<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report: October 20, 1997
Date of earliest event reported: October 20, 1997
ASSISTED LIVING CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 1-13498 93-1148702
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification Number)
9955 S.E. Washington Street, Suite 201
Portland, OR 97216
(Address of principal executive offices) (Zip Code)
(503) 252-6233
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
<PAGE>
Item 7. Exhibits
--------
4.1 Indenture, dated as of October 2 , 1997 by and between the Company
and Harris Trust and Savings Bank, as Trustee.
10.1 Restricted Stock Agreement dated October 3, 1997 by and between
the Company and William McBride III.
10.2 Restricted Stock Agreement dated October 3, 1997 by and between
the Company and Keren Brown Wilson.
10.3 Employment Agreement dated October 3, 1997 by and between the
Company and William McBride III.
10.4 Amended and Restated Employment Agreement dated October 3, 1997 by
and between the Company and Keren Brown Wilson.
10.5 Indemnification Agreement dated October 3, 1997 by and between the
Company and William McBride III.
10.6 Indemnification Agreement dated October 3, 1997 by and between the
Company and Keren Brown Wilson.
10.7 Amended and Restated 1994 Stock Option Plan of the Company.
10.8 Merger Agreement dated as of October 4, 1997 by and between the
Company and Home and Community Care, Inc.
2
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10.9 $20,440,000 Agreement to Purchase and Lease Assisted Living
Residences dated October 3, 1997 by and between the Company and
LTC Properties, Inc.
10.10 $50,000,000 Agreement to Purchase and Lease Assisted Living
Residences dated October 3, 1997 by and between the Company and
LTC Properties, Inc.
10.11 Management Agreement dated as of April 1, 1997 by and between the
Company and Health Equity Investors, LLC.
10.12 Joint Venture Agreement dated as of April 1, 1997 by and between
the Company and Health Equity Investors, LLC.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSISTED LIVING CONCEPTS, INC.
Date: October 20, 1997 By: /s/ Stephen Gordon
__________________________
Name: Stephen Gordon
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT INDEX
4.1 Indenture, dated as of October 2 , 1997 by and between the Company and
Harris Trust and Savings Bank, as Trustee.
10.1 Restricted Stock Agreement dated October 3, 1997 by and between the
Company and William McBride III.
10.2 Restricted Stock Agreement dated October 3, 1997 by and between the
Company and Keren Brown Wilson.
10.3 Employment Agreement dated October 3, 1997 by and between the Company and
William McBride III.
10.4 Amended and Restated Employment Agreement dated October 3, 1997 by and
between the Company and Keren Brown Wilson.
10.5 Indemnification Agreement dated October 3, 1997 by and between the Company
and William McBride III.
10.6 Indemnification Agreement dated October 3, 1997 by and between the Company
and Keren Brown Wilson.
10.7 Amended and Restated 1994 Stock Option Plan of the Company.
5
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10.8 Merger Agreement dated as of October 4, 1997 by and between the Company
and Home and Community Care, Inc.
10.9 $20,440,000 Agreement to Purchase and Lease Assisted Living Residences
dated October 3, 1997 by and between the Company and LTC Properties, Inc.
10.10 $50,000,000 Agreement to Purchase and Lease Assisted Living Residences
dated October 3, 1997 by and between the Company and LTC Properties, Inc.
10.11 Management Agreement dated as of April 1, 1997 by and between the Company
and Health Equity Investors, LLC.
10.12 Joint Venture Agreement dated as of April 1, 1997 by and between the
Company and Health Equity Investors, LLC.
6
<PAGE>
EXHIBIT 4.1
________________________________________________________________________________
ASSISTED LIVING CONCEPTS, INC.
INDENTURE
Dated as of October 2, 1997
HARRIS TRUST AND SAVINGS BANK,
AS TRUSTEE
Providing for Issuance of Securities in Series
_________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01 Definitions................................................. 1
SECTION 1.02 Other Definitions........................................... 5
SECTION 1.03 Incorporation by Reference to Trust
Indenture Act.............................................. 6
SECTION 1.04 Rules of Construction....................................... 6
ARTICLE 2
THE SECURITIES
SECTION 2.01 Forms Generally............................................. 6
SECTION 2.02 Amount Unlimited; Issuable in Series........................ 6
SECTION 2.03 Execution and Authentication................................ 9
SECTION 2.04 Registrar and Agents........................................ 10
SECTION 2.05 Paying Agent to Hold Money in Trust......................... 10
SECTION 2.06 Transfer and Exchange....................................... 11
SECTION 2.07 Replacement Securities...................................... 14
SECTION 2.08 Outstanding Securities...................................... 14
SECTION 2.09 Temporary Securities........................................ 15
SECTION 2.10 Cancellation................................................ 15
SECTION 2.11 Defaulted Interest.......................................... 15
SECTION 2.12 Securityholder Lists........................................ 16
SECTION 2.13 Persons Deemed Owners....................................... 16
SECTION 2.14 CUSIP Number................................................ 16
SECTION 2.15 Provisions in Global Security............................... 17
ARTICLE 3
REDEMPTION
SECTION 3.01 Right of Redemption......................................... 18
SECTION 3.02 Selection of Securities to be Redeemed...................... 19
SECTION 3.03 Notice of Redemption by the Company......................... 20
SECTION 3.04 Effect of Notice of Redemption.............................. 20
SECTION 3.05 Deposit of Redemption Price................................. 21
SECTION 3.06 Securities Redeemed in Part................................. 21
ARTICLE 4
COVENANTS
SECTION 4.01 Payment of the Securities................................... 21
SECTION 4.02 Commission Reports.......................................... 21
SECTION 4.03 Waiver of Stay, Extension or Usury Laws..................... 22
SECTION 4.04 Notice of Default........................................... 22
SECTION 4.05 Compliance Certificates..................................... 22
SECTION 4.06 Limitation on Dividends and Other
Distributions.............................................. 23
</TABLE>
<PAGE>
<TABLE>
ARTICLE 5
SUCCESSOR CORPORATION
<S> <C>
SECTION 5.01 When Company May Merge, etc................................. 23
SECTION 5.02 Successor Corporation or Trust Substituted.................. 24
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default........................................... 24
SECTION 6.02 Acceleration................................................ 26
SECTION 6.03 Other Remedies.............................................. 27
SECTION 6.04 Waiver of Defaults and Events of Default.................... 27
SECTION 6.05 Control by Majority......................................... 27
SECTION 6.06 Rights of Holders to Receive Payment........................ 27
SECTION 6.07 Collection Suit by Trustee.................................. 28
SECTION 6.08 Trustee May File Proofs of Claim............................ 28
SECTION 6.09 Priorities.................................................. 29
SECTION 6.10 Undertaking for Costs....................................... 29
SECTION 6.11 Limitations on Suits........................................ 30
ARTICLE 7
TRUSTEE
SECTION 7.01 Duties of Trustee........................................... 30
SECTION 7.02 Rights of Trustee........................................... 32
SECTION 7.03 Individual Rights of Trustee................................ 32
SECTION 7.04 Trustee's Disclaimer........................................ 33
SECTION 7.05 Notice of Defaults.......................................... 33
SECTION 7.06 Reports by Trustee to Holders............................... 33
SECTION 7.07 Compensation and Indemnity.................................. 34
SECTION 7.08 Replacement of Trustee...................................... 34
SECTION 7.09 Successor Trustee by Merger, etc............................ 36
SECTION 7.10 Eligibility; Disqualification............................... 36
SECTION 7.11 Preferential Collection of Claims Against
Company.................................................... 36
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01 Satisfaction, Discharge and Defeasance of the
Securities.................................................. 36
SECTION 8.02 Satisfaction and Discharge of Indenture..................... 37
SECTION 8.03 Survival of Certain Obligations............................. 38
SECTION 8.04 Application of Trust Money.................................. 38
SECTION 8.05 Paying Agent to Repay Monies Held........................... 39
SECTION 8.06 Return of Unclaimed Monies.................................. 39
SECTION 8.07 Reinstatement............................................... 39
</TABLE>
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<TABLE>
ARTICLE 9
SUPPLEMENTAL INDENTURES
<S> <C>
SECTION 9.01 Supplemental Indentures Without Consent of
Holders..................................................... 40
SECTION 9.02 Supplemental Indentures with Consent of Holders............. 41
SECTION 9.03 Compliance with Trust Indenture Act......................... 42
SECTION 9.04 Revocation and Effect of Consents........................... 42
SECTION 9.05 Notation on or Exchange of Securities....................... 43
SECTION 9.06 Effect of Supplemental Indentures........................... 43
SECTION 9.07 Reference in Securities to Supplemental
Indentures................................................. 43
ARTICLE 10
CONVERSION OF SECURITIES
SECTION 10.01 Right of Conversion; Conversion Price....................... 44
SECTION 10.02 Issuance of Shares on Conversion............................ 45
SECTION 10.03 No Adjustment for Interest or Dividends..................... 46
SECTION 10.04 Adjustment of Conversion Price.............................. 46
SECTION 10.05 Notice of Adjustment of Conversion Price.................... 49
SECTION 10.06 Notice of Certain Corporate Action.......................... 50
SECTION 10.07 Taxes on Conversions........................................ 51
SECTION 10.08 Fractional Shares........................................... 51
SECTION 10.09 Cancellation of Converted Securities........................ 51
SECTION 10.10 Provisions in Case of Consolidation, Merger
or Sale of Assets.......................................... 52
SECTION 10.11 Disclaimer by Trustee of Responsibility for
Certain Matters............................................ 52
SECTION 10.12 Covenant to Reserve Shares.................................. 53
ARTICLE 11
SUBORDINATION; SENIORITY
SECTION 11.01 Securities Subordinated to Senior Indebtedness.............. 54
SECTION 11.02 Company Not to Make Payments with Respect to
Junior Securities in Certain Circumstances................. 55
SECTION 11.03 Subrogation of Junior Securities............................ 57
SECTION 11.04 Authorization by Holders of Junior Securities............... 58
SECTION 11.05 Notices to Trustee.......................................... 59
SECTION 11.06 Trustee's Relation to Senior Indebtedness................... 60
SECTION 11.07 No Impairment of Subordination.............................. 60
SECTION 11.08 Article 11 Not To Prevent Events of Default................. 60
SECTION 11.09 Paying Agents other than the Trustee........................ 60
SECTION 11.10 Securities Senior to Subordinated
Indebtedness............................................... 61
</TABLE>
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<TABLE>
ARTICLE 12
SINKING FUND
<S> <C>
SECTION 12.01 Mandatory and Optional Sinking Fund Payments............... 61
SECTION 12.02 Satisfaction of Sinking Fund Payments with
Securities................................................ 61
SECTION 12.03 Redemption of Securities for Sinking Funds................. 62
ARTICLE 13
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls............................... 63
SECTION 13.02 Notices.................................................... 63
SECTION 13.03 Communications by Holders with Other Holders............... 64
SECTION 13.04 Certificate and Opinion as to Conditions
Precedent................................................. 64
SECTION 13.05 Statements Required in Certificate and Opinion............. 64
SECTION 13.06 Rules by Trustee and Agents................................ 65
SECTION 13.07 Record Date................................................ 65
SECTION 13.08 Legal Holidays............................................. 65
SECTION 13.09 Governing Law.............................................. 65
SECTION 13.10 No Adverse Interpretation of Other Agreements.............. 66
SECTION 13.11 No Recourse Against Others................................. 66
SECTION 13.12 Successors................................................. 66
SECTION 13.13 Multiple Counterparts...................................... 66
SECTION 13.14 Table of Contents, Headings, etc........................... 66
SECTION 13.15 Severability............................................... 66
</TABLE>
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CROSS-REFERENCE TABLE
ASSISTED LIVING CONCEPTS, INC.
