (ii) the filing of the Articles of Merger, the Certificate
of Merger and such other appropriate documents with the Virginia Secretary and
the Delaware Secretary, as applicable, and relevant authorities of other
jurisdictions in which the Company or any of its Subsidiaries is qualified to do
business, (iii) all applicable filings, if any, with, and submissions of
information to, the United States Federal Trade Commission ("FTC") and the
United States Department of Justice, Antitrust Division ("DOJ"), pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iv) such other filings, authorizations, orders and approvals as may
be required and which heretofore have been made or obtained.
The Board of Directors of the Company (the "Company Board")
has unanimously approved this Agreement, the Merger and all of the transactions
contemplated hereby and thereby and has resolved unanimously to recommend that
holders of the Company Common Stock approve and adopt this Agreement and the
Merger; provided that the Company Board may withdraw, modify or change such
recommendation (including in a manner adverse to CSLC) under the circumstances
set forth in the second sentence of Section 4.1(e)(ii).
(d) SEC Documents. The Company has made available to CSLC
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since September 1,
1997 (as such documents have been amended to date, the "Company SEC Documents")
which constitute all the documents (other than preliminary material) that the
Company was required to file with the SEC since such date. As of their
respective dates, the Company SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as the case may be, and the rules and regulations of the
SEC thereunder applicable thereto (other than with respect to the
8
<PAGE>
timely filing thereof), and none of the Company SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Company included in
the Company SEC Documents comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited or interim statements, as permitted by the SEC's Quarterly
Report on Form 10-Q) and fairly present (subject, in the case of the unaudited
or interim statements, to normal and recurring audit adjustments) the
consolidated financial position of the Company and its Subsidiaries at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended. Since November 30, 1998, neither the Company nor any of its
Subsidiaries has incurred any liabilities, except for (i) liabilities or
obligations incurred in the ordinary course of business consistent with past
practice, including the Company's obligations under the "Fleet Agreement" (as
hereinafter defined), (ii) liabilities incurred in connection with or as a
result of this Agreement and the Merger and the transactions contemplated
thereby, and (iii) such other liabilities and obligations which, individually or
in the aggregate, are de minimis.
(e) Information Supplied. None of the information
supplied or to be supplied by the Company expressly for inclusion or (to the
extent permitted by applicable rules of the SEC) incorporated by reference in
the Company Proxy Statement and/or the Schedule 13E-3 shall, on the date the
same is filed with the SEC in definitive form, on each date on which the Company
Proxy Statement is mailed to holders of the Company Common Stock, and on the
date of the Company Stockholders' Meeting, as applicable, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Company Proxy
Statement shall, on each date mailed to holders of Company Common Stock in
connection with the Company Stockholders' Meeting and at all times thereafter to
the Closing Date, comply in all material respects with the provisions of
Regulation 14A under the Exchange Act.
(f) Compliance with Applicable Laws. The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders,
authorizations and approvals of all Governmental Entities which are material to
the operation of their respective businesses (the "Company Permits"). The
Company and its Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply insofar as reasonably can be
foreseen would not have a Material Adverse Effect. Except as disclosed in the
Company SEC Documents, the respective businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, ordinance
9
<PAGE>
or regulation of any Governmental Entity, except for violations which do not,
and insofar as reasonably can be foreseen would not, have a Material Adverse
Effect. As of the date of this Agreement, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened, nor has any
Governmental Entity indicated an intention to conduct the same other than those
the outcome of which, insofar as reasonably can be foreseen, would not have a
Material Adverse Effect.
(g) Litigation. Except as disclosed in the Company SEC
Documents, there is no suit, action or proceeding pending or, to the knowledge
of the Company, threatened, against or affecting the Company or any of its
Subsidiaries which, if determined adversely to the Company or any of its
Subsidiaries, would insofar as reasonably can be foreseen, have a Material
Adverse Effect, nor is there any judgment, decree, writ, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
or any of its Subsidiaries of the Company having, or which insofar as reasonably
can be foreseen would have, a Material Adverse Effect.
(h) Taxes. (i) The Company and each of its Subsidiaries
has filed all material tax returns required to be filed by any of them and has
paid (or the Company has paid on its behalf) all taxes required to be paid as
shown on such returns, and all such tax returns are complete and accurate in all
material respects. The most recent financial statements contained in the Company
SEC Documents reflect an adequate reserve for all taxes payable by the Company
and its Subsidiaries accrued through the date of such financial statements.
Since November 30, 1998, neither the Company nor any of its Subsidiaries have
incurred any liability for taxes under Sections 857(b), 860(c) or 4981 of the
Internal Revenue Code of 1986, as amended (the "Code"), and neither the Company
nor any of its Subsidiaries has incurred any liability for taxes other than in
the ordinary course of business. No event has occurred and no condition exists
which presents a material risk that any material tax liability described in the
preceding sentence will be imposed upon the Company and its Subsidiaries. No
material deficiencies for any taxes have been proposed, asserted or assessed by
any Governmental Entity against the Company or any of its Subsidiaries. No
requests for waivers of the time to assess taxes are pending and no tax returns
of the Company or any of its Subsidiaries has been or are currently being
audited by any applicable taxing authority. There are no tax liens on any asset
of the Company or its Subsidiaries other than liens for current taxes not past
due and payable.
For purposes of this Agreement, the term "tax" (including,
with correlative meaning, the terms "taxes" and "taxable") includes all Federal,
state, local and foreign income, profits, franchise, gross receipts, payroll,
sales, windfall profits, ad valorem, stamp, severance, occupation, premium,
customs duties, commercial rent, capital stock, paid-up capital, value added,
unemployment, disability, alternative or add-on minimum, single business, social
security, registration, estimated, environmental, employment, use,
10
<PAGE>
real or personal property, withholding, excise and other taxes, imposts, duties
or assessments of any nature whatsoever, together with all interest, penalties,
charges and additions to tax imposed with respect to such amounts.
(ii) The Company (A) for all taxable years
commencing with the tax year which began January 1, 1996 through its most recent
taxable year end has been subject to taxation as a real estate investment trust
(a "REIT") within the meaning of Section 856 of the Code, has not been subject
to Section 269B(a) of the Code, and has satisfied all requirements to qualify as
a REIT for such periods, (B) has operated since its most recent tax year end in
such a manner so as to qualify as a REIT for the taxable year ending through the
Closing Date, and (C) has not taken (or omitted to take) any action which
reasonably would be expected to (1) result in any rents paid by the tenants of
the "Senior Housing Facilities" (as such term is defined in the Company SEC
Documents) to be excluded from the definition of "rents from real property"
under Section 856(d)(2) of the Code or (2) otherwise result in a challenge to
its status as a REIT, and no such challenge is pending or, to the Company's
knowledge, threatened, by or before any Governmental Entity.
(iii) ILM II Holding (A) for all taxable years
commencing with the tax year which commenced on January 1, 1996 through its most
recent taxable year end has been subject to taxation as a REIT within the
meaning of Section 856 of the Code, has not been subject to Section 269B(a) of
the Code, and has satisfied all requirements to qualify as a REIT for such
periods, (B) has operated since its most recent taxable year end in such manner
so as to qualify as a REIT for the taxable year ending through the Closing Date,
and (C) has not taken (or omitted to take) any action which reasonably would be
expected to (1) result in any rents paid by the tenants of the Senior Housing
Facilities to be excluded from the definition of rents from real property under
Section 856(d)(2) of the Code or (2) otherwise result in a challenge by any
taxing authority to its status as a REIT, and no such challenge is pending or,
to the Company's or ILM II Holding's knowledge, threatened, by or before any
Governmental Entity.
(iv) Each of the Company and ILM II Holding is a
"domestically-controlled REIT" (as defined in Section 897(4) of the Code).
(i) Certain Agreements. Neither the Company nor any of
its Subsidiaries is a party to any oral or written (i) consulting agreement not
terminable on 60 days' or less notice involving the payment of more than $25,000
per annum, (other than that certain consulting agreement between the Company,
ILM Senior Living, Inc., ILM I Lease Corporation, ILM II Lease Corporation and
David Carlson, dated October 16, 1997, as amended on August 6, 1998 and
September 25, 1998, which is renewable annually by the parties thereto and upon
failure to renew or termination, provides for a $100,000 payment to Mr. Carlson)
or any union, guild or collective bargaining agreement, (ii) agreement with any
executive officer or key employee of the Company or
11
<PAGE>
any Subsidiary of the Company the benefits of which are contingent or the terms
of which would be materially altered upon the occurrence of a transaction
involving the Company of the nature contemplated by this Agreement, or agreement
with respect to any executive officer of the Company providing any term of
employment or compensation guarantee or (iii) agreement or plan, including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which would be increased or the
vesting of the benefits of which would be accelerated upon consummation of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which would be calculated by reference to any of the transactions
contemplated by this Agreement.
(j) Benefit Plans. (i) Neither the Company nor any other
member of a "Company Controlled Group" (as hereafter defined) maintains,
contributes to or participates in, or has any obligation to maintain, contribute
to or participate in, any employee benefit plan (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), retirement or deferred compensation plan, incentive compensation
plan, consulting agreement, unemployment compensation plan, vacation pay plan,
severance plan, retiree medical plan, bonus plan, stock compensation plan or any
other type of employee-related arrangement, program, policy, plan or agreement
(all of such plans being hereinafter referred to as "Company Benefit Plans").
For purposes of this Section 3.1(j), the term "Company Controlled Group" means
the Company and each other corporation or other entity which has at any other
time been under common control with the Company pursuant to Sections 414(b),
(c), (m) or (o) of the Code.
(ii) With respect to each Company Benefit Plan,
(A) there has been no material violation of any applicable provision of ERISA
which could result in a material liability being imposed upon the Company; (B)
each Company Benefit Plan intended to qualify under Section 401(a) of the Code
has received (or prior to the Effective Time shall have received) a favorable
determination letter with respect to such qualification and, to the knowledge of
the Company, nothing has occurred (or prior to the Effective Time shall occur)
which could reasonably be expected to jeopardize such favorable determination;
(C) neither the Company nor any other member of the Company Controlled Group is
subject to any material outstanding liability or obligation relating to any such
Company Benefit Plan (other than the obligation to make contributions to, or pay
benefits with respect to, any such Company Benefit Plan, such contributions
and/or benefits being made or paid no later than the date(s) required by law or
the terms of such Company Benefit Plan); and (D) to the knowledge of the Company
there are no actual or pending claims or actions (other than claims for benefits
in the ordinary course) relating to any such Company Benefit Plan.
(iii) There are no unfunded and accrued benefit
obligations for which contributions have not been properly accrued to the extent
required by GAAP, on
12
<PAGE>
the consolidated financial statements of the Company and its Subsidiaries, which
obligations reasonably are likely to have a Material Adverse Effect.
(k) Title to and Sufficiency of Assets. The Company
directly, or indirectly through a wholly-owned Subsidiary, owns, and as of the
Effective Time the Company shall own, valid title to all of its assets
constituting the Senior Housing Facilities and personal property which is
material to the businesses of the Company and its Subsidiaries taken as a whole,
free and clear of any and all Liens, except as set forth in the Company SEC
Documents. Such assets include all tangible and intangible real or personal
property, contracts and rights necessary or required for the operation of the
business of the Company and its Subsidiaries.
(l) Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Documents, since November 30, 1998, the Company and
its Subsidiaries have conducted their respective businesses in the ordinary
course and, there has not been (i) any damage, destruction or loss, whether
covered by insurance or not, which has, or insofar as reasonably can be foreseen
would have, a Material Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's or its Subsidiaries' capital
stock, except for cash dividends in respect of the Company's or its
Subsidiaries' taxable income, the declaration and payment of which is necessary
to preserve the Company's or its Subsidiaries' REIT status; (iii) any change in
the Company's significant accounting policies; or (iv) any transaction,
commitment, dispute or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business) having, or which
insofar as reasonably can be foreseen would have, a Material Adverse Effect.
(m) Opinion of Financial Advisor. The Company has
received the written opinion of Cohen & Steers Capital Advisors LLC dated
October 6, 1999 a true and complete copy of which has been delivered (but not
addressed) to CSLC, to the effect that as of the date of such opinion the Merger
Consideration to be paid by CSLC in the Merger is fair to the holders of Company
Common Stock, from a financial point of view.
(n) Virginia Anti-takeover Statutes Not Applicable. The
Company has taken or caused to have been taken (or prior to the Effective Time
shall have taken or cause to have been taken) and has done or caused to have
been done (or prior to the Effective Time shall do or cause to have been done)
all things necessary to make inapplicable to this Agreement, the Merger and the
transactions contemplated hereby and thereby, all "change-in-control," "fair
price," "interested stockholder," "business combination," "control share
acquisition," "merger moratorium," "voting sterilization" and all other
anti-takeover and stockholder protection laws enacted under the Va Act or any
other internal laws of the Commonwealth of Virginia (collectively, "State
Takeover Laws").
13
<PAGE>
(o) Vote Required. The affirmative vote of the holders of
not less than 66-2/3% of the outstanding shares of the Company Common Stock is
the only vote of the holders of any class or series of capital stock of the
Company necessary to approve this Agreement, the Merger and the transactions
contemplated hereby and thereby.
(p) Environmental Matters. The operations of the Company
and its Subsidiaries are in compliance with all applicable "Environmental Laws"
(as defined herein) and all of the Company Permits issued pursuant to
Environmental Laws, except where the failure so to comply insofar as reasonably
can be foreseen would not have a Material Adverse Effect. The Company and its
Subsidiaries have obtained all of the Company Permits under all applicable
Environmental Laws necessary to operate their businesses. Neither the Company
nor any of its Subsidiaries have received any written notification from any
Governmental Entity asserting that the Company or any of its Subsidiaries is in
violation of any the Company Permits issued pursuant to any Environmental Law.
There are no investigations of the business, operations or Senior Housing
Facilities, pending or, to the Company's or any of its Subsidiaries' knowledge,
threatened, by any Governmental Entity which violation, insofar as reasonably
can be foreseen, would result in the imposition of material liability on the
Company or any of its Subsidiaries (or any successor-in-interest thereto)
pursuant to any Environmental Law. There is not located at any of the Senior
Housing Facilities any underground storage tanks ("USTs") or asbestos-
containing or polychlorinated biphenyls ("PCBs").
For purposes of this Agreement, "Environmental Law" means
any foreign, Federal, state or local statute, regulation, ordinance or rule of
common-law as now or hereafter in effect in any way relating to the protection
of human health and safety or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 et. seq.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et. seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et. seq.), the Clean Water Act (33 U.S.C. Section 1251 et.
seq.), the Clean Air Act (42 U.S.C. Section 7401 et. seq.), the Toxic Substances
Control Act (15 U.S.C. Section 2601 et. seq.), the Federal Insecticide,
Fungicide and Rodenticide Act (17 U.S.C. Section 136 et. seq.), and the
Occupational Safety and Health Act (29 U.S.C. Section 651 et. seq.), and the
rules and regulations promulgated thereunder.
(q) Insurance. The properties, buildings, fixtures,
equipment and machinery of the Company and its Subsidiaries are adequately
insured by financially sound and reputable insurers in adequate amounts and
against such risks and contingencies as are insured against by persons
customarily owning, operating and leasing properties, buildings, fixtures,
equipment and machinery in substantially the same manner and in the same
locations as the Company and its Subsidiaries. All insurance policies of the
Company and its Subsidiaries relative to the foregoing are in full force and
effect and, to the Company's knowledge, neither the Company nor any of its
Subsidiaries
14
<PAGE>
is in default of any provision thereof, except for such defaults which insofar
as reasonably can be foreseen would not have a Material Adverse Effect.
(r) FCPA. Neither the Company or any of its Subsidiaries
nor, to the Company's knowledge, any of its or any of its Subsidiaries'
directors or officers, has (i) used any Company or such Subsidiary funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
any Company or such Subsidiary funds; (iii) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended ("FCPA"); or (iv) made any
bribe, rebate, payoff, influence payment, "kickback" or other unlawful payment
to any person or entity with respect to any Company or any of its Subsidiaries'
matters.
(s) Company Affiliate Transactions. Except as disclosed
in the Company SEC Documents, from September 1, 1997 to the date hereof, there
have been no transactions, agreements or understandings between the Company or
any of its Subsidiaries on the one hand, and the Company's or any of its
Subsidiaries' affiliates, officers or directors on the other hand, that would be
required to be disclosed pursuant to Item 404 of Regulation S-K under the
Securities Act.
(t) Company Internal Controls. The Company maintains
accurate books and records reflecting its assets and maintains proper and
adequate internal accounting controls which provide assurance that (i)
transactions are executed with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of the Company and to maintain accountability for the assets of the
Company; (iii) access to the assets of the Company is generally permitted only
in accordance with management's authorization; (iv) the reported accountability
of the assets of the Company is compared with existing assets at regular
intervals; and (v) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection of such receivables on a current and timely basis. The
books of account, stock records, minute books and other records of the Company
and its Subsidiaries are complete and correct in all material respects.
(u) Investment Company Act. The Company is not (and
immediately after consummation of the Merger and the other transactions
contemplated by this Agreement shall not be) an investment company within the
meaning of, or a company controlled by an investment company within the meaning
of, or otherwise subject to any provisions of, the Investment Company Act of
1940, as amended (the "Investment Company Act") and the rules and regulations of
the SEC thereunder.
(v) Articles of Incorporation and Bylaws. The Company
heretofore has furnished to CSLC complete and correct copies of the Articles of
Incorporation and the
15
<PAGE>
Bylaws (or equivalent organizational documents), in each case as amended or
restated to the date hereof, of the Company and each of its Subsidiaries.
Neither the Company nor any of its Subsidiaries is in violation of any
provisions of its Articles of Incorporation or Bylaws (or equivalent
organizational documents).