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture
- --------------- ---------
<S> <C>
{310(a)(1) 7.10
(a)(2) 7.10
(a)(3) Not
Applicable
(a)(4) Not
Applicable
(b) 7.08; 7.10;
13.02
(c) Not
Applicable
{311(a) 7.11
(b) 7.11
(c) Not
Applicable
{312(a) 2.12
(b) 12.03
(c) 12.03
{313(a) 7.06
(b)(1) Not
Applicable
(b)(2) 7.06
(c) 7.06; 13.02
(d) 7.06
{314(a) 4.02; 13.02
(b) Not
Applicable
(c)(1) 12.04
(c)(2) 12.04
(c)(3) Not
Applicable
(d) Not
Applicable
(e) 12.05
(f) Not
Applicable
{315(a) 7.01(b)
(b) 7.05; 13.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.10
{316(a)(last sentence) 13.06
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) Not
Applicable
(b) 6.06
{317(a)(1) 6.07
(a)(2) 6.08
(b) 2.05
</TABLE>
<PAGE>
<TABLE>
<S> <C>
{318(a) 11.01
</TABLE>
__________
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
INDENTURE dated as of October 2, 1997 between Assisted Living
Concepts, Inc., a Nevada corporation ("Company"), and Harris Trust and Savings
Bank, an Illinois banking corporation ("Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its securities (hereinafter called the
"Securities") evidencing its unsecured indebtedness, to be issued in one or more
fully registered series.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
To set forth or to provide for the establishment of the terms and
conditions upon which the Securities are and are to be authenticated, issued and
delivered, and in consideration of the premises and the purchase of Securities
by the Holders thereof, it is mutually covenanted and agreed as follows, for the
equal and proportionate benefit of all Holders of the Securities or of a series
thereof, as the case may be:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
-----------
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities or by agreement
or otherwise.
"Agent" means any Registrar, Paying Agent, Conversion Agent, co-
registrar or agent for service of notices and demands.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar
Federal or State law for the relief of debtors.
"Board of Directors of the Company" means the Board of Directors of
the Company or any committee of the Board.
"Board Resolution" means a resolution certified by the Secretary or an
Assistant Secretary of the Company to have been duly adopted by the Board of
Directors of the Company and to be in
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full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means any and all shares or other equivalents (however
designated) of capital stock, including all common stock and all preferred
stock.
"Closing Price" means with respect to the shares of common stock of
the Company on any day, (i) the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange, or (ii) if the shares of common stock are not listed or admitted to
trading on the New York Stock Exchange, the last reported sales price regular
way, or in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, on the principal national
securities exchange on which the shares of common stock are listed or admitted
to trading, or (iii) if the shares of common stock are not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices as furnished by any New York Stock Exchange member firm selected
from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 311 West Monroe Street, 12th Floor, Chicago, Illinois.
"Custodian" means any receiver, trustee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means, with respect to the Securities of any series
issued in whole or in part in the form of a Global Security, the Person
designated as Depositary by the Company pursuant to Section 2.02 until a
successor Depositary shall have become such pursuant to the applicable
procedures of this Indenture, and thereafter "Depositary" shall mean or include
each Person who is then a Depositary hereunder, and if at any time there is more
than one Depositary with respect to the Securities of any such series,
"Depositary" shall mean the Depositary with respect to the Securities of that
series.
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"Dollar" or "$" means the lawful money of the United States of
America.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security" means a Security in the form prescribed in Section
2.15 evidencing all or part of a Securities, issued to the Depositary for such
series or its nominee, and registered in the name of such Depositary or nominee.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Indebtedness," as applied to any Person, means, without duplication
(i) all indebtedness for borrowed money whether or not evidenced by a promissory
note, draft or similar instrument, (ii) that portion of obligations with respect
to leases that is properly classified as a liability on a balance sheet in
accordance with generally accepted accounting principles, (iii) notes payable
and drafts accepted representing extensions of credit, (iv) any balance owed for
all or any part of the deferred purchase price of property or services, which
purchase price is due more than six months from the date of incurrence of the
obligation in respect thereof (except any such balance that constitutes (a) a
trade payable or an accrued liability arising in the ordinary course of business
or (b) a trade draft or note payable issued in the ordinary course of business
in connection with the purchase of goods or services), if and to the extent such
debt would appear as a liability upon a balance sheet of such Person prepared in
accordance with generally accepted accounting principles, and (v) any deferral,
amendment, renewal, extension, supplement or refunding of any of the foregoing
indebtedness; provided, however, that, in computing the "Indebtedness" of any
-------- -------
Person, there shall be excluded any particular indebtedness if, upon or prior to
the maturity thereof and at the time of determination of such indebtedness,
there shall have been deposited with a depository in trust money (or evidences
of indebtedness if permitted by the instrument creating such indebtedness) in
the necessary amount to pay, redeem or satisfy such indebtedness as it becomes
due, and the amount so deposited shall not be included in any computation of the
assets of such Person.
"Indenture" means this Indenture as originally executed or, if amended
or supplemented as provided in Article 9, as amended or supplemented from time
to time.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer, Assistant Secretary or Assistant
Controller of the Company. See
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Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from LathamE& Watkins or
any other legal counsel who is reasonably acceptable to the Trustee. The
counsel may be an employee of or counsel to the Company or the Trustee. See
Sections 13.04 and 13.05.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" of a Security means the principal of the Security plus,
when appropriate, the premium, if any, on the Security.
"Redemption Date" when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as specified in such Security.
"Senior Indebtedness" means the principal, premium, if any, and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness of the Company for money borrowed,
whether any such Indebtedness exists as of the date of this Indenture or shall
hereafter be created, incurred, assumed or guaranteed.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Securities.
"Subsidiary" means a corporation the majority of whose voting stock is
owned by the Company or a subsidiary of the Company. Voting stock is Capital
Stock having voting power under ordinary circumstances to elect directors.
"Trust Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice-president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any Trust Officer or assistant Trust Officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to
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those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer of the Trustee
to whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"United States" means the United States of America.
SECTION 1.02 Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Company Order" 2.03
"Conversion Agent" 2.04
"conversion price" 10.01
"current market price" 10.04
"Event of Default" 6.01
"Junior Securities" 11.01
"Legal Holiday" 13.08
"mandatory sinking fund payments" 12.01
"Market Price" 3.01
"optional sinking fund payments" 12.01
"Paying Agent" 2.04
"Payment or Distribution" 11.01
"Redemption Price" 3.01
"Registrar" 2.04
"Rule 13e-3 Transaction" 10.06
"Securities" Recitals
"TIA" 1.03
"U.S. Government Obligations" 8.01
</TABLE>
SECTION 1.03 Incorporation by Reference to Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture
Act of 1939 (the "TIA"), the provision is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the indenture securities.
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All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rules have
the meanings assigned to them therein.
SECTION 1.04 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with United States generally accepted accounting principles
in effect as of the time as to which such accounting principles are to be
applied;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural
include the singular.
ARTICLE 2
THE SECURITIES
SECTION 2.01 Forms Generally.
---------------
The Securities of each series shall be in substantially the form
(including any global form that is not inconsistent with this Indenture) as
shall be established from time to time by or pursuant to a Board Resolution or
in one or more indentures supplemental hereto, in each case with such variations
as are required or permitted by this Indenture (including such other provisions
as are necessary to reflect the global form of any Security, and the designation
of a Depositary for such Global Security) and may have imprinted or otherwise
reproduced thereon such legend or legends, not inconsistent with the provisions
of this Indenture, as may be required to comply with any law or with any rules
of any securities exchange or to conform to general usage, all as may be
determined by the officers executing such Securities as evidenced by their
execution of the Securities.
SECTION 2.02 Amount Unlimited; Issuable in Series.
------------------------------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series:
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);
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(2) the limit, if any, upon the aggregate principal amount of
the Securities of the series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in
lieu of, other Securities of the series pursuant to this Indenture);
(3) the date or dates on which the principal of (and premium, if
any, on) the Securities of the series is payable;
(4) the rate or rates, if any, at which the Securities of the
series shall bear interest (or the method of determining such rate or
rates), the date or dates from which such interest shall accrue, date
or dates on which such interest shall be payable and the record date
or dates for the interest payable;
(5) the place or places where the principal of (and premium, if
any) and interest on Securities of the series shall be payable;
(6) the period or periods within which or the date or dates on
which, if any, the price or prices at which and the terms and
conditions upon which Securities of the series may be redeemed, in
whole or in part, at the option of the Company;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a Securityholder thereof and
the period or periods within which, the price or prices at which and
the terms and conditions upon which Securities of the series shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(8) the price at which Securities of any one series are or may
be converted into shares of Capital Stock of the Company;
(9) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which shall be
payable upon declaration of acceleration of the maturity thereof;
(10) whether any Securities of the series are to be issued in
whole or in part in the form of one or more Global Securities and, if
so, the Depositary for such Global Security or Securities (which
Depositary shall be, if then required by applicable law or regulation,
a clearing agency registered under the Exchange Act and any other
applicable statute or
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<PAGE>
regulation) and whether beneficial owners of interests in such Global
Security or Securities may exchange such interests for Securities of
such series and any authorized form and denomination of such
Securities and the circumstances under which any such exchanges may
occur (if other than in the manner provided in Section 2.06);
(11) the identity of each Paying Agent, Conversion Agent and
Registrar (each as defined in Section 2.04) for the Securities of such
series; and
(12) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.
If any of the terms of a series of Securities are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery to the Trustee
of the Officers' Certificate or supplemental indenture setting forth the terms
of the series.
SECTION 2.03 Execution and Authentication.
----------------------------
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be impressed, affixed, imprinted
or reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
nevertheless be valid.
A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. Such signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue upon
written order or orders of the Company signed by two Officers or by an Officer
and an Assistant Treasurer of the Company (a "Company Order").
The Trustee may appoint an authenticating agent to authenticate
Securities. An authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication
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<PAGE>
by such agent. An authenticating agent has the same rights as an Agent to deal
with the Company or an Affiliate.
The Securities may be issued in registered form without coupons. The
Securities shall be issuable only in denominations of $1,000 principal amount
and any integral multiple thereof.
The Trustee shall inform the Depositary with respect to the Securities
of any series that the Trustee has endorsed pursuant to the provisions of
Section 2.15.
SECTION 2.04 Registrar and Agents.
--------------------
The Company shall maintain an office or agency where Securities of any
series may be presented for registration of transfer or for exchange
("Registrar"), an office or agency where Securities of any series may be
presented for payment ("Paying Agent"), an office or agency where Securities of
any series may be presented for conversion ("Conversion Agent") and an office or
agency where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Registrar shall keep a
register of the Securities of each series and of their transfer and exchange.