(w) Disclosure. No representation or warranty made by the
Company in this Agreement and no statement of the Company contained in the
Schedules hereto or in any certificate delivered by the Company pursuant to this
Agreement, contains any untrue statement of a material fact or omits any
material fact necessary to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading; it being hereby
agreed and understood that for purposes of this Section 3.1(w) the term
"material" shall be measured by reference to the Company and its Subsidiaries,
considered as an entirety.
SECTION 3.2 Representations and Warranties of CSLC and Sub. CSLC and
Sub jointly and severally hereby represent and warrant to the Company as
follows:
(a) Organization; Standing and Power. Each of CSLC, Sub,
and CSLC's other Subsidiaries is a corporation, limited partnership, limited
liability company or trust, as the case may be, duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation or organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to transact business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except where the
failure to be in good standing or so to qualify would not have a material
adverse effect on the properties, assets, financial condition or operations of
CSLC and its Subsidiaries, taken as a whole (a "CSLC Material Adverse Effect").
(b) Authority. CSLC and Sub have all requisite corporate
and limited liability company authority, as applicable, to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by CSLC and Sub have been duly authorized by all
necessary corporate and limited liability company action, as applicable, on the
part of CSLC and Sub, and the consummation by CSLC and Sub of the transactions
contemplated hereby and thereby has been duly authorized by all necessary
corporate, and limited liability company action, as applicable, on the part of
CSLC and Sub. This Agreement has been duly executed and delivered by CSLC and
Sub, as applicable, and, this Agreement constitutes the valid and binding
obligations of CSLC and Sub, as applicable, enforceable against them in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The execution and delivery of this
Agreement does not result in any Violation pursuant to (i) any provision of the
Certificate of Incorporation, Certificate of
16
<PAGE>
Formation, Operating Agreement, By-laws or analogous instruments of formation or
governance of CSLC, Sub, or any of CSLC's Subsidiaries presently in effect or,
(ii) any loan or credit agreement, note, mortgage, indenture, lease, employee
benefit plan or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, writ, order, decree, statute, law, ordinance, rule
or regulation applicable to CSLC or any of its Subsidiaries or their respective
properties or assets, except in the case of this clause (ii), for any such
Violation which insofar as reasonably can be foreseen would not have a CSLC
Material Adverse Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by, or with respect to CSLC or any of its Subsidiaries in connection with the
execution and delivery of this Agreement, or the consummation by CSLC or Sub of
the transactions contemplated hereby and thereby, the failure to obtain which
insofar as reasonably can be foreseen would have a CSLC Material Adverse Effect,
except for (i) the filing with the SEC of the Schedule 13E-3 and such other
reports and transaction statements under the Exchange Act as may be required in
connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby, (ii) the filing of the Articles of Merger, the Certificate
of Merger and such other appropriate documents with the Virginia Secretary and
the Delaware Secretary, as applicable, and other relevant authorities of
jurisdictions in which CSLC is qualified to do business, (iii) all applicable
filings with, and submissions of information to, the FTC and DOJ pursuant to the
HSR Act, and (iv) such other filings, authorizations, orders and approvals as
may be required and which heretofore have been made or obtained.
(c) Information Supplied. None of the information
supplied or to be supplied by CSLC or Sub for inclusion or (to the extent
permitted by applicable rules of the SEC) incorporated by reference in the
Company Proxy Statement and/or the Schedule 13E-3 shall, on the date the same is
filed with the SEC in definitive form, on each date on which the Company Proxy
Statement is mailed to holders of the Company Common Stock, and on the date of
the Company Stockholders' Meeting, as applicable, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, not misleading contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(d) Compliance with Applicable Laws. The businesses of
CSLC and its Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity which violation, insofar as
reasonably can be foreseen, would prevent or materially impair the consummation
by CSLC of the Merger and the transactions contemplated thereby and hereby. As
of the date of this Agreement, no investigation or review by any Governmental
Entity with respect to CSLC or any of its Subsidiaries is pending or, to the
knowledge of CSLC, threatened, nor has any Governmental Entity indicated an
intention to conduct the same which investigation or
17
<PAGE>
review, insofar as reasonably can be foreseen, would prevent or materially
impair the consummation by CSLC of the Merger and the transactions contemplated
thereby and hereby.
(e) Capital Structure. All of the limited liability member
interests of Sub have been duly authorized and are validly issued, fully paid
and nonassessable and owned by CSLC.
(f) Litigation. There is no suit, action or proceeding
pending or, to the knowledge of CSLC, threatened against or affecting CSLC or
any of its Subsidiaries, which, if determined adversely to CSLC or any of the
Subsidiaries and insofar as reasonably can be foreseen, would prevent or
materially impair the consummation by CSLC of the Merger and the transactions
contemplated thereby and hereby; nor is there any judgment, decree, writ,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against CSLC or any of its Subsidiaries which judgment, decree, writ,
injunction, rule or order, insofar as reasonably can be foreseen, would prevent
or materially impair the consummation by CSLC of the Merger and the transactions
contemplated thereby and hereby.
(g) Ownership and Interim Operations of Sub. The Sub was
formed solely for the purpose of engaging in the transactions contemplated
hereby and has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement. The Sub is, and at the
Effective Time will be directly and wholly owned by CSLC. Sub does not own, and
at all times from and after the date hereof and prior to the Effective Time will
continue not to own, any asset other than an amount of cash necessary for its
due incorporation and good standing and to pay the fees and expenses of the
Merger attributable to it if the Merger is consummated.
(h) Organizational Instruments. CSLC heretofore has
furnished to the Company complete and correct copies of the respective
organizational and constituent instruments and documents of CSLC, Sub, and each
other Subsidiary of CSLC, in each case as amended or restated to the date
hereof. None of CSLC, Sub, or any other Subsidiary of CSLC is in violation of
any provisions of its respective organizational and constituent instruments and
documents.
(i) Disclosure. No representation or warranty made by any
of CSLC or Sub in this Agreement and no statement of any of CSLC or Sub
contained in any certificate delivered by any of CSLC or Sub pursuant to this
Agreement, contains any untrue statement of a material fact or omits any
material fact necessary to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading; it being hereby
agreed and understood that for purposes of this Section 3.2(i), the term
"material" shall be measured by reference to CSLC and its Subsidiaries,
considered as an entirety.
18
<PAGE>
(j) "Highly Confident Letter". CSLC has obtained and
delivered to the Company a complete and correct copy of the letter dated October
13, 1999 of Lehman Brothers and addressed to the Board of Directors of CSLC
stating that, subject to the qualifications specified therein, Lehman Brothers
is "highly confident" of its ability to raise the Exchange Funds necessary to
consummate the Merger.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Covenants of the Company CSLC and Sub. During the period
from the date of this Agreement and continuing until the Effective Time, to the
extent expressly indicated herein, the Company, CSLC and Sub, as applicable,
each agrees as to itself and its respective Subsidiaries that (except as
otherwise expressly contemplated or permitted by this Agreement, or to the
extent that the other party shall consent in writing):
(a) Ordinary Course. Each of the Company and its
Subsidiaries shall conduct its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted. Each of the
Company, and its Subsidiaries shall use its reasonable best efforts to preserve
intact its present business organizations, keep available the services of its
present officers and employees and preserve satisfactory relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and on-going businesses shall not be impaired in any material
respect at the Effective Time; provided, however, that without limiting the
generality of the foregoing, the Company and its Subsidiaries shall conduct
their business substantially in accordance with the operating budgets heretofore
approved and presently in effect for the Senior Housing Facilities and the
capital budgets as approved by the Company Board.
(b) Dividends; Changes in Stock. The Company shall not,
nor shall the Company permit any of its Subsidiaries to, nor shall the Company
or any of its Subsidiaries propose to, (i) declare or pay any dividends (whether
of cash, stock or other property) on or make any other distributions in respect
of its capital stock, (ii) split, combine or reclassify, or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, any shares of its capital stock, or (iii) redeem, repurchase
or otherwise acquire for value, or permit any of its Subsidiaries to redeem,
repurchase or otherwise acquire for value, any shares of its capital stock,
except in the case of clause (i) above, ordinary cash dividends declared and
paid in respect of the Company Common Stock not in excess of 8.5% of the
original issue price per share in any calendar year (subject to the Company's
reasonable best efforts to maintain reserves therefor consistent with past
practices) and as otherwise required to preserve and maintain the Company's
status as a REIT through the Effective Time, and except, in the
19
<PAGE>
case of clause (iii) above, in connection with the redemption of the Holding
Preferred Stock as contemplated by this Agreement.
(c) Issuance of Securities. The Company shall not, nor
shall the Company permit any of its Subsidiaries to, issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of any class
or series of its capital stock, any voting debt securities or any securities
convertible into, or exchangeable or exercisable for, any such shares of capital
stock or voting debt securities.
(d) Governing Documents. Neither the Company, CSLC, Sub,
nor any of the Company's Subsidiaries, shall amend or restate (or propose to
amend or restate) its Articles of Incorporation, limited liability company
operating agreement, partnership agreement, By-laws or any analogous
organizational or constituent instruments, except to the extent necessary to
facilitate consummation of the Merger.
(e) No Solicitation. (i) Until the termination of this
Agreement in accordance with Article VII hereof, the Company and its
Subsidiaries shall not, directly or indirectly, and the Company shall use its
best efforts to ensure that the respective officers, directors and employees of
the Company and its Subsidiaries, and its best efforts to ensure that any
investment banker, financial advisor, attorney, accountant, broker or other
representative or agent retained by or authorized to act on behalf of it or any
of its Subsidiaries shall not, directly or indirectly (A) solicit, initiate,
facilitate or encourage (including by way of furnishing information or
assistance) the submission or receipt of any "Acquisition Proposal" (as defined
below) or (B) participate or engage in negotiations or discussions, disclose any
material non-public information relating to the Company or any of its
Subsidiaries, or afford access to the properties, books or records of the
Company or any of its Subsidiaries, in connection with any Acquisition Proposal
(or propose or agree to do any of the foregoing); provided that if the Company
Board determines, based upon the advice of outside legal counsel, that the
failure to engage in such negotiations or discussions, furnish or disclose such
information or afford such access would be inconsistent with the fiduciary
duties of the Company Board under applicable law, then the Company, in response
to an Acquisition Proposal, may furnish and disclose such material non-public
information and afford such access with respect to the Company and its
Subsidiaries and may fully participate in discussions and negotiations regarding
such Acquisition Proposal and conduct all such due diligence and do all acts and
things and incur all such expenses necessary to become deliberately and fully
informed as to the nature, material terms and likelihood of consummation of the
Acquisition Proposal; provided, further, however, that, in connection therewith,
the Company and the potential acquiring party shall enter into a customary
confidentiality and "standstill" agreement of not less than two years' duration
and such agreement otherwise shall be no less restrictive in tenor or scope than
that certain Letter Agreement dated March 9, 1998, among the Company, CSLC and
the other parties signatory thereto (the "CSLC Letter Agreement").
20
<PAGE>
For purposes of this Section 4.1(e), "Acquisition Proposal"
means any inquiry, expression of interest, letter of intent, memorandum of
understanding, term sheet, offer or proposal from any person or entity
(including any "group" within the meaning of Rule 13d-5 under the Exchange Act)
relating to any direct or indirect acquisition, lease, sale or other similar
transaction (whether in a single transaction or series of related transactions)
of 20% or more of the consolidated assets of the Company or 20% or more of any
class or series of equity securities of the Company or any of its Subsidiaries,
any tender offer or exchange offer which, if consummated, would result in any
person or entity (including any "group" referred to above) beneficially owning
20% or more of any class or series of equity securities of the Company or any of
its Subsidiaries, and any merger, consolidation, business combination, sale or
other transfer of assets substantially as an entirety, recapitalization,
exchange, liquidation, dissolution, divestiture, reorganization or other
extraordinary corporate transaction involving the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement and the
Merger.
Anything to the contrary in this Section 4.1(e)
notwithstanding, nothing contained in this Section 4.1(e) shall prohibit the
Company or the Company Board from taking and disclosing to the holders of
Company Common Stock pursuant to Rules 14d-9 and 14e-2(a) and Regulations 14A
and 14C under the Exchange Act, a position with respect to a tender or exchange
offer or solicitation of proxies conducted by a third party or from making such
disclosure to holders of the Company Common Stock, or otherwise, as may be
required by applicable law (including, without limitation, requirements of the
Exchange Act and the regulations promulgated thereunder, the regulations of any
national securities exchange registered pursuant to Section 6 of the Exchange
Act or U.S. inter-dealer quotation system of a registered national securities
association, or Sections 13.1-770 through and including 13.1-775 of the Va Act);
provided that neither the Company nor the Company Board (or any special or other
committee thereof) shall, except as set forth in Sections 4.1(e)(ii) or 5.3,
withdraw, modify or change (or propose to withdraw, modify or change) its
recommendation of approval of this Agreement and the Merger or approve or
recommend (or propose to approve or recommend) an Acquisition Proposal.
(ii) Except as provided in the next sentence
of this Section 4.1(e)(ii) and in Section 5.3, neither the Company nor the
Company Board (or any special or other committee thereof) shall (A) withdraw,
modify or change (or propose to withdraw, modify or change) in a manner adverse
to CSLC, the recommendation by the Company Board (or any such committee) of the
approval of this Agreement and the Merger, (B) approve or recommend (or propose
to approve or recommend) an Acquisition Proposal, or (C) cause the Company to
enter into a definitive agreement with respect to an Acquisition Proposal.
Notwithstanding the immediately preceding sentence, if the Company Board
determines, based upon the advice of outside legal counsel, that the failure to
take any of the actions contemplated by the immediately preceding sentence would
be inconsistent with the fiduciary duties of the Company Board under applicable
21
<PAGE>
law, then the Company Board may withdraw, modify or change its recommendation of
approval of this Agreement and the Merger, affirmatively approve or recommend a
"Superior Proposal" (as defined below), or cause the Company to enter into an
agreement with respect to a Superior Proposal; provided, that, in the case of
approving, recommending or causing the Company to enter into an agreement with
respect to a Superior Proposal, such approval, recommendation or execution and
delivery shall occur not earlier than the seventh day next following CSLC's
receipt of written notice (by facsimile) advising CSLC that the Company Board
has received a Superior Proposal, specifying the material terms and conditions
thereof (including, without limitation, the price, structure, tax and accounting
treatment, financing requirements (if any), requisite regulatory consents and
approvals (if any) and the anticipated timing of receipt of such approvals and,
if then known, the approximate anticipated date of consummation thereof) and
identifying the person(s) making such Superior Proposal.
For purposes of this Agreement, a "Superior Proposal"
means any written Acquisition Proposal to acquire, directly or indirectly
(whether in a single transaction or series of related transactions), for
consideration consisting of cash, securities and/or other property, 50% or more
of the Company Common Stock then outstanding or 50% or more of the consolidated
assets of the Company, upon terms and subject to conditions which the Company
Board determines in its good faith judgment (based upon the advice of an
investment banking firm of nationally recognized reputation) to be more
favorable from a financial point of view to the holders of the Company Common
Stock than the Merger, and in respect of which external financing, if required
to be obtained by the acquiring person or entity, either then is fully committed
(pursuant to a customary commitment letter) or, in the good faith judgment of
the Company Board (based upon the advice of said investment banking firm),
obtainable by the acquiring person or entity based upon the creditworthiness of
such person or entity.
(iii) In addition to the obligations of the Company
set forth in Sections 4.1(e)(i) and (ii), the Company shall notify CSLC in
writing (by facsimile) within three days of the Company's receipt of any request
for information or of the receipt of any Acquisition Proposal, or any
communication with respect to (or which reasonably would be expected to result
in) an Acquisition Proposal, and the material terms and conditions of such
request, Acquisition Proposal or communication (to the same extent set forth
parenthetically in the proviso to the second sentence of Section 4.1(e)(ii)).
The Company shall inform CSLC of the status and details of (including amendments
or proposed amendments to) any such request, Acquisition Proposal or
communication. In addition, the Company promptly shall provide to CSLC any due
diligence information in respect of the Company furnished to the party making
the Acquisition Proposal.
(iv) In the event that the Company releases any third
party from its obligations under any standstill agreement or arrangement
relating to an Acquisition
22
<PAGE>
Proposal or otherwise under any confidentiality or other similar agreement
relating to information material to the Company or any of its Subsidiaries, the
Company shall simultaneously release CSLC from its obligations and restrictions
under the CSLC Letter Agreement.
(f) No Acquisitions. The Company shall not, nor shall it
permit any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
corporation, partnership, limited liability entity, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets, in each case, which are material, individually or in the
aggregate, to the Company and its Subsidiaries taken as a whole.
(g) No Dispositions. The Company shall not, nor shall the
Company permit any of its Subsidiaries to sell, lease, encumber or otherwise
dispose of or agree to sell, lease, encumber or otherwise dispose of, any of its
assets, which are material to the Company and its Subsidiaries taken as a whole.
(h) Indebtedness. Other than the indebtedness and the
transactions contemplated by that certain Term Loan Agreement dated September
29, 1998, between the Company, ILM II Holding, ILM II Lease Corporation ("ILM II
Lease Co") and Fleet National Bank (the "Fleet Agreement"), a true and complete
copy of which agreement has been made available to CSLC for inspection, the
Company shall not, nor shall the Company permit any of its Subsidiaries to,
incur, assume or guarantee any indebtedness for borrowed money.
(i) Other Actions. Neither the Company, CSLC, or Sub
shall, nor shall the Company, CSLC, or Sub permit any of its Subsidiaries to,
take any action that would or reasonably would be likely to result in any of its
representations and warranties set forth in this Agreement being untrue as of
the date made (to the extent so limited) or any of the conditions to the Merger
set forth in Article VI hereof not being satisfied.