The Company may have one or more co-registrars, one or more additional Paying
Agents and one or more additional Conversion Agents. The Company or any
Subsidiary may act as Paying Agent and/or Conversion Agent. The term "Paying
Agent" includes any additional paying agent and the term "Conversion Agent"
includes any additional conversion agent.
The Company may change any Paying Agent, Registrar, Conversion Agent
or Co-Registrar on sixty (60) days' prior written notice to the Trustee. The
Company shall notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion
Agent or agent for service of notices and demands, or fails to give the
foregoing notice, the Trustee shall act as such.
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<PAGE>
The Company and the Trustee initially appoint the Trustee as
Registrar, Paying Agent, Conversion Agent and agent for service of notices and
demands.
SECTION 2.05 Paying Agent to Hold Money in Trust.
-----------------------------------
Prior to each due date of the principal of, premium if any, and
interest on any Securities of any series, the Company shall deposit with each
Paying Agent a sum sufficient to pay such principal, premium, if any, and
interest so becoming due. The Company shall require each Paying Agent other
than the Trustee to agree in writing that it will hold in trust for the benefit
of Holders of Securities of any series or the Trustee all money held by the
Paying Agent for the payment of principal of, premium if any, or interest on the
Securities of such series and to notify the Trustee in writing of any default by
the Company (or any other obligor on the Securities of such series) in making
any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
on or before each due date of the principal of, premium, if any, or interest on
any Securities of any series segregate the money and hold it as a separate trust
fund. The Company at any time may require a Paying Agent to pay all money held
by it to the Trustee and the Trustee may at any time during the continuance of
any payment default, upon written request to a Paying Agent, require such Paying
Agent to forthwith pay to the Trustee all sums so held in trust by such Paying
Agent. Upon doing so, the Paying Agent (other than the Company or a Subsidiary
thereof) shall have no further liability for the money.
SECTION 2.06 Transfer and Exchange.
---------------------
(a) When a Security of any series is presented to the Registrar or a
co-registrar with a request to register the transfer, the Registrar or co-
registrar shall register the transfer as requested and when Securities of any
series are presented to the Registrar or a co-registrar with a request to
exchange them for a like aggregate principal amount of Securities of such series
in other authorized denominations, the Registrar shall make the exchange as
requested, provided that every Security presented or surrendered for
registration or transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Registrar duly executed by the Holder thereof or his attorney-in-fact duly
authorized in writing. To permit registrations of transfers and exchanges, the
Company shall issue and the Trustee or any authenticating agent shall
authenticate Securities of such series at the Registrar's or co-registrar's
written request. No service charge shall be made for any registration of
transfer or exchange of Securities but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto, but this provision shall not apply to any exchange pursuant to
Section 2.09, 3.06, 9.05 or 10.02 not involving any transfer.
Unless and until a Global Security is exchanged in
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whole or in part for Securities in definitive form in accordance with the
provisions of this Indenture, a Global Security may not be transferred, except
as a whole, by the Depositary to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or
nominee. Unless otherwise provided as contemplated by Section 2.02 of this
Indenture, the Depositary may not sell, assign, transfer or otherwise convey any
beneficial interest in a Global Security evidencing all or part of the
Securities of such series unless such beneficial interest is in an amount equal
to an authorized denomination for Securities of such series.
At the option of the Holder, Securities of any series may be exchanged
for other Securities of such series of any authorized denominations and of a
like aggregate principal amount, upon surrender to the Registrar or a co-
registrar of the Securities to be exchanged. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Securities which the Holder
making the exchange is entitled to receive.
(b) The Registrar shall not be required (i) to issue, register the
transfer of, or exchange Securities of any series during a period beginning at
the opening of business 15 days before the day of any selection of Securities of
such series for redemption under Section 3.02 and ending at the close of
business on the day of selection, (ii) to register the transfer or exchange of
any Security of any series so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part, or (iii)
to register the transfer or exchange of any Securities of any series during a
period beginning at the opening of business 15 days before the day of any
selection of Securities of such series for redemption under Section 3.02 and
ending at the close of business on the day interest is to be paid on Securities
of such series.
(c) If at any time the Depositary for any Securities of a series
issued in the form of one or more Global Securities notifies the Company that it
is unwilling or unable to continue as Depositary for such Securities or if at
any time the Depositary for the Securities of such series shall no longer be
eligible under Section 2.02 of this Indenture, the Company shall appoint a
successor Depositary with respect to such Securities. If a successor Depositary
for such Securities is not appointed by the Company within ninety (90) days
after the Company receives such notice or becomes aware of such ineligibility,
the Company's election to issue Global Securities pursuant to Section 2.02 shall
no longer be effective with respect to such Securities and the Company will
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of definitive Securities of such series, will authenticate
Securities of such series in definitive form, in authorized denominations, in an
aggregate principal amount equal to the principal amount of the Global
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<PAGE>
Security or Securities in exchange for such Global Security or Securities and
deliver such definitive Securities to the Securityholders of such series.
The Company may at any time and in its sole discretion determine that
the Securities of any series issued in the form of one or more Global Securities
shall no longer be represented by such Global Security or Securities. The
Company shall notify the Depositary and the Trustee of the date and time of such
exchange in a Company Order. The Depositary shall surrender the Global
Securities to the Trustee as the Company's agent for such purpose as shall be
specified in the Company Order. The Company will execute, and the Trustee, upon
receipt of a Company Order for the authentication and delivery of definitive
Securities of such series, will authenticate and deliver, Securities of such
series in definitive form, in authorized denominations, and in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities in exchange for such Global Security or Securities.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 2.02 of this Indenture, any Global Security shall be
exchangeable only as provided in this paragraph. If the owners of beneficial
interests in a Global Security of any series are entitled to exchange such
interests for Securities of such series, as may be specified in accordance with
Section 2.02 of this Indenture, then without unnecessary delay upon receipt of
notice therefrom so specified as contemplated by Section 2.02 of this Indenture
but in any event not later than one business day prior to the earliest date on
which such interests may be so exchanged, the Company shall deliver to the
Trustee definitive Securities of such series, in authorized denominations, and
in aggregate principal amount equal to the principal amount of such Global
Security, executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such Global Security shall be surrendered by the
Depositary as shall be specified in the Company Order with respect thereto to
the Trustee, as the Company's agent for such purpose, to be exchanged, in whole
or from time to time in part, for definitive Securities of such series, without
charge, and the Trustee shall authenticate and deliver, in exchange for each
portion of such Global Securities, a like aggregate principal amount of
definitive Securities of the same series in authorized denominations as the
portion of such Global Securities to be so exchanged; provided, however, that no
such exchanges may occur for a period of 15 days immediately preceding the date
notice is received by the Company requesting such changes.
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<PAGE>
SECTION 2.07 Replacement Securities.
----------------------
If a mutilated Security of any series is surrendered to the Trustee or
if the Holder of a Security of any series presents evidence to the satisfaction
of the Company and the Trustee that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security of such series if the requirements of the Trustee and the
Company are met. An indemnity bond may be required by the Company or the
Trustee that is sufficient in the judgment of the Company to protect the Company
and is sufficient in the judgment of the Trustee to protect the Trustee or any
Agent from any loss which it may suffer if a Security of such series is
replaced. The Company may charge for its expense in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its sole discretion
may, instead of issuing a new Security, pay or authorize the payment or convert
or authorize the conversion of such Security.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
SECTION 2.08 Outstanding Securities.
----------------------
Securities of any series outstanding at any time are all Securities of
such series authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section 2.08 as not
outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding until the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company or a Subsidiary) holds on
a Redemption Date or maturity date money deposited with it by or on behalf of
the Company sufficient to pay the principal of and accrued interest on
Securities of any series payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
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<PAGE>
A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
SECTION 2.09 Temporary Securities.
--------------------
Until definitive Securities of any series are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities of
such series. Temporary Securities of any series shall be substantially in the
form of definitive Securities of such series but may have non-material
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities of any series in exchange for temporary
Securities of such series upon written order of the Company signed by two
Officers. Until so exchanged, temporary Securities of any series represent the
same rights as definitive Securities of such series. Upon request of the
Trustee, the Company shall provide a certificate to the effect that the
temporary Securities of any series meet the requirements of the second sentence
of this Section 2.09.
SECTION 2.10 Cancellation.
------------
The Company at any time may deliver Securities of any series to the
Trustee for cancellation. The Registrar, the Paying Agent and the Conversion
Agent shall forward to the Trustee any Securities surrendered to them for
transfer, exchange, payment or conversion. The Trustee shall cancel all
Securities surrendered for transfer, exchange, payment or conversion and destroy
canceled Securities in accordance with its customary destruction procedures and
deliver a certificate of such destruction to the Company unless the Company
directs the Trustee in writing prior to such destruction to deliver canceled
Securities to the Company. Subject to Sections 2.07, 3.06 and the second
paragraph of Section 10.02, the Company may not issue Securities to replace
Securities that it has previously paid or delivered to the Trustee for
cancellation or that a Securityholder has converted pursuant to Article 10
hereof.
SECTION 2.11 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on Securities of any
series, it shall pay the defaulted interest to the Persons who are Holders of
the Securities of such series on a subsequent special record date. After the
deposit by the Company with the Trustee of money sufficient to pay such
defaulted interest, the Trustee shall fix the record date and payment date.
Each such special record date shall be not less than 10 days prior to such
payment date. Each such payment date shall be not more than 60 days after the
deposit by the Company of money to pay the defaulted interest. At least 15 days
before the special record date, the Company shall mail to each Holder of a
Security of such series a notice that states the special record date, the
payment date, and the amount of defaulted interest to be paid. The Company may
pay defaulted interest in any other lawful manner if,
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after prior notice to the Trustee, such payment shall be deemed operationally
practicable by the Trustee.
SECTION 2.12 Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders of Securities of each series. If the Trustee is not the Registrar, the
Company or other obligor, if any, shall furnish to the Trustee at least seven
Business Days prior to each semiannual interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of Holders
of Securities of each series upon which the Trustee may conclusively rely. The
Trustee may destroy any such list upon receipt of a replacement list. The
Paying Agent will solicit from each Securityholder a certification of social
security number or taxpayer identification number in accordance with its
customary practice and as required by law, unless the Paying Agent is in
possession of such certification. Each Paying Agent is authorized to impose
back-up withholding with respect to payments to be made to Securityholders to
the extent required by law.
SECTION 2.13 Persons Deemed Owners.
---------------------
Prior to presentment of a Security of any series for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security and neither the Company, the Trustee nor any agent of the Company
or the Trustee shall be affected by notice to the contrary.
SECTION 2.14 CUSIP Number.
------------
The Company may use a "CUSIP" number when issuing Securities of any
series, and if so, the Trustee may use the CUSIP number in notices of redemption
or exchange as a convenience to Holders of Securities of such series; provided,
that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities.
SECTION 2.15 Provisions in Global Security.