(j) Advice of Changes; SEC Filings. Each of the Company
and CSLC shall confer on a regular basis with the other, report on operational
matters and promptly advise the other orally and in writing of any change or
event having, or which insofar as reasonably can be foreseen would have, a
Material Adverse Effect or a CSLC Material Adverse Effect. Each of the Company
and CSLC promptly shall provide the other with true and complete copies of all
filings made by it with any Governmental Entity in connection with this
Agreement, the Merger and the transactions contemplated hereby and thereby.
(k) Certain Other Actions.
23
<PAGE>
(i) The Company shall, and shall cause each of
its Subsidiaries to, duly and timely file all reports, Federal, state and local
tax returns and other documents required to be filed with Federal, state, local
and other authorities, subject to extensions permitted by applicable law;
provided that, in the case of the Company and ILM II Holding, such extensions do
not adversely affect the status of the Company or ILM II Holding as a qualified
REIT under the Code.
(ii) The Company shall not and the Company shall
cause its Subsidiaries not to, make or rescind any express or deemed election
relative to taxes (unless, in the case of the Company or ILM II Holding, it is
required by law or necessary to preserve the status of the Company or ILM II
Holding as a REIT for Federal income tax purposes).
(iii) The Company shall promptly notify CSLC of any
action, suit, proceeding, claim or audit pending against or with respect to such
party or its Subsidiaries in respect of any Federal, state or local taxes where
there is a reasonable probability of a determination or decision by a relevant
authority which would materially increase the tax liabilities of such party, and
the Company shall not change any of the tax elections, accounting methods,
conventions or principles which relate to it or its Subsidiaries that insofar as
reasonably could be foreseen would materially increase such party's liabilities.
(iv) The Company shall, and shall cause ILM II
Holding to, take (or refrain from taking, as applicable) such action(s) as are
necessary to maintain the status of each of the Company and ILM II Holding as a
REIT for Federal income tax purposes, through the Closing Date.
(l) Facilities Lease Agreement. Immediately prior to the
Effective Time, the Company shall cause that certain Facilities Lease Agreement,
dated September 1, 1995 (the "Lease Agreement"), between ILM II Holding and ILM
II Lease Co. to be terminated without any cost or expense to any of the Company,
ILM II Holding, CSLC, Sub or the Surviving Entity. From the date hereof, through
and including the date of termination of the Lease Agreement, the Company shall
not, nor shall it permit any of its Subsidiaries to, amend the Lease Agreement
or waive the performance by ILM II Lease Co. of any of its duties or obligations
under the Lease Agreement.
(m) Fleet Agreement. From the date hereof through and
including the Effective Time, neither the Company nor any of its Subsidiaries
shall draw down or borrow any monies pursuant to the Fleet Agreement for any
purpose other than the reimbursement of expenses incurred by the Company or its
Subsidiaries in respect of the construction of expansions on the existing Senior
Housing Facilities.
(n) Contribution and Liquidation. All assets and
properties owned, leased and operated by ILM II Holding and all receivables due
to ILM II Holding from
24
<PAGE>
any person or entity, in each case shall be transferred, contributed and
assigned to the Company, and immediately prior to the Merger, ILM II Holding
shall be liquidated or merged with and into the Company in a transaction
pursuant to Section 332 of the Code, and as a result of such merger or
liquidation, the separate corporate existence of ILM II Holding shall have been
terminated and the Company thereupon shall own all of the assets of ILM II
Holding.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Company Proxy Statement and the Schedule
13E-3. CSLC and the Company shall cooperate to mutually prepare, file with the
SEC and have reviewed and "cleared" by the SEC, as promptly as reasonably
practicable after the date hereof, the Company Proxy Statement and the Schedule
13E-3 (including all exhibits, annexes and schedules thereto).
SECTION 5.2 Access to Information. Upon reasonable notice, the Company
and CSLC each shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel and other agents and representatives
of the other, access, during normal business hours during the period from the
date hereof until the Effective Time, to all of its properties, books,
contracts, commitments and records (including, without limitation, using its
best efforts to afford access to, the audit work papers of the independent
auditor of each of the Company and CSLC) and, during such period, the Company
and CSLC each shall (and shall cause each of its Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the Securities Act, the Exchange Act and the Trust Indenture Act and (b) all
other information concerning its business, properties and personnel as such
other party reasonably may request. Each of the Company and CSLC shall waive any
accountant/client privilege that may exist, and take all other necessary action,
to ensure the delivery by the independent auditor of the Company and CSLC of
audit work papers to the party requesting such information. Unless otherwise
required by law, the parties shall hold all such information which is non-public
or otherwise proprietary in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of either party. In
the event of termination of this Agreement for any reason, each party promptly
shall return all non-public and proprietary information obtained from any other
party, and any copies made of (and other extrapolations from or work product or
analyses based on) such documents, to such other party.
SECTION 5.3 Stockholder's Meeting. The Company shall duly notice and
convene as promptly as practicable after the date hereof the Company
Stockholders'
25
<PAGE>
Meeting for the purpose of voting upon the adoption of this Agreement and the
Merger (and the transactions contemplated hereby and thereby). The Company
(through the Company Board) shall recommend to the holders of Company Common
Stock the approval and adoption of all such matters; and shall use its best
efforts to solicit and, if necessary, resolicit the vote of the holders of not
less than 66-2/3% of the Company Common Stock in favor of adoption of this
Agreement and the Merger (including, if necessary, adjourning or postponing, and
subsequently reconvening, the Company Stockholders' Meeting for the purpose of
obtaining such votes and engaging proxy solicitation firms and other "street"
professionals); provided, however, that notwithstanding anything to the contrary
contained in this Agreement, the Company Board may withdraw, modify or change
such recommendation (including in a manner adverse to CSLC) under the
circumstances set forth in the second sentence of Section 4.1(e)(ii) without any
liability or obligation to CSLC (except as set forth in Section 5.6(b)).
The Company may, if it withdraws, modifies or changes its
recommendation under the circumstances set forth in the second sentence of
Section 4.1(e)(ii), delay the filings or mailing, as the case may be, of the
Company Proxy Statement or the convening of the Company Stockholders' Meeting,
in each case to the extent necessary to revise the Company Proxy Statement to
reflect such withdrawal, modification or change and to provide the minimum
notice thereof required under applicable law or the Company's Articles of
Incorporation or By-laws.
SECTION 5.4 Consents and Approvals. Each of the Company and CSLC shall
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger (including
furnishing all information in connection with approvals of or filings with any
Governmental Entity) and shall cooperate with and furnish information to each
other in connection with any such requirements imposed upon it or any of its
Subsidiaries in connection with the Merger. Each of the Company and CSLC shall,
and shall cause its Subsidiaries to, take all reasonable actions necessary to
obtain (and shall cooperate with the other in obtaining) each consent,
authorization, order or approval of, and each exemption by, each Governmental
Entity and other person or entity, required to be obtained or made by the
parties hereto or any of their respective Subsidiaries in connection with this
Agreement and the Merger or the taking of any action contemplated hereby or
thereby.
SECTION 5.5 Intentionally omitted
SECTION 5.6 Expenses; Liquidated Damages. (a) Except as hereinafter
provided in this Section 5.6, all fees and expenses incurred in connection with
the preparation, execution and delivery of this Agreement (including all
instruments and agreements prepared and delivered in connection herewith), the
Merger and the
26
<PAGE>
transactions contemplated hereby and thereby shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated or
abandoned.
(b) Provided that neither CSLC nor Sub then is in
material breach of any of its representations, warranties or agreements under
this Agreement, the Company shall pay or cause to be paid to CSLC all of "CSLC's
Expenses" (as hereinafter defined) if this Agreement shall be terminated
pursuant to Section 7.1(e).
Provided that neither CSLC nor Sub then is in material breach
of any of its representations, warranties or agreements under this Agreement, if
this Agreement shall be terminated pursuant to Sections 7.1(f) or 7.1(g), then
the Company shall pay (or cause to be paid) to CSLC by wire transfer of same day
funds to an account designated in writing by CSLC to the Company a termination
fee in the amount of $2,964,400, together with CSLC's Expenses, which fee and
expenses shall be payable by the Company not later than the third business day
next following the date of termination of this Agreement pursuant to either
Section 7.1(f) or 7.1(g).
In addition, provided that neither CSLC nor Sub then is in
material breach of any of its representations, warranties or agreements under
this Agreement, if this Agreement shall be terminated pursuant to Section
7.1(b)(i) due to a material breach by the Company of Section 4.1(e) (and not in
respect of any other material breach by the Company of any other provision of
this Agreement) and prior to the expiration of the 16-month period next
following the date of such termination, a "Third Party Acquisition" (as
hereinafter defined) is consummated, then the Company shall pay or cause to be
paid to CSLC by wire transfer of same day funds to an account designated in
writing by CSLC to the Company, a termination fee in the amount of $2,964,400,
together with CSLC's Expenses which fee and expenses shall be payable by the
Company on the date of consummation of such Third Party Acquisition (if and only
if such Third Party Acquisition shall be consummated prior to the expiration of
the 16-month period next following the date of such termination).
It is expressly agreed that the amounts to be paid pursuant to
this Section 5.6(b) and Section 5.6(e) constitute liquidated damages negotiated
at arm's-length and do not constitute, and are not intended by the parties to
operate as, a penalty.
(c) The costs of filing with the SEC, printing (including
financial printer document production costs) and mailing to the holders of
Company Common Stock the Company Proxy Statement and the Schedule 13E-3, shall
be borne equally by the Company and CSLC. As of the date hereof, each of the
Company and CSLC acknowledges that such costs approximate $65,000 in the
aggregate and each of CSLC and the Company agrees to pay 50% of such costs in
accordance with this Section 5.6.
(d) The Company shall promptly pay or cause to be
promptly paid (not later than 10 days after submission of reasonably itemized
invoices or other reasonable
27
<PAGE>
documentary evidence therefor) by wire transfer of same day funds to CSLC,
CSLC's Expenses if this Agreement shall be terminated under any of the
circumstances set forth in this Section 5.6(b).
(e) Subject to the provisions of Sections 7.1(d) and
7.1(e) and provided that the Company is not then in material breach of any of
its representations, warranties or agreements under this Agreement, the
conditions set forth in Sections 6.1 and 6.2 have been satisfied or (to the
extent waiveable under applicable law) waived, and this Agreement has not been
terminated by CSLC or Sub pursuant to Section 7.1 (i)(i), if the Merger and the
transactions contemplated by this Agreement shall not, for any reason, be
consummated by CSLC and Sub, then CSLC and Sub shall pay (or cause to be paid)
to the Company by wire transfer of same day funds to an account designated in
writing by Company to CSLC, a termination fee in the amount of $850,000 not
later than the third business day next following the termination of this
Agreement pursuant to Section 7.1(h).
(f) For purposes of this Section 5.6, (i) "Third Party
Acquisition" means the occurrence of any of the following events: (A) the
acquisition of the Company by means of merger, business combination or otherwise
by any person or entity (including any "group" within the meaning of Rule 13d-5
under the Exchange Act) other than CSLC, Sub, or any Subsidiary or affiliate
thereof ("Third Party"), (B) the transfer, lease, sale or other similar
disposition to or acquisition by a Third Party of 20% or more of the
consolidated assets of the Company, or (C) the transfer to or acquisition by a
Third Party of 20% or more of the outstanding shares of Company Common Stock;
and (ii) "CSLC's Expenses" means fees and out-of-pocket expenses reasonably and
actually incurred and paid by or on behalf of CSLC in connection with this
Agreement, the Merger and the consummation of the transactions contemplated
hereby or thereby, including all financing commitment fees and expenses,
reasonable fees and expenses of outside legal counsel, accountants, experts,
financial advisors and consultants to CSLC, in an aggregate amount not to exceed
$2,000,000.
SECTION 5.7 Brokers or Finders. Each of CSLC and the Company covenants
as to itself, its Subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other person or entity is or will be
entitled to receive any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, except for Schroder & Co. Inc. and Cohen & Steers, Inc., whose fees
and expenses shall be fully paid for by the Company in accordance with the
Company's agreement with such firms (true and complete copies of which have been
delivered by the Company to CSLC), and Lehman Brothers, whose fees and expenses
shall be fully paid for by CSLC in accordance with CSLC's agreement with such
firm (true and complete copies of which have been delivered by CSLC to the
Company). Each of CSLC and the Company hereby agrees to indemnify and hold
harmless the other from and against any and all claims, liabilities or
obligations with
28
<PAGE>
respect to any other fees, commissions or expenses asserted by any person on the
basis of any act or statement alleged to have been made by such party or its
affiliate.
SECTION 5.8 CSLC Advisory Board. Prior to the Effective Time, CSLC
shall have taken all requisite corporate action (i) to authorize the creation of
and to establish an advisory board (the " CSLC Advisory Board"), the members of
whom, from time to time after the Effective Time, shall be invited to attend,
but not to vote at, meetings of the CSLC Board of Directors (at the pleasure and
discretion of such Board) and (ii) to cause three nominees designated by the
Company (as set forth in that certain Letter Agreement dated February 7, 1999,
as amended on the date hereof, between CSLC and the Company) to serve as members
of the CSLC Advisory Board, for an initial term commencing at the Effective Time
and expiring on the third anniversary thereof, until their successors are duly
appointed by the CSLC Board of Directors. Each member of the Advisory Board
shall receive a $7,000 annual retainer fee for membership on the Advisory Board
and a fee of $200 for attendance or participation at each meeting of the
Advisory Board and shall be entitled to participate in the same stock option and
similar programs made available by CSLC to CSLC's directors (provided that each
member of the Advisory Board otherwise satisfies the eligibility requirements
thereof).
SECTION 5.9 Indemnification; Directors' and Officers' Insurance. (a)
The Company shall, and from and after the Effective Time, CSLC and the Surviving
Entity shall, indemnify, defend and hold harmless each person who is now, or at
any time prior to the date hereof has been or who becomes prior to the Effective
Time, an officer, director or employee of the Company or any of its Subsidiaries
(the "Indemnified Parties") from and against (i) all losses, claims, damages,
costs, expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not
unreasonably be withheld) of or in connection with any claim, action, suit,
proceeding, case or investigation ("Action") based in whole or in part on or
arising in whole or in part out of or in connection with the fact that such
person is or was a director, officer or employee of the Company or any
Subsidiary, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, at or after the
Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of or in
connection with this Agreement, the Merger or any of the transactions
contemplated hereby or thereby, in each case to the fullest extent a corporation
is permitted under applicable law to indemnify its own directors, officers and
employees, as the case may be and CSLC and the Surviving Entity, as the case may
be, shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
applicable law upon receipt of any undertaking contemplated by applicable law.
Without limiting the foregoing, if any such claim, action, suit, proceeding or
investigation is commenced or instituted against any Indemnified Party (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them and the Company (or
29
<PAGE>
satisfactory to them and CSLC and the Surviving Entity after the Effective
Time); (ii) the Company (or after the Effective Time, CSLC and the Surviving
Entity) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as reasonably itemized statements therefor are
received; and (iii) the Company (or after the Effective Time, CSLC and the
Surviving Entity) shall use best efforts to assist in the vigorous defense of
any such matter, provided that neither the Company, CSLC nor the Surviving
Entity shall be liable for any settlement of any claim effected without its
written consent (which consent shall not unreasonably be withheld). Any
Indemnified Party electing to claim indemnification under this Section 5.9, upon
learning of any such Action, shall promptly notify the Company, CSLC or the
Surviving Entity of such election (but the failure so to notify the Company
shall not relieve it from any liability which it may have under this Section
5.9, except to the extent such failure materially prejudices it or if it
otherwise forfeits substantive rights and defenses as a result of such failure),
and shall deliver to the Company (or after the Effective Time, to CSLC and the
Surviving Entity) the undertaking contemplated by applicable law. The
Indemnified Parties as a group may retain only one firm of legal counsel to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict in respect of any
significant issue between the positions of any two or more Indemnified Parties.
(b) For a period of seven years after the Effective Time,
CSLC shall cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by the Company and its Subsidiaries
(provided that CSLC may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous) with respect to claims arising from facts or events which occurred
before the Effective Time to the extent available on commercially reasonable
terms; provided, however, that CSLC shall not be obligated to incur in excess of
$400,000 in the aggregate under this Section 5.9(b).
(c) The provisions of this Section 5.9 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his
heirs and his representatives.
SECTION 5.10 Proposed Simultaneous Acquisition.
(a) The Company hereby acknowledges that it has been
advised by CSLC that CSLC, substantially simultaneously with the execution and
delivery of this Agreement, is entering into an Agreement and Plan of Merger
(the "ILM Merger Agreement") of even date herewith, among CSLC, Sub, and ILM
Senior Living, Inc. ("ILM"), pursuant to which, upon the terms and subject to
the conditions thereof, ILM will merge with and into Sub and Sub will be the
surviving corporation in such merger (the "ILM Merger").
30
<PAGE>
(b) CSLC, the Company and Sub hereby acknowledge and
agree that it shall not be a condition to the respective obligations of any
party to this Agreement to effect the Merger (and the transactions contemplated
thereby) that the ILM Merger Agreement shall have been approved by the
stockholders of ILM or CSLC, as applicable, or that the ILM Merger (and the
transactions contemplated thereby) shall have been consummated.
(c) Notwithstanding anything to the contrary contained
herein, the Company shall cooperate with all reasonable requests of CSLC to
coordinate the timing of the Company Stockholders' Meeting and the meeting of
stockholders required in respect of the ILM Merger; provided, however, that the
Company shall not be required to agree to any material delay of the Company
Stockholders' Meeting for any reason relating to the timing of the ILM
stockholders meeting or any other matters related to the ILM Merger. The Company
and CSLC shall cooperate and promptly provide each other with all financial and
other data regarding the Company and CSLC as reasonably may be requested and
required in connection with the preparation of any proxy statement and
Transaction Statement on Schedule 13E-3 relating to the ILM Merger.