-----------------------------
(a) If Securities of a series are issuable in whole or in part as
Global Securities, as may be specified in accordance with Section 2.02 of this
Indenture, then in accordance with any such Global Security, such Global
Security may represent such of the outstanding Securities of such series as
shall be specified therein and may also provide that it represents the aggregate
principal amount of outstanding Securities from time to time endorsed thereon
and that the aggregate principal amount of outstanding Securities represented
thereby may from time to time
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be reduced to reflect exchanges. Global Securities may be permanent or
temporary. Any endorsement of a Global Security to reflect the amount, or any
increase or decrease in the principal amount, of outstanding Securities
represented thereby shall be made by the Trustee in such manner and upon
instructions given by such Person or Persons as shall be specified therein or in
the Company Order to be delivered to the Trustee and the Depositary pursuant to
Section 2.03 or Section 2.09. Subject to the provisions of Section 2.03 and, if
applicable, Section 2.09, the Depositary shall deliver and redeliver any
permanent Global Security in the manner and upon written instructions given by
the Person or Persons specified therein or in the applicable Company Order.
(b) Notwithstanding the other provisions of this Indenture, unless
otherwise specified in accordance with Section 2.02, payment of principal of
(and premium, if any) and interest, if any, on any permanent Global Securities
shall be made directly to owners of beneficial interest of such Global Security.
(c) Notwithstanding the provisions of Section 2.13 of this Indenture,
the Company, the Trustee and any agent of the Company or the Trustee shall treat
the owners of beneficial interest of such Global Security as the Holders of such
principal amounts of outstanding Securities represented by a Global Security as
shall be specified in writing by the Depositary and delivered to the Company and
the Trustee with respect to such Global Security only for purposes of obtaining
any consents or directions required to be given by the Holders pursuant to this
Indenture.
(d) Unless otherwise provided as contemplated by Section 2.02, a
Global Security of any series shall provide, in addition to the provisions
established pursuant to Sections 2.01, 2.02 and 2.15(a) through (c), that the
Depositary will not sell, assign, transfer or otherwise convey any beneficial
interest in such Global Security unless such beneficial interest is in an amount
equal to an authorized denomination for Securities of such series, and the
Depository, by accepting such Global Security, agrees to be bound by such
provision. Any Global Security shall also contain such other provisions as are
necessary to reflect the global form of such Security and the designation of a
Depositary for such Global Security.
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ARTICLE 3
REDEMPTION
SECTION 3.01 Right of Redemption.
-------------------
(a) The Company may, at its option, redeem Securities of any series
as permitted or required by the terms of such Securities, which redemption shall
be made in accordance with the terms of such Securities and this Article. The
election of the Company to redeem any Securities pursuant to this Section shall
be evidenced by a Board Resolution. The Company shall, at least 45 days prior
to the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and, in
the case of any redemption at the election of the Company of less than all the
Securities of any series, of the principal amount of Securities of that series
to be redeemed.
(b) If the Company wants to redeem the Securities of any series
pursuant to the redemption provisions of the Securities of such series, it shall
notify the Trustee of the Redemption Date and the principal amount of Securities
of such series to be redeemed. The notice shall be in writing and accompanied
by an Officers' Certificate stating that the redemption complies with the
provisions of this Indenture and the provisions of the applicable Board
Resolution, if any, and in the Securities of such series.
The Company shall give each notice provided for in this Section 3.01
in writing and at least 45 but not more than 90 days before the Redemption Date
or such other period as the Company and the Trustee may agree.
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SECTION 3.02 Selection of Securities to be Redeemed.
--------------------------------------
If any part of a series of Securities is to be redeemed, the Trustee
shall select the Securities of such series to be redeemed pro rata or by lot or
by any other method that the Trustee considers fair and appropriate under the
circumstances. The Trustee shall promptly notify the Company of the Securities
of such series to be so called for redemption. The Trustee shall make the
selection from Securities of such series outstanding and not previously called
for redemption. The Trustee may select for redemption portions of the principal
of Securities that have denominations larger than $1,000 principal amount.
Securities and portions of them it selects shall be in principal amounts of
$1,000 or multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee's selection of Securities for redemption by any method
authorized by this Section 3.02 shall be conclusively deemed reasonable.
SECTION 3.03 Notice of Redemption by the Company.
-----------------------------------
At least 30 days but not more than 60 days before a Redemption Date
with respect to Securities of any series, the Company shall mail a notice of
redemption by first-class mail to each Holder of Securities of such series to be
redeemed. The notice shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent and the Conversion
Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) that interest on Securities called for redemption ceases to
accrue on and after the Redemption Date;
(6) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and
that, after the Redemption Date, upon surrender of such
Security, a new Security or Securities of the same series in
principal amount equal to the unredeemed portion thereof
will be issued; and
(7) any conversion rights with respect to the Securities and the
applicable procedures required to be followed in connection
with a conversion of Securities.
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At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. If a CUSIP
number is listed in such notice or printed on the Security, the notice shall
state that no representation is made as to the correctness or accuracy of such
CUSIP number.
SECTION 3.04 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the applicable Redemption Date and at the applicable
Redemption Price. Upon surrender to the Paying Agent, such Securities shall be
paid at the Redemption Price, plus accrued interest to the Redemption Date.
SECTION 3.05 Deposit of Redemption Price.
---------------------------
On or before the Redemption Date with respect to any series of
Securities, the Company shall deposit with the Paying Agent (or if the Company
or a Subsidiary is the Paying Agent, shall segregate and hold in trust or cause
such Subsidiary to segregate and hold in trust) in immediately available funds
money sufficient to pay the Redemption Price of and accrued interest on all
Securities of such series to be redeemed on that date. The Trustee or the
Paying Agent shall return to the Company any money so received not required for
that purpose.
SECTION 3.06 Securities Redeemed in Part.
---------------------------
Upon surrender of a Security of any series that is redeemed in part,
the Trustee shall authenticate for the Holder, at the expense of the Company, a
new Security of such series equal in principal amount to the unredeemed portion
of the Security surrendered. If a Global Security is so surrendered, such new
Security so issued shall be a new Global Security.
ARTICLE 4
COVENANTS
SECTION 4.01 Payment of the Securities.
-------------------------
The Company shall pay the principal of, premium, if any, and interest
on the Securities of any series on the dates and in the manner provided in the
Securities of such series and this Indenture. An installment of principal,
premium, if any, or interest shall be considered paid on the date it is due if
the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on
that date money designated for and sufficient to pay the installment. The
Company shall pay interest on overdue principal and premium, if any, at the rate
borne by the Security; it shall pay interest, including post-petition interest
in the event of a proceeding under the Bankruptcy Laws, on overdue installments
of interest at the same rate to the extent lawful.
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<PAGE>
SECTION 4.02 Commission Reports.
------------------
The Company shall file with the Trustee, promptly after it files them
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. The Company shall also comply with the other provisions of TIA
(S) 314(a).
So long as the Securities remain outstanding, the Company shall cause
its annual reports to shareholders (containing audited financial statements) and
any other financial reports furnished by it to shareholders to be mailed to the
Holders at their addresses appearing in the register of Securities maintained by
the Registrar.
SECTION 4.03 Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company expressly waives (to the extent that it may lawfully do
so) any stay or extension law or any usury law or other law that would prohibit
or forgive the Company from paying all or any portion of the principal of
(premium, if any) or interest on Securities of any series as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture.
SECTION 4.04 Notice of Default.
-----------------
The Company will, so long as any Securities of any series are
outstanding, deliver to the Trustee, within 10 days of becoming aware of any
Default or Event of Default in the performance of any covenant, agreement or
condition in this Indenture, an Officers' Certificate specifying such Default or
Event of Default, the period of existence thereof and what action the Company is
taking or proposes to take with respect thereto.
SECTION 4.05 Compliance Certificates.
-----------------------
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company (which as of the date hereof is December 31),
a written statement signed by the principal executive officer, principal
financial officer or principal accounting officer of the Company, stating, as to
each signer thereof, that
(1) a review of the activities of the Company during such year and of
performance under this Indenture has been made under his supervision and
(2) to the best of his knowledge, based on such review, the Company
has kept, observed, performed and fulfilled in all material respects each and
every condition and covenant contained in this Indenture throughout such year,
or, if there has
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been a default in the fulfillment of any such condition or covenant, specifying
each such default known to him and the nature and status thereof.
The Company will give the Trustee written notice of a change in the
fiscal year of the Company, within a reasonable time after such change is
effected.
SECTION 4.06 Limitation on Dividends and Other Distributions.
-----------------------------------------------
The Company will not declare or pay any dividends or make any
distribution to holders of its Capital Stock (other than dividends or
distributions payable in Capital Stock of the Company), or purchase, redeem or
otherwise acquire or retire for value any of its Capital Stock or permit any
Subsidiary to purchase, redeem or otherwise acquire or retire for value any of
the Company's Capital Stock if at the time of any of the aforementioned actions
an Event of Default has occurred and is continuing or would exist immediately
after giving effect to such action.
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Notwithstanding the foregoing, the provisions of this Section 4.06
will not prevent (i) the payment of any dividend within 60 days after the date
of declaration when the payment would have complied with the foregoing
provisions on the date of declaration and (ii) the retirement of any share of
the Company's Capital Stock by exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary) of, other shares of
its Capital Stock.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01 When Company May Merge, etc.
----------------------------
The Company shall not consolidate with or merge into, or transfer all
or substantially all of its assets to, another Person in any transaction in
which the Company is not the continuing or surviving entity unless (i) the
resulting, surviving or transferee Person is a corporation or trust which
assumes by supplemental indenture all the obligations of the Company under the
Securities of each series and this Indenture; (ii) such corporation or trust is
organized and existing under the laws of the United States, a State thereof or
the District of Columbia although it in turn may be owned by a foreign entity;
(iii)immediately after giving effect to such transaction no Default or Event of
Default shall have happened and be continuing, and the Officers' Certificate
referred to in the following clause reflects that such Officers are not aware of
any such Default or Event of Default that shall have happened and be continuing,
and (iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture comply with this Indenture,
and thereafter all obligations of the Company shall terminate.
SECTION 5.02 Successor Corporation or Trust Substituted.
------------------------------------------
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01,
the successor corporation or trust formed by such consolidation or into which
the Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation or trust
has been named as the Company herein.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default.
-----------------
An "Event of Default" occurs if, with respect to any series of
Securities:
(1) the Company defaults in the payment of interest on any
Security of such series when the same becomes due and payable and the
default continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of (and
premium, if any, on) any Security of such series when the same becomes
due and payable at maturity, upon redemption or otherwise, and the
default continues for five Business Days;
(3) the Company fails to comply with any of its other agreements
in the Securities of such series or this Indenture and the default
continues for the period and after the notice specified in the last
paragraph of this Section 6.01;
(4) there shall be a default under any bond, debenture, note or
other evidence of Indebtedness or under any mortgage, indenture or
other instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness of the Company or any
Subsidiary, whether any such Indebtedness now exists or shall
hereafter be created, if (a) either (i) such event of default results
from the failure to pay any such Indebtedness at maturity or (ii) as a
result of such event of default, the maturity of such Indebtedness has
been accelerated prior to its stated maturity and such acceleration
shall not be rescinded or annulled or the accelerated amount paid
within ten days after notice to the Company of such or acceleration,
or such Indebtedness having been discharged and (b) the principal
amount of such Indebtedness, together with the principal amount of any
other such Indebtedness in default for failure to pay principal or
interest thereon, or the maturity of which has been so accelerated,
aggregates $5,000,000 or more;
(5) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it
in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
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(D) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary
case or proceeding,
(B) appoints a Custodian of the Company or for all or
substantially all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90 days;
provided, however, that a default under this Section 6.01 is not an Event of
- -------- -------
Default with respect to any series of Securities if a specified event is either
applicable to a particular series other than such series or it is specifically
deleted or modified in the supplemental indenture creating such series of
Securities or in the form of Security for such series.
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<PAGE>
A default under clause (3) is not an Event of Default with respect to
any series of Securities until the Trustee notifies the Company, or the Holders
of a majority in principal amount of the Securities of such series then
outstanding notify the Company and the Trustee in writing, of the default and
the Company does not cure the default within 60 days after receipt of such
notice. The notice must specify the default, demand that it be remedied and
state that the notice is a "Notice of Default." The Trustee shall give such
notice to the Company only if directed to do so in writing by the Holders of a
majority in principal amount of the Securities then outstanding. Such notice by
the Trustee shall not be deemed to be a certification by the Trustee as to
whether an Event of Default has occurred.
SECTION 6.02 Acceleration.
------------
If an Event of Default occurs and is continuing with respect to any
series of Securities, the Trustee by notice to the Company, or the Holders of a
majority in principal amount of the Securities of such series then outstanding
by notice to the Company and the Trustee, may declare to be due and payable
immediately the principal amount of the Securities of such series plus accrued
interest to the date of acceleration. Upon any such declaration, such amount
shall be due and payable immediately, and upon payment of such amount all of the
Company's obligations with respect to the Securities of such series, other than
obligations under Section 7.07, shall terminate. The Holders of a majority in
principal amount of the outstanding Securities of such series by written notice
to the Trustee may rescind an acceleration and its consequences if (x) all
existing Events of Default with respect to the Securities of such series, other
than the non-payment of the principal of the Securities of such series, which
have become due solely by such declaration of acceleration, have been cured or
waived, (y) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal which has become due
otherwise than by such declaration of acceleration, has been paid, and (z) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. The Trustee may rely upon such notice of rescission
without any independent investigation as to the satisfaction of conditions (x),
(y) and (z).
SECTION 6.03 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal (and premium, if any) or interest on the Securities of such
series or to enforce the performance of any provision of the Securities of such
series or this Indenture.
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<PAGE>
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 Waiver of Defaults and Events of Default.
----------------------------------------
Subject to Section 9.02, the Holders of a majority in principal amount
of the Securities of any series then outstanding, on behalf of the Holders of
the Securities of such series, by written notice to the Trustee may waive a
Default or Event of Default with respect to the Securities of such series and
its consequences. When a Default or Event of Default is waived with respect to
the Securities of any series, it is cured and ceases.
SECTION 6.05 Control by Majority.
-------------------
The Holders of a majority in principal amount of the Securities of any
series then outstanding may direct in writing the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on it with respect to the Securities of such
series. The Trustee, however, may refuse to follow any direction that conflicts
with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of other Securityholders, it being understood that
(subject to Section 7.01) the Trustee shall have no duty to ascertain whether or
not such actions or forebearances are unduly prejudicial to such Securityholders
or that may involve the Trustee in personal liability or for which the Trustee
does not have adequate indemnification pursuant to Section 7.01(e); provided,
--------
that, the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction.
SECTION 6.06 Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security of any series to receive payment of principal of,
premium, if any, and interest on such Security, on or after the respective due
dates expressed in such Security, or to bring suit for the enforcement of any
such payment on or after such respective dates, is absolute and unconditional
and shall not be impaired or affected without the consent of the Holder.
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<PAGE>
Notwithstanding any other provision of this Indenture (other than
Section 3.01), the right of any Holder of any Security to convert such Security
or to bring suit for the enforcement of such right shall not be impaired or
affected without the written consent of the Holder.
SECTION 6.07 Collection Suit by Trustee.
--------------------------
If an Event of Default with respect to any series of Securities in
payment of interest or principal (and premium, if any) specified in Section
6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor on the Securities of such series for the whole amount of unpaid
principal (and premium, if any) and accrued interest remaining unpaid on the
Securities of such series, together with interest on overdue principal (and
premium, if any) and to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate borne by
the Securities of such series and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.08 Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of Securities of any series allowed in any judicial proceedings relative
to the Company (or any other obligor upon the Securities of any series), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same. Any Custodian in any such judicial proceeding is
hereby authorized by each Securityholder to make such payments to the Trustee,
and in the event that the Trustee shall consent to the making of such payments
directly to the Holders of Securities of any series, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07.
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<PAGE>
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan or reorganization, arrangement, adjustment or composition affecting the
Securities of any series or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Securityholder in any such
proceedings.
SECTION 6.09 Priorities.
----------
If the Trustee collects any money pursuant to this Article 6 with
respect to the Securities of any series, it shall pay out the money in the
following order:
FIRST: to the Trustee for payment of costs and expenses of
collection, including all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses and
disbursements of the Trustee, its agents and counsel and all
other amounts due under Section 7.07;
SECOND: to holders of any Senior Indebtedness as required by
Article 11; and
THIRD: to Holders of Securities of such series for amounts due
and unpaid on the Securities of such series for principal of (and
premium, if any) and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Securities of such series for principal (and premium, if any)
and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders of Securities of any series pursuant to this Section 6.09.
SECTION 6.10 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorney's fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.10 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.06 or a suit by Holders of more than 10% in principal
amount of the Securities of any series then outstanding or a suit by any holder
of Senior Indebtedness.
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<PAGE>
SECTION 6.11 Limitations on Suits.
--------------------
Subject to Section 6.06, a Holder of any series of Securities may not
pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder has given the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of such series of
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expenses;
(4) The Trustee does not comply with the request within 60 days after
receipt of the notice, request and offer of indemnity; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Holders of a
majority in principal amount of such series of Securities then
outstanding.
A Holder of any Security may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
ARTICLE 7
TRUSTEE
SECTION 7.01 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise its rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent Person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default and
after the curing or waiving of all such Events of Default which may have
occurred:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture, and the Trustee
shall not be liable except for the performance of such
duties as are specifically set forth in this Indenture, and
no others, and no implied covenants or obligation shall be
read into this Indenture against the Trustee.
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<PAGE>
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
statements certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture. The
Trustee, however, shall examine the certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error in judgment
made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(4) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in
the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01 and
subject to Sections 315 and 316 of the TIA.
(e) Subject to subsection (c), the Trustee may refuse to perform
any duty or exercise any right or power unless, subject to the provisions of the
TIA, it receives indemnity satisfactory to it against any loss, liability,
expense or fee.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 Rights of Trustee.
-----------------
(1) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter
stated in the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or
both, which shall conform to Section 13.05. The Trustee shall not
be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel.
(3) The Trustee may act through agents or attorneys and shall
not be responsible for the misconduct or negligence of such
agents or attorneys appointed with due care and shall not be
responsible for their supervision.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers.
(5) The Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by the Trustee hereunder in good faith
and reliance thereon.
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<PAGE>
(6) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders of Securities of any
series pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction.
SECTION 7.03 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities of any series and may otherwise deal with the
Company or its Affiliates with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. The Trustee, however, is
subject to Sections 7.10 and 7.11.
SECTION 7.04 Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities of any series, it shall not be accountable for
the Company's use of the proceeds from the Securities of any series, and it
shall not be responsible for any statement of the Company in the Indenture or
any statement in the Securities of any series other than its certificate of
authentication or in any document used in the sale of the Securities of any
series other than any statement in writing provided by the Trustee expressly for
use in such document.
SECTION 7.05 Notice of Defaults.
------------------
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee with respect to the Securities of any series, the
Trustee shall mail to each Holder of Securities of such series notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a default in payment of principal of, premium, if any, or interest on any
Security, the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of Holders of Securities of such series. Notwithstanding anything
to the contrary expressed in this Indenture, the Trustee shall not be deemed to
have knowledge of any Event of Default hereunder unless and until a Trust
Officer shall have actual knowledge thereof, or shall have received written
notice thereof from the Company at its principal Corporate Trust Office in
Chicago, Illinois. The Trustee shall not be deemed to have actual knowledge of
an Event of Default hereunder, except in the case of an Event of Default under
Sections 6.01(1) or 6.01(2) (provided that the Trustee is the Paying Agent),
until a Trust Officer receives written notice thereof from the Company or any
Securityholder that such an Event of Default has occurred.
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SECTION 7.06 Reports by Trustee to Holders.
-----------------------------
Within 60 days after each May 15 beginning with May 15 of the first
year in which Securities are outstanding hereunder, the Trustee, if required by
the provisions of TIA (S) 313(a), shall mail to each Securityholder a brief
report dated as of May 15 of such year that complies with TIA (S) 313(a). The
Trustee also shall comply with TIA (S) (S) 313(b) and (S) 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the Commission and each stock exchange on which the
Securities of any series are listed. The Company agrees to notify the Trustee
in writing whenever the Securities of any series become listed or delisted on or
from any stock exchange.
SECTION 7.07 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation for its services (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust). The Company shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it. Such expenses may include, but shall not be limited to,
the reasonable compensation, disbursements and expenses of the Trustee's agents
and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it in connection with the acceptance
or administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the Securities or the
exercise or performance of any of its powers or duties hereunder. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity and the Company may elect by written notice to the
Trustee to assume the defense of any such claim at the Company's expense with
counsel reasonably satisfactory to the Trustee; provided, however, that if the
Trustee is advised by counsel that the interests of the Company and the Trustee
conflict, the Trustee shall have the right to retain separate counsel.
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<PAGE>
The Company need not reimburse the Trustee for any expense or
indemnify it against any loss or liability incurred by it through the Trustee's
negligence or willful misconduct. The Company shall not be liable for any
settlement of any claim or action effected without the Company's consent, which
consent shall not be unreasonably withheld. To secure the Company's payment
obligations in this Section, the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01 occurs, the expenses and the compensation for
the services are intended to constitute expenses of administration under any
applicable bankruptcy or comparable law.
SECTION 7.08 Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign with respect to any series of Securities by so
notifying the Company. The Holders of a majority in principal amount of the
Securities of any series then outstanding may remove the Trustee with respect to
such series of Securities by so notifying the Trustee and may appoint a
successor Trustee with respect to such series of Securities with the Company's
written consent. The Company may remove the Trustee with respect to any series
of Securities (or, if clause (4) applies, with respect to all series) if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting with
respect to any series of Securities.
If the Trustee resigns or is removed with respect to any series of
Securities or if a vacancy exists in the office of Trustee with respect to any
series of Securities for any reason, the Company shall promptly appoint a
successor Trustee with respect to such series.
If a successor Trustee with respect to any series of Securities does
not take office within 45 days after the retiring Trustee with respect to such
series resigns or is removed, the retiring Trustee, the Company or the Holders
of a
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majority in principal amount of the Securities of such series then
outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment with respect to any series of Securities to the retiring Trustee and
to the Company. Immediately after that, the retiring Trustee shall, upon
payment of its fees and expenses, transfer all property held by it as Trustee
with respect to such series to the successor Trustee, subject to the lien
provided for in Section 7.07, the resignation or removal of the retiring Trustee
shall become effective with respect to such series, and the successor Trustee
shall have all the rights, powers and duties of the Trustee under this Indenture
with respect to such series. Notwithstanding the replacement of the Trustee
with respect to any series of Securities pursuant to this Section 7.08, the
Company's obligations under Section 7.07 shall continue for the benefit of the
retiring Trustee with respect to expenses and liabilities incurred by it and
compensation earned by it prior to such replacement or otherwise with respect to
the Securities of such series or the Indenture. A successor Trustee with
respect to any series of Securities shall mail notice of its succession to each
Holder of Securities of such series.