(d) (i) If this Agreement is terminated and the ILM
Merger has been consummated, the Company covenants and agrees to sell, transfer
and convey, or cause to be sold, transferred and conveyed, all of its or its
Subsidiary's right, title and interest in that certain property owned 25% in fee
by ILM II Holding and situated in Santa Barbara, California (the "Santa Barbara
Property") to the surviving entity (or its designee) in the ILM Merger. The
purchase price to be paid for the Santa Barbara Property shall be the appraised
value of the Santa Barbara Property (as hereinafter defined) multiplied by the
percentage ownership of the Santa Barbara Property held by the Company or its
Subsidiary.
(ii) The closing of the sale of the Santa Barbara
Property shall occur at such time and place as shall be mutually agreed upon by
the parties; but in no event later than 90 days subsequent to the consummation
of the ILM Merger. At such closing, upon receipt of the purchase price for the
Santa Barbara Property, the Company shall, or shall cause, the Santa Barbara
Property to be conveyed, free and clear of all liens, claims and encumbrances,
pursuant to customary documentation.
(iii) For purposes of this Section 5.10(d), the
"appraised value of the Santa Barbara Property" shall mean the fair market value
of the Santa Barbara Property as determined by the appraisal process set forth
herein. The Company and CSLC shall each appoint one independent nationally
recognized asset appraisal firm within 15 days of consummation of the ILM
Merger. If one party fails to appoint an appraiser within such 15-day period,
the appraiser appointed by the other party shall determine the fair market value
of the Santa Barbara Property. If the two appraisers fail to agree upon the fair
market value of such property within 60 days of their appointment and the
difference
31
<PAGE>
between the appraisals is 10% or less of the amount of the higher
appraisal, then the appraisals shall be averaged and that average shall be the
fair market value of the Santa Barbara Property. If the difference between the
appraisals is greater than 10% of the higher appraisal, such two appraisers
shall then mutually appoint a third independent nationally recognized asset
appraisal firm and the amount designated by such mutually selected appraiser
shall be the fair market value of the Santa Barbara Property.
SECTION 5.11 Additional Agreements; Best Efforts. Upon the terms and
subject to the conditions of this Agreement, each of the Company, CSLC and Sub
agrees to use its best efforts to take (or cause to be taken 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, subject to the receipt of the Company Stockholder Approval
Condition, including, without limitation, cooperating fully with the other
party, including by provision of information and making all necessary filings in
connection with, among other things, any Governmental Entity approval. In case
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Surviving
Entity with full title to all properties, assets, rights, approvals, immunities
and franchises of either of the Constituent Corporations, the proper officers
and directors of each party to this Agreement shall promptly take all such
necessary action.
SECTION 5.12 Conveyance Taxes. CSLC and the Company shall cooperate in
the preparation, execution and filing of all tax returns, questionnaires,
applications or other documents regarding any conveyance taxes which become
payable in connection with the transactions contemplated by this Agreement that
are required to be filed prior to the Effective Time.
SECTION 5.13 Public Announcements. The Company and CSLC shall consult
with each other prior to issuing any press release or making any public
statement or announcement (whether or not jointly made) with respect to this
Agreement and the transactions contemplated hereby and, except as may be
required by applicable regulations of any national securities exchange
registered pursuant to Section 6 of the Exchange Act or U.S. inter-dealer
quotation system of a registered national securities association, the Company or
CSLC, as the case may be, shall not issue any such press release or make any
such public statement or announcement prior to such consultation.
SECTION 5.14 Notification of Certain Matters. The Company shall give
prompt notice to CSLC and Sub, and CSLC and Sub shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
given by them and contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material failure of
the Company, CSLC, or Sub, as the case may be, to comply with or satisfy in any
material respect any covenant, condition
32
<PAGE>
or agreement to be complied with or satisfied by it hereunder, (iii) any notice
of, or other communication relating to, a default (or an event which with
notice, lapse of time or both, would become a default) received by it or any of
its Subsidiaries subsequent to the date hereof and prior to the Effective Time,
under any material agreement or instrument, (iv) any notice or other
communication from any person or entity alleging that the consent of such person
or entity is or may be required in connection with the transactions contemplated
by this Agreement, or (v) any Material Adverse Effect or CSLC Material Adverse
Effect (other than changes resulting from general economic conditions or
conditions relating generally to the senior living industry) shall have occurred
or reasonably be likely to occur; provided, however that the delivery of any
notice pursuant to this Section 5.14 shall not cure any breach or noncompliance
under this Agreement or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 5.15 Company Taxes. The actual distributions from the
Company to its shareholders following its most recent taxable year end through
the Closing Date plus its deemed liquidating distribution of the Company
resulting from the Merger for federal income tax purposes will eliminate its
"REIT taxable income" (as that term is defined in Section 857(b)(2)) from its
most recent taxable year end through the Closing Date, including, without
limitation, gain from the deemed sale of assets by the Company to CSLC for
federal income tax purposes.
SECTION 5.16 Original Agreement. As of the date hereof, this Agreement
amends and restates the Original Agreement in its entirety.
SECTION 5.17 Financing Commitments. Not later than the fifth business
day next preceding the anticipated date of the mailing of the Company Proxy
Statement in definitive form to holders of the Company Common Stock in
connection with the Company's solicitation of such holders' approval and
adoption of this Agreement and the Merger, CSLC shall have paid for and received
and shall provide the Company with true and correct copies of one or more
definitive commitments (the "Financing Commitments") from a money center
financial institution or investment bank, each of national standing, sufficient
in the aggregate to pay at the Effective Time the Exchange Funds.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to consummate the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
33
<PAGE>
(a) Stockholder Approval. This Agreement and the Merger shall
have been adopted by the affirmative vote of the holders of not less than
66-2/3% of the outstanding Company Common Stock.
(b) Other Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, any Governmental Entity the
failure to obtain which insofar as reasonably can be foreseen would have a
Material Adverse Effect or a CSLC Material Adverse Effect, shall have been duly
and timely filed and obtained and all applicable waiting periods, if any,
pursuant to the HSR Act shall have expired or been early terminated.
(c) The Company Proxy Statement on Schedule 14A and the
Schedule 13E-3 shall be filed in definitive form with the SEC and shall not be
the subject of any stop order or similar proceeding.
(d) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other similar order
issued by any court of competent jurisdiction or Governmental Entity preventing,
materially delaying or impairing consummation of the Merger shall be in effect.
(e) Redemption of Holding Preferred Stock. All shares of
Holding Preferred Stock shall have been redeemed at a price per share not to
exceed the stated liquidation preference thereof, together with all unpaid
dividends thereon accrued through the date next preceding the Closing Date.
(f) State Takeover Laws. Consummation of the transactions
contemplated by this Agreement and the Merger shall not be subject to the
provisions of any State Takeover Laws.
SECTION 6.2 Conditions of Obligations of CSLC and Sub. The obligations
of CSLC and Sub to consummate the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions, unless waived in
writing by CSLC and Sub (to the extent waiveable under applicable law):
(a) Representations and Warranties. All of the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the Effective Time as though made on and as of the Effective Time
(except for representations and warranties that (i) expressly speak only as of a
specific date or time which need only be true and correct as of such date and
time and (ii) by their terms are qualified by materiality or any analogous
limitation on scope which, for purposes of this Section 6.2(a), shall have to be
true and correct in all respects), and CSLC shall have received a certificate
signed on behalf of the Company by its chief executive officer or the chief
financial officer to such effect.
34
<PAGE>
(b) Performance of Obligations of the Company. The
Company shall have performed all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and CSLC shall have
received a certificate signed on behalf of the Company by its chief executive
officer or chief financial officer to such effect.
(c) Consents. The Company shall have obtained the consent
or approval of each person or entity whose consent or approval shall be required
to permit the succession by the Surviving Entity to any obligation, right or
interest of the Company or any Subsidiary of the Company under any agreement or
instrument, except for those the failure of which so to obtain would not in the
reasonable opinion of CSLC have a Material Adverse Effect or upon consummation
of the transactions contemplated by the Agreement and the Merger, a CSLC
Material Adverse Effect.
(d) Nonforeign Status. The Company shall have delivered a
certificate of Non-Foreign Status which meets the requirements of Treasury
Regulation Section 1.1445-2, duly executed and acknowledged, certifying that the
Company is not a foreign person for United States income tax purposes.
(e) Domestically Controlled Status Certificate. The Company
shall have delivered a certificate certifying that the Company is a domestically
controlled REIT within the meaning of Section 897(h)(4)(B).
SECTION 6.3 Conditions of Obligations of the Company. The obligation of
the Company to consummate the Merger is subject to the satisfaction at or prior
to the Effective Time of the following conditions, unless waived in writing by
the Company (to the extent waiveable under applicable law):
(a) Representations and Warranties. The representations
and warranties of CSLC and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Effective Time as though made on and as of the Effective Time (except for
representations and warranties that (i) expressly speak only as of a specific
date or time which need only be true and correct as of such date and time and
(ii) that, by their terms are qualified by materiality or any analogous
limitation on scope which, for purposes of this Section 6.3 (a), shall have to
be true and correct in all respects) and the Company shall have received a
certificate signed on behalf of CSLC by its chief executive officer or the chief
financial officer to such effect.