SECTION 7.09 Successor Trustee by Merger, etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1). The Trustee shall have a combined capital
and surplus of at least $50,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA (S) 310(b),
including the optional provision permitted by the second sentence of TIA
(S) 310(b)(9).
SECTION 7.11 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01 Satisfaction, Discharge and Defeasance of the
---------------------------------------------
Securities.
----------
The Company shall be deemed to have paid and discharged the entire
indebtedness on the Securities of any series
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<PAGE>
after the date of the deposit referred to in paragraph (a) below, the provisions
of this Indenture shall no longer be in effect in respect of the Securities of
such series, and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of such
indebtedness; provided that the following conditions shall have been satisfied:
--------
(a) the Company has deposited or caused to be deposited
with the Trustee irrevocably as trust funds in trust,
specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of all Securities of such series, with
reference to this Section 8.01, (i) money or (ii) U.S. Government
Obligations or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge the entire
indebtedness on all the Securities of such series for principal,
premium, if any, and interest, if any, to the maturity date of
such series of Securities as such principal, premium, if any, or
interest becomes due and payable in accordance with the terms of
this Indenture and the Securities;
(b) the Company has paid or caused to be paid all other
sums payable hereunder by the Company in connection with all of
the Securities of any series, including all fees and expenses of
the Trustee; and
(c) the Company has delivered to the Trustee an Officers'
Certificate stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of the
entire indebtedness on the Securities and the discharge of this
Indenture and the termination of the Company's obligations
hereunder have been complied with.
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<PAGE>
"U.S. Government Obligations" means direct, non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the timely payment of which obligation or guarantee the full faith
and credit of the United States of America is pledged.
SECTION 8.02 Satisfaction and Discharge of Indenture.
---------------------------------------
In addition to its rights under Section 8.01, the Company may
terminate all of its obligations under this Indenture when:
(a) All of the Securities of each series theretofore
authenticated and delivered (other than (A) Securities which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 2.07 hereof and (B) Securities for whose payment
money has theretofore been deposited with the Trustee or the Paying
Agent in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 2.05 and Section 8.06 hereof) have been delivered
to the Trustee for cancellation; and
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(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company in connection with the outstanding
Securities, including all fees and expenses of the Trustee.
SECTION 8.03 Survival of Certain Obligations.
-------------------------------
Notwithstanding the satisfaction and discharge of this Indenture
pursuant to Section 8.01, the respective obligations of the Company specified in
Sections 2.04, 2.05, 2.06, 2.07, 2.12, 4.01, 7.07, 8.05, 8.06, 8.07 and in
Article 10 shall survive until the Securities are no longer outstanding, and
after the Securities are no longer outstanding, or upon compliance with Section
8.02, only the obligations of the Company in such Sections 7.07 and 8.06 shall
survive. Nothing contained in this Article Eight shall abrogate any of the
obligations or duties of the Trustee under this Indenture.
SECTION 8.04 Application of Trust Money.
--------------------------
(a) Subject to the provisions of Section 8.06, all money and U.S.
Government Obligations deposited with the Trustee for the Securities of any
series pursuant to Section 8.01 or Section 8.02, and all money received by the
Trustee in respect of U.S. Government Obligations deposited with the Trustee for
the Securities of any series pursuant to Section 8.01 or Section 8.02 shall be
held in trust and reinvested by the Trustee in U.S. Government Obligations in
accordance with the Company's written instructions and applied by the Trustee in
accordance with the provisions of the Securities of such series and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal, premium, if any,
and interest, if any, on the Securities of such series; but such money need not
be segregated from other funds except to the extent required by law.
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(b) The Trustee shall deliver or pay to the Company from time to time
upon the Company's written request any U.S. Government Obligations, or money
held by it as provided in Section 8.01 or Section 8.02 which, in the written
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are then
in excess of the amount thereof which then would have been required to be
deposited for the purpose for which such U.S. Government Obligations, or money
were deposited or received.
SECTION 8.05 Paying Agent to Repay Monies Held.
---------------------------------
Upon the satisfaction and discharge of this Indenture with respect to
the Securities of any series, all monies then held by any Paying Agent for the
benefit of Securities of such series under the provisions of this Indenture
shall, upon written demand of the Company, be repaid to it or paid to the
Trustee, and thereupon such Paying Agent shall be released from all further
liability with respect to such monies.
SECTION 8.06 Return of Unclaimed Monies.
--------------------------
Any monies deposited with or paid to the Trustee or any Paying Agent
for the Securities of any series, or then held by the Company in trust, for the
payment of any principal, premium, if any, and interest, if any, on the
Securities of any series and not applied but remaining unclaimed by the Holders
of the Securities of such series for two years after the date upon which the
principal of and interest, if any, on the Securities of such series, as the case
may be, shall have become due and payable, shall, unless otherwise required by
mandatory provisions of applicable escheat or abandoned or unclaimed property
law, be repaid to the Company by such Trustee or any Paying Agent on written
demand by the Company or (if then held by the Company) shall be discharged from
such trust; and the Holders of the Securities of such series entitled to receive
such payment shall thereafter look only to the Company for the payment thereof;
provided, however, that, before being required to make any such repayment, such
- -------- -------
Trustee may, or shall at the written request of the Company, at the expense of
the Company, cause to be published once in an authorized newspaper in the same
city in which the place of payment with respect to the Securities of such series
shall be located and in an authorized newspaper in the City of New York, or mail
to each such Holder, a notice (in such form as may be deemed appropriate by such
Trustee) that said monies remain unclaimed and that, after a date named therein,
any unclaimed balance of said monies then remaining will be returned to the
Company.
SECTION 8.07 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations with respect to the Securities of any series in
accordance with Section 8.01 by reason of any legal proceeding or by reason of
any order or judgment of
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any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Securities of such series shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01 until such time as the Trustee or
Paying Agent is permitted to apply all such money or U.S. Government Obligations
in accordance with Section 8.04; provided, however, that if the Company has made
-------- -------
any payment of interest on or principal of any Securities of any series because
of the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 9.01 Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
The Company, when authorized by Board Resolution, and the Trustee at
any time and from time to time, may amend this Indenture or enter into one or
more indentures supplemental hereto, to be in a form satisfactory to the Trustee
without notice to or consent of any Securityholder for any of the following
purposes:
(1) to comply with Section 5.01; or
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(3) to add to the covenants of the Company, for the benefit of the
Holders of all or any series of Securities (and if such covenants are
to be for the benefit of less than all series of Securities, stating
that such covenants are expressly being included solely for the
benefit of such series), or to surrender any right or power herein
conferred upon the Company; or
(4) to add any Events of Default (and if such Events of Default are
to be applicable to less than all series of Securities, stating that
such Events of Default are expressly being included solely to be
applicable to such series); or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective
only when there is no Security outstanding of any series created prior
to the execution of such supplemental indenture which is entitled to
the benefit of such provision; or
(6) to establish the form or terms of Securities of
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any series as permitted by Sections 2.01 and 2.02; or
(7) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with any provision of this Indenture, provided such other provisions
shall not adversely affect the interests of the Holders of Securities
of any series in any material respect.
SECTION 9.02 Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the written consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of each series at the time
outstanding affected by such supplemental indenture, the Company, when
authorized by Board Resolution, and the Trustee may amend this Indenture or from
time to time and at any time enter into an indenture or indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act of 1939
as in force at the date of the execution thereof) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture, except as otherwise permitted
by Section 9.01, or of modifying in any manner the rights of the Holders of the
Securities of each such series. Subject to Section 9.04, without the consent of
each Holder of Securities of any series affected, however, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(1) extend the fixed maturity of any Securities, or reduce the
principal amount thereof or premium, if any, or reduce the rate or
extend the time of payment of interest thereon, without the consent of
the Holder of each Security so affected;
(2) reduce the aforesaid percentage of Securities of each series, the
consent of the Holders of which is required for any such supplemental
indenture, without the consent of the Holders of all Securities then
outstanding affected thereby;
(3) waive (except, unless theretofore cured) a default in the payment
of the principal of (and premium, if any on), interest on or
redemption amounts with respect to any Security;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Sections 6.04, 6.06 or 9.02 (this sentence);
(6) make any change that adversely affects the right
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to convert any Security; or
(7) make any change in Article 11 that adversely affects the rights
of any Securityholder.
Upon the request of the Company, accompanied by a copy of a Board
Resolution certified by the Secretary or an Assistant Secretary of the Company
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent shall approve
the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Company
shall mail a notice, setting forth in general terms the substance of such
supplemental indenture, to all Holders of Securities of each series so affected
as the names and addresses of such Holders shall appear on the registry books.
Any failure of the Company so to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture.
SECTION 9.03 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment or supplement to this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.04 Revocation and Effect of Consents.
---------------------------------
Subject to this Indenture, each amendment, supplement or waiver
evidencing other action shall become effective in accordance with its terms.
Until an amendment, supplement or waiver becomes effective, a consent to it by a
Holder of a Security of any series is a continuing consent by the Holder even if
notation of the consent is not made on any Security. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Security or portion
of a Security, if the Trustee receives the notice of revocation before the date
the amendment, waiver or other action becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record
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date (or their duly designated proxies) and only those Persons, shall be
entitled to consent to such amendment, supplement or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No consent shall be valid or effective for more than 90
days after such record date unless consent from Holders of the principal amount
of Securities of any series then outstanding required hereunder for such
amendment, supplement or waiver to be effective shall have also been given and
not revoked within such 90-day period.
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After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (6) of Section 9.02. In that case the amendment, supplement or
waiver shall only bind the Holders of a Security or portion of a Security of the
same series.
SECTION 9.05 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security
of any series, the Trustee may request the Holder of the Security of such series
to deliver it to the Trustee. The Trustee may place an appropriate notation on
the Security about the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determine, the Company in
exchange for the Security of such series shall issue and the Trustee shall
authenticate a new Security of such series that reflects the changed terms the
cost and expense of which will be borne by the Company.
SECTION 9.06 Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities of any applicable series theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.
SECTION 9.07 Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Board of Directors of the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Securities
outstanding of such series.
ARTICLE 10
CONVERSION OF SECURITIES
SECTION 10.01 Right of Conversion; Conversion Price.
-------------------------------------
If provided in the Board Resolution or Supplemental Indenture with
respect to such series of Securities, the Holder of any Security or Securities
of a particular series shall have the right, at his option, at any time after
such date as determined by such Board Resolution and before the close of
business on such date as determined by such Board Resolution (except that, with
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respect to any Security or portion of a Security of such series which shall be
called for redemption, such right shall terminate at the close of business on
the date fixed for redemption of such Security or portion of a Security unless
the Company shall default in payment due upon redemption thereof), to convert,
subject to the terms and provisions of this Article 10, the principal of any
Security or Securities of such series or any portion thereof which is $1,000
principal amount or an integral multiple thereof into shares of common stock of
the Company or Securities of another series of Securities, initially at the
conversion price per share specified in the Securities of such series; or, in
case an adjustment of such price has taken place pursuant to the provisions of
Section 10.04, then at the price as last adjusted (such price or adjusted price
being referred to herein as the "conversion price"), upon surrender of the
Security or Securities, the principal of which is so to be converted,
accompanied by written notice of conversion duly executed, to the Company, at
any time during usual business hours at the office or agency maintained by it
for such purpose, and, if so required by the Conversion Agent or Registrar,
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Conversion Agent or Registrar duly executed by the Holder or
his duly authorized representative in writing. For convenience, the conversion
of any portion of the principal of any Security or Securities into shares of
common stock of the Company or other Securities is hereinafter sometimes
referred to as the conversion of such Security or Securities.
SECTION 10.02 Issuance of Shares on Conversion.
--------------------------------
As promptly as practicable after the surrender, as herein provided, of
any Security or Securities of any series for conversion, the Company shall
deliver or cause to be delivered at its said office or agency, to or upon the
written order of the Holder of the Security or Securities so surrendered,
certificates representing the number of fully paid and nonassessable shares of
common stock of the Company or Securities of another series of the Company into
which such Security or Securities may be converted in accordance with the
provisions of this Article 10. Such conversion shall be deemed to have been
made as of the close of business on the date that such Security or Securities
shall have been surrendered for conversion by delivery thereof with a written
notice of conversion duly executed, so that the rights of the Holder of such
Security or Securities as a Securityholder shall cease at such time and, subject
to the following provisions of this paragraph, the Person or Persons entitled to
receive the shares of common stock or Securities of another series upon
conversion of such Security or Securities shall be treated for all purposes as
having become the record holder or holders of such shares of common stock or
Securities of another series at such time and such conversion shall be at the
conversion price in effect at such time; provided, however, that with respect to
-------- -------
shares of the Company's common stock, no such surrender on any date when the
stock transfer books of the Company shall be closed shall be effective to
constitute the Person or Persons entitled to
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receive the shares of common stock upon such conversion as the record holder or
holders of such shares of common stock on such date, but such surrender shall be
effective to constitute the Person or Persons entitled to receive such shares of
common stock as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock transfer books
are open; such conversion shall be at the conversion price in effect on the date
that such Security or Securities shall have been surrendered for conversion by
delivery thereof, as if the stock transfer books of the Company had not been
closed. The Company shall give or cause to be given to the Trustee written
notice whenever the stock transfer books of the Company shall be closed.
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Upon Conversion of any Security of any series which is converted in
part only, the Company shall execute and the Trustee shall authenticate and
deliver to or on the order of the Holder thereof, at the expense of the Company,
a new Security or Securities of such series of authorized denominations in
principal amount equal to the unconverted portion of such Security.
SECTION 10.03 No Adjustment for Interest or Dividends.
---------------------------------------
No payment or adjustment in respect of interest on the Securities of
any series or dividends on the shares of common stock shall be made upon the
conversion of any Security or Securities; provided, however, that if a Security
-------- -------
of any series or any portion thereof shall be converted subsequent to any
regular record date and on or prior to the next succeeding interest payment
date, the interest falling due on such interest payment date shall be payable on
such interest payment date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name such Security is registered at the close of business on
such regular record date and Securities surrendered for conversion during the
period from the close of business on any regular record date to the opening of
business on the corresponding interest payment date must be accompanied by
payment of an amount equal to the interest payable on such interest payment
date.
SECTION 10.04 Adjustment of Conversion Price.
------------------------------
(1) With respect to any series of Securities that is convertible into
shares of the Company's common stock, in case the Company shall pay or make a
dividend or other distribution on any class of Capital Stock of the Company in
shares of common stock, the conversion price for any series of Securities in
effect at the opening of business on the day following the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of common stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination.
(2) With respect to any series of Securities that is convertible into
shares of the Company's common stock, in case the Company shall issue rights or
warrants to all or substantially all holders of its shares of common stock
entitling them to subscribe for or purchase shares of common stock at a price
per share (or having a conversion price per share) less than the current market
price per share (determined as provided in paragraph (6) of this Section) of the
shares of common stock on the date fixed for the determination of shareholders
entitled to receive such rights or warrants, the conversion price for any series
of Securities in
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effect at the opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such conversion price by a
fraction of which the numerator shall be the number of shares of common stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of common stock which the aggregate of the
subscription price of the total number of shares of common stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of common stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of common stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination. In the event that all of the
shares of common stock subject to such rights or warrants have not been issued
when such rights or warrants expire, then the conversion price shall promptly be
readjusted to the conversion price which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of common stock issued upon the exercise of such
rights or warrants. For the purposes of this paragraph (2), the number of shares
of common stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of common stock. The Company
will not issue any rights or warrants in respect of shares of common stock held
in the treasury of the Company.
(3) With respect to any series of Securities that is convertible into
shares of the Company's common stock, in case the outstanding shares of common
stock shall be subdivided into a greater number of shares, the conversion price
for any series of Securities in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding shares of common
stock shall each be combined into a smaller number of shares, the conversion
price for any series of Securities in effect at the opening of business on the
day following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(4) With respect to any series of Securities that is convertible into
shares of the Company's common stock, in case the Company shall, by dividend or
otherwise, distribute to all or substantially all holders of shares of common
stock evidences of indebtedness or assets (including securities, but excluding
(i) any rights or warrants referred to in paragraph (2) of this Section, (ii)
any dividend or distribution not prohibited by Section 4.06 hereof and (iii) any
dividend or distribution referred to in paragraph (1) of this Section), the
conversion price for any series of Securities shall be adjusted so that the
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same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the close of business on the day fixed for the
determination of shareholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (6) of this Section) of the shares of
common stock on the date fixed for such determination less the then fair market
value as determined by the Board of Directors of the Company (whose
determination shall be conclusive and described in a resolution of the Board of
Directors of the Company filed with the Trustee) of the portion of the assets or
evidences of indebtedness so distributed allocable to one share of common stock
and the denominator shall be such current market price per share of the shares
of common stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination of
shareholders entitled to receive such distribution.
(5) With respect to any series of Securities that is convertible into
shares of the Company's common stock, in case the shares of common stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or a stock dividend described
in paragraph (1) or paragraph (3) of this Section, or a consolidation, merger or
sale of assets described in Section 10.10), then and in each such event the
Holders of Securities of any series shall have the right thereafter to convert
such Securities into the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification or other
change, by holders of the number of shares of common stock into which such
Securities might have been converted immediately prior to such reorganization,
reclassification or change.
(6) For the purpose of any computation under paragraphs (2) and (4)
of this Section, the current market price per share of common stock on any date
shall be deemed to be the average of the Closing Prices for the 15 consecutive
Business Days selected by the Company commencing not more than 30 and not less
than 20 Business Days before the date in question.
(7) No adjustment in the conversion price for the Securities of any
series shall be required unless such adjustment (plus any adjustments not
previously made by reason of this paragraph (7)) would require an increase or
decrease of at least 1% in such price; provided, however, that any adjustments
which by reason of this paragraph (7) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this paragraph (7) shall be made to the nearest cent.
(8) The Company may, but shall not be required to, make such
reductions in the conversion price for the Securities of any series, in addition
to those required by paragraph (1), (2),
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(3) and (4) of this Section, as the Board of Directors of the Company considers
to be advisable in order to avoid or diminish any income tax to any holders of
shares of common stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes or for any other reasons. The
Company's Board of Directors of the Company shall have the power to resolve any
ambiguity or correct any error in the adjustments made pursuant to this
Section 10.04 and its actions in so doing shall be final and conclusive.
(9) The adjustments provided for in this Section 10.04 shall be made
successively whenever any event listed above shall occur.
SECTION 10.05 Notice of Adjustment of Conversion Price.
----------------------------------------
Whenever the conversion price for the Securities of any series is
adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 10.04 and shall prepare an Officers'
Certificate setting forth the adjusted conversion price and showing
the facts upon which such adjustment is based and the computation
thereof, and such certificate shall forthwith be filed at each office
or agency maintained for the purpose of conversion of Securities
pursuant to Section 2.04 and with the Trustee; and
(b) a notice stating that the conversion price has been adjusted
and setting forth the adjusted conversion price shall as soon as
practicable be mailed by the Company to all Holders of Securities of
such series at their last addresses as they shall appear in the
Security Register.
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(c) If the conversion price is adjusted and the Company fails to
file an Officers' Certificate with the Trustee as provided by Section
10.05(a) and the Trustee is acting as the Conversion Agent, the
Trustee shall be entitled to rely conclusively on the conversion price
set forth in the Officer's Certificate most recently received by the
Trustee (or as set forth in this Indenture if the conversion price
shall not have been adjusted).
SECTION 10.06 Notice of Certain Corporate Action.
----------------------------------
(1) In case:
(a) the Company shall authorize the granting to holders of its
shares of common stock of rights or warrants entitling them to
subscribe for or purchase any shares of Capital Stock of any class or
of any other rights; or
(b) of an y reclassification of the shares of common stock of
the Company, or of any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of
the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities of any series pursuant to Section 2.04
and shall cause to be mailed to all Holders of Securities of such series that
are convertible into shares of the Company's common stock at their last
addresses as they shall appear in the Security Register, at least 20 days (or 10
days in any case specified in clause (a) or (b) above) prior to the applicable
record date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the Holders
of shares of common stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of shares of common stock of record shall be
entitled to exchange their shares of common stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. Such notice shall also state
whether such transaction will result in any adjustment in the conversion price
applicable to the Securities of such series and, if so, shall state what the
adjusted conversion price will be and when it will become effective. Neither
the failure to give the notice required by
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this Section, nor any defect therein, to any particular Holder shall affect the
sufficiency of the notice or the legality or validity of any such dividend,
distribution, right, warrant, reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution or winding-up, or the vote on any action
authorizing such with respect to the other holders.
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(2) In case the Company or any Affiliate of the Company shall propose
to engage in a "Rule 13e-3 Transaction" as defined in the Commission's Rule 13e-
3 under the Exchange Act, the Company shall, no later than the date on which any
information with respect to such Rule 13e-3 Transaction is first required to be
given to the Commission or any other Person pursuant to such Rule 13e-3, cause
to be mailed to all Holders at their last addresses as they shall appear in the
Security Register, a copy of all information required to be given to the holders
of the Company's Capital Stock pursuant to such Rule 13e-3. The information
required to be given under this paragraph shall be in addition to and not in
lieu of any other information required to be given by the Company pursuant to
this Section 10.06 or any other provision of the Securities or this Indenture.
SECTION 10.07 Taxes on Conversions.
--------------------
The Company will pay any and all stamp or similar taxes that may be
payable in respect of the issuance or delivery of shares of common stock or
Securities of another series on conversion of Securities pursuant hereto. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares of
common stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance has paid to the Company the
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
SECTION 10.08 Fractional Shares.
-----------------
No fractional shares or scrip representing fractional shares shall be
issued upon any conversion of Securities. If any such conversion would
otherwise require the issuance of a fractional share an amount equal to such
fraction multiplied by the current market price per share of common stock
(determined as provided in paragraph (6) of Section 10.04) on the day of
conversion shall be paid to the Holder in cash by the Company.