(b) Performance of Obligations of CSLC and Sub. CSLC and
Sub shall have performed all obligations required to be performed by them under
this Agreement at or prior to the Effective Time, and the Company shall have
received a certificate signed on behalf of CSLC by its chief executive officer
or chief financial officer to such effect.
(c) Consents. CSLC shall have obtained the consent or
approval of each person whose consent or approval shall be required in
connection with the transactions
35
<PAGE>
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of the Company, individually or in the aggregate, have a CSLC Material
Adverse Effect, or materially affect the consummation of the transactions
contemplated hereby.
(d) Receipt by CSLC of Proceeds of the Financing
Commitments. CSLC shall have received the proceeds of the Financing Commitments
sufficient in the aggregate to pay the Exchange Funds.
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the holders of Company Common Stock
or by the holders of CSLC Common Stock:
(a) by the mutual written consent of CSLC and the Company;
(b) by (i) CSLC, if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the Company
set forth in this Agreement which has not been cured within 20 business days
next following receipt by the Company of notice of such breach, or (ii) the
Company, if there has been a material breach of any representation, warranty,
covenant or agreement on the part of CSLC or Sub set forth in this Agreement
which has not been cured within 20 business days next following receipt by CSLC
of notice of such breach;
(c) by either CSLC or the Company if any permanent
injunction or other order of a court, Governmental Entity or other competent
authority preventing consummation of the Merger shall have been issued;
(d) by either CSLC or the Company if the Merger shall not have
been consummated at or prior to 5:00 p.m., Eastern time, on September 30, 2000;
(e) by CSLC or the Company, if the Company Stockholder
Approval Condition shall not have been satisfied by September 29, 2000.
(f) by CSLC or Sub if (i) the Company Board (or any
special or other committee thereof) shall have withdrawn, modified or changed in
a manner adverse to CSLC its recommendation of approval (by the holders of
Company Common Stock) of this Agreement or the Merger, or shall have approved or
recommended (to the holders of
36
<PAGE>
Company Common Stock) a Superior Proposal or (ii) the Company shall have entered
into a definitive agreement with respect to an Acquisition Proposal;
(g) by the Company, upon entering into a definitive
agreement in respect of a Superior Proposal pursuant to Section 4.1(e) hereof;
provided that the Company has complied with all provisions of Section 4.1(e),
including the notice provisions thereof, and satisfies its payment obligations
as provided in Section 5.6;
(h) by the Company if the Merger and the transactions
contemplated by this Agreement shall not, for any reason, be consummated by CSLC
and Sub; provided that the Company is not then in material breach of any of its
representations, warranties or agreements under this Agreement, the conditions
set forth in Sections 6.1 and 6.2 have been satisfied or (to the extent
waiveable under applicable law) waived, and this Agreement has not been
terminated by CSLC or Sub pursuant to Section 7.1(i)(i); or
(i) (i) by CSLC or Sub if there shall have occurred or
there shall exist any events, changes, set of circumstances or conditions having
or which reasonably could be likely to have a Material Adverse Effect or (ii)
the Company, if there shall have occurred or there shall exist any events,
changes, set of circumstances or conditions having or which reasonably could be
likely to have a CSLC Material Adverse Effect.
SECTION 7.2 Effect of Termination. If this Agreement is terminated
either by the Company or CSLC as provided in Section 7.1, this Agreement
forthwith shall become null and void and there shall be no liability or
obligation on the part of CSLC, Sub, or the Company, or any of their respective
officers or directors, except (a) with respect to the last sentence of Section
5.2, and Sections 5.6, 5.7 and 5.9 and (b) to the extent that such termination
results from the willful breach by a party hereto of any of its representations,
warranties, covenants or agreements set forth in this Agreement, except as
provided in Section 8.7.
SECTION 7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective boards of directors,
at any time before or after approval of the matters presented in connection with
the Merger by the holders of Company Common Stock or by the holders of CSLC
Common Stock, but, after any such approval, no amendment shall be made which by
law requires further approval by such holders without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of all of the parties hereto.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective board of
directors, may, to the extent legally permissible, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions contained
37
<PAGE>
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Article II and Sections 5.6, 5.7,
5.9, 5.10 and 5.11, the last sentence of Section 7.3 and this Article VIII in
its entirety which shall survive termination indefinitely.
SECTION 8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt if delivered
personally, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to the 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 8.2):
(a) if to CSLC or Sub, to:
Capital Senior Living Corporation
237 Park Avenue, 21st Floor
New York, New York
(212) 551-1770 (telephone)
(212) 551-1774 (facsimile)
Attention: Lawrence A. Cohen,
Vice Chairman and Chief Executive Officer,
with copies (which shall not constitute notice
pursuant to this Section 8.2) to:
Capital Senior Living Corporation
14160 Dallas Parkway
Suite 300
Dallas, Texas 75240
(972) 770-5600 (telephone)
(972) 661-5403 (facsimile)
Attention: James A. Stroud, Chairman of the Company
38
<PAGE>
- and -
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 2900
Dallas, Texas 75202
(214) 855-4500 (telephone)
(214) 855-4300 (facsimile)
Attention: Winston W. Walp, II, Esq.
- and -
(b) if to the Company, to:
ILM II Senior Living, Inc.
28 State Street, Suite 1100
Boston, Massachusetts 02109
(617) 573-5035 (telephone)
(617) 573-5036 (facsimile)
Attention: J. William Sharman,
Chairman and Chief Executive Officer,
with a copy (which shall not constitute notice
pursuant to this Section 8.2) to:
Greenberg Traurig
The MetLife Building
200 Park Avenue, 15th Floor
New York, New York 10166
(212) 801-9200 (telephone)
(212) 801-6400 (facsimile)
http://[email protected] (electronic mail)
Attention: Clifford E. Neimeth, Esq.
SECTION 8.3 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made
39
<PAGE>
available if requested by the party to whom such information is to be made
available. The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to October 19, 1999.
SECTION 8.4 Counterparts. This Agreement may be executed in one or more
counterparts (including by facsimile transmission), all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by all of the parties hereto and delivered to
the other parties; it being hereby understood that all parties need not sign the
same counterpart.
SECTION 8.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein, which
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein), the Management Agreement between ILM II Lease Co. and
Capital Senior Management 2, Inc. and Capital Senior Living Inc., and the CSLC
Letter Agreement (a) constitutes the entire agreement among the parties with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings, both written and oral, among the parties hereto with respect to
the subject matter hereof, and (b) except as provided in Section 5.9, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 8.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia,
applicable to contracts executed and performed entirely in such jurisdiction.
SECTION 8.7 No Remedy in Certain Circumstances. Each party agrees that,
should any court, or Governmental Entity or other competent authority hold any
provision of this Agreement or portion hereof to be null, void or unenforceable,
or order or direct any party to take any action inconsistent herewith or not to
take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or thereof or to any other
remedy, including, without limitation, limited to money damages, for breach
hereof or thereof or of any other provision of this Agreement or portion hereof
as a result of such holding or order.
SECTION 8.8 Assignment. 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, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
CSLC or to any direct or indirect wholly-owned Subsidiary of CSLC; provided that
no such assignment shall change the amount or nature of the Merger Consideration
or relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations. Subject to the preceding sentence, this
Agreement
40
<PAGE>
shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns.
SECTION 8.9 Gender and Number Classification. All words used herein,
irrespective of the number and gender specifically used, shall be deemed and
construed to include or mean any other number, singular or plural, and any other
gender, masculine, feminine or neuter, as the context requires.
SECTION 8.10 Knowledge. For purposes of this Agreement,
"knowledge" "to its knowledge", or analogous expressions, when used with
reference to the Company, CSLC and/or any of their respective Subsidiaries,
means knowledge of a particular fact or set of circumstances, events or
conditions by any executive officer (or employee acting in an analogous
capacity) or director of the Company, CSLC or any of their respective
Subsidiaries, as applicable, to the extent actually known by any one or more of
such persons or, after due inquiry and reasonable investigation by one or more
of such persons, should have been known.
41
<PAGE>
IN WITNESS WHEREOF, CSLC, Sub, and the Company have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all on this 19th day of October 1999.
CAPITAL SENIOR LIVING CORPORATION
By: /s/ James A. Stroud
---------------------------------
Name: James A. Stroud
Title: Chairman of the Company
CAPITAL SENIOR LIVING ACQUISITION, LLC
By: /s/ Lawrence A. Cohen
---------------------------------
Name: Lawrence A. Cohen
Title: Chief Executive Officer
ILM II SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
---------------------------------
Name: J. William Sharman, Jr.
Title: Chairman of the Board of
Directors, President and
Chief Executive Officer
With respect to Section 5.16, the undersigned agrees and consents:
CAPITAL SENIOR LIVING TRUST I
By: /s/ Lawrence A. Cohen
-----------------------------
Name: Lawrence A. Cohen
Title: Trustee
<PAGE>
[TO COME]