SECTION 10.09 Cancellation of Converted Securities.
------------------------------------
All Securities delivered for conversion shall be delivered to the
Trustee or the Conversion Agent to be canceled by or at the direction of the
Trustee or the Conversion Agent, which shall dispose of the same as provided in
Section 2.10.
SECTION 10.10 Provisions in Case of Consolidation, Merger or Sale of Assets.
-------------------------------------------------------------
(1) In case of any consolidation of the Company with, or merger of
the Company into, any other corporation or trust, or in case of any merger of
another corporation or trust into the Company (other than a consolidation or
merger which does not result in any reclassification, conversion, exchange or
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cancellation of outstanding shares of common stock of the Company), or in case
of any sale or transfer of all or substantially all of the assets of the
Company, the corporation or trust formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security of any series then outstanding shall have the right thereafter,
during the period such Security shall be convertible as specified in Section
10.01 to convert such Security only into the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, sale or transfer
by a holder of the number of shares of common stock of the Company into which
such Security might have been converted immediately prior to such consolidation,
merger, sale or transfer. Such supplemental indenture shall provide for
adjustments which, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article. The above provisions of this
Section shall similarly apply to successive consolidations, mergers, sales or
transfers.
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(2) The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by Holders upon the conversion of their Securities after any
such reclassification, change, consolidation, merger, sale or conveyance or to
any adjustment to be made with respect thereto.
SECTION 10.11 Disclaimer by Trustee of Responsibility for Certain Matters.
-----------------------------------------------------------
The Trustee shall not at any time be under any duty or responsibility
to any Holder of Securities of any series to determine whether any facts exist
which may require any adjustment of the conversion price for such series, or
with respect to the nature or extent of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee shall not be
accountable with respect to the validity, value, kind or amount of any shares of
common stock, or of any securities or property, which may at any time be issued
or delivered upon the conversion of any Security; and it makes no representation
with respect thereto. The Trustee shall not be responsible for any failure of
the Company to issue, transfer or deliver any shares of common stock or stock
certificates or other securities or property upon the surrender of any Security
for the purpose of conversion or, subject to Section 7.01, to comply with any of
the covenants of the Company contained in this Article.
SECTION 10.12 Covenant to Reserve Shares.
--------------------------
The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of its authorized shares of common
stock, solely for the purpose of issuance upon conversion of Securities as
herein provided, such number of shares of common stock as shall then be issuable
upon the conversion of all outstanding Securities. The Company covenants that
all shares of common stock which shall be so issuable shall be, when issued,
duly and validly issued and fully paid and non-assessable. For purposes of this
Section 10.12, the number of shares of common stock which shall be deliverable
upon the conversion of all outstanding Securities shall be computed as if at the
time of computation all outstanding Securities were held by a single holder.
ARTICLE 11
SUBORDINATION; SENIORITY
SECTION 11.01 Securities Subordinated to Senior Indebtedness.
----------------------------------------------
(a) Securities of any series which by their terms are subordinated
and junior in right of payment of the principal of, premium, if any, and
interest (all of the foregoing, a "Payment or
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Distribution") on such Securities ("Junior Securities") to the prior payment in
full of any Senior Indebtedness whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed, shall comply with the
provisions of this Article 11, and each Holder of Junior Securities of such
series by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, and shall include, without limitation, any purchase, redemption or
other acquisition of Junior Securities of the series or the making of any
deposit of funds or securities pursuant to this Indenture (including, without
limitation, any deposit pursuant to Article 8 hereof).
(b) The Senior Indebtedness of the Company shall continue to be
Senior Indebtedness and entitled to the benefit of these subordination
provisions irrespective of any amendment, modification or waiver of any term of
any instrument relating to refinancing of the Senior Indebtedness.
(c) All the provisions of this Indenture and the Junior Securities of
any series shall be subject to the provisions of this Article 11 so far as they
may be applicable thereto, except that nothing in this Article 11 shall apply to
claims for, or payments to, the Trustee under or pursuant to Section 7.07.
(d) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any failure to act on the part of the Company, any Paying Agent, the
Holders of the Junior Securities of any series, the Trustee or the holders of
the Senior Indebtedness, or by any noncompliance by the Company, any Paying
Agent, the Holders of the Junior Securities of any series or the Trustee with
any of the terms, provisions and covenants of the Securities or this Indenture,
regardless of any knowledge thereof that any such holder of Senior Indebtedness
may have or be otherwise charged with.
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(e) In the event that the Junior Securities of any series are
declared due and payable before their expressed maturity because of the
occurrence of a default hereunder, the Company will give prompt notice in
writing of such happening to the holders of Senior Indebtedness.
SECTION 11.02 Company Not to Make Payments with Respect to Junior Securities in
-----------------------------------------------------------------
Certain Circumstances.
---------------------
No Payment or Distribution shall be made by the Company, the Trustee
or the Paying Agent on account of principal of (or premium, if any) or interest
on the Junior Securities of any series, whether upon stated maturity, upon
redemption or acceleration, or otherwise, or on account of the purchase or other
acquisition of Junior Securities of such series, whether upon stated maturity,
upon redemption or acceleration, or otherwise, if there shall have occurred and
be continuing a default with respect to any Senior Indebtedness permitting the
acceleration thereof or with respect to the payment of any Senior Indebtedness
and (a) such default is the subject of a judicial proceeding or (b) notice of
such default in writing or by telegram has been given to the Company by any
holder or holders of any Senior Indebtedness, unless and until the Company shall
have received written notice from such holder or holders that such default or
event of default shall have been cured or waived or shall have ceased to exist.
Upon any acceleration of the principal of the Junior Securities of any
series or any payment by the Company or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding up or liquidation or reorganization of the
Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash, or payment thereof
provided for to the satisfaction of the holders thereof, before any Payment or
Distribution is made on account of the redemption price or principal of (and
premium, if any) or interest on the Junior Securities of such series; and
(subject to the power of a court of competent jurisdiction to make other
equitable provision, which shall have been determined by such court to give
effect to the rights conferred in this Article upon the Senior Indebtedness and
the holders thereof with respect to the Junior Securities of such series or the
Holders thereof or the Trustee, by a lawful plan of reorganization or
readjustment under applicable law) upon any such dissolution or winding up or
liquidation or reorganization, any Payment or Distribution by the Company or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the Holders of the Junior Securities of any
series or the Trustee would be entitled except for the provisions of this
Article, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such Payment or Distribution
directly to the holders of Senior Indebtedness of the Company or their
representative or representatives, or to the
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trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full in cash, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any Payment or Distribution is
made to the Holders of the Securities of such series or to the Trustee, except
that the Trustee will have a lien for the payment of its fees and expenses.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities, prohibited by the foregoing, and the Company
shall have made payment to the Trustee or the Holders of the Junior Securities
of any series before all Senior Indebtedness is paid in full in cash, or
provision is made for such payment to the satisfaction of the holders thereof,
and if such fact shall then have been or thereafter be made known to a Trust
Officer of the Trustee or, as the case may be, such Holder, then and in such
event such Payment or Distribution shall be paid over by the Trustee (if the
Notice required by Section 11.05 has been received by the Trustee) or such
Holder or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in cash, after giving effect to
any concurrent Payment or Distribution to or for the holders of such Senior
Indebtedness, and, until so delivered, the same shall be held in trust by any
Holder of a Junior Security as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Article Five shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purposes of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Article Five. Nothing in this Section shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07.
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The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders of the Junior Securities
of any series, without incurring responsibility to the Holders of the Junior
Securities of such series and without impairing or releasing the obligations of
the Holders of the Junior Securities of such series hereunder to the holders of
Senior Indebtedness: (i) change the manner, place or terms of payment or change
or extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend in any manner Senior Indebtedness or any instrument evidencing
the same or any agreement under which Senior Indebtedness is outstanding; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Indebtedness; (iii) release any Person liable in
any manner for the collection of Senior Indebtedness; and/or (iv) exercise or
refrain from exercising any rights against the Company and any other Person.
SECTION 11.03 Subrogation of Junior Securities.
--------------------------------
Subject to the payment in full in cash of all amounts then due
(whether by acceleration of the maturity thereof or otherwise) on account of all
Senior Indebtedness at the time outstanding, the Holders of the Junior
Securities of any series shall be subrogated to the rights of the holders of
Senior Indebtedness to receive Payments or Distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full; and, for the purposes of such subrogation, no Payments or Distributions
to the holders of Senior Indebtedness to which the Holders of the Junior
Securities of any series or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Junior
Securities of any series or the Trustee, shall, as between the Company, the
Company's creditors other than holders of Senior Indebtedness, and the Holders
of the Junior Securities of such series, be deemed to be a payment by the
Company to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Junior Securities of any
series, on the one hand, and the holders of Senior Indebtedness, on the other
hand.
Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Securities of each series, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities of any series the
principal of (and premium, if any) and interest on the Securities of such series
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders of
the Junior Securities of any series and creditors of the Company other than
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the holders of Senior Indebtedness, nor shall anything herein or therein prevent
the Trustee or the Holder of any Junior Security of any series from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
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Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee, subject to the provisions of Section 7.01, and the
Holders of the Junior Securities of any series shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which any
dissolution, winding up, liquidation or reorganization proceedings are pending,
or certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of the Junior Securities of such series, for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 11.04 Authorization by Holders of Junior Securities.
---------------------------------------------
Each holder of a Junior Security of any series by his acceptance
thereof authorizes and directs the Trustee on his behalf to take such action as
may be necessary or appropriate to effectuate, as between the Holder of the
Junior Security and the holders of Senior Indebtedness, the subordination
provided in this Article and appoints the Trustee his attorney-in-fact for any
and all such purposes including, without limitation, to execute, verify, deliver
and file any proofs of claim which any holder of Senior Indebtedness may at any
time require in order to prove and realize upon any rights or claims pertaining
to the Securities and to effectuate the full benefit of the subordination
contained herein. Upon failure of the Trustee so to do, any such holder of
Senior Indebtedness shall be deemed to be irrevocably appointed the agent and
attorney-in-fact of the Holder to execute, verify, deliver and file any such
proofs of claim.
SECTION 11.05 Notices to Trustee.
------------------
The Company shall give prompt written notice to the Trustee of any
fact known to it which would prohibit the making of any payment of moneys to or
by the Trustee in respect of the Junior Securities of any series pursuant to the
provisions of this Article. Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment of moneys to or by the Trustee in respect of the Junior Securities of
any series pursuant to the provisions of this Article, unless and until a Trust
Officer of the Trustee shall have received at its Corporate Trust Office written
notice thereof from the Company or a holder or holders of Senior Indebtedness or
from any trustee or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Section 7.01, shall be
entitled in all respects to assume that no such facts exist; provided, however,
-------- -------
that if a Trust Officer of the Trustee shall not have received at least three
Business Days prior to the date upon which by the terms hereof any such moneys
may become payable for any
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purpose (including, without limitation, the payment of the principal of
(premium, if any) or interest on any Junior Security of any series) with respect
to such moneys the notice provided for in this Section, then, anything herein
contained to the contrary notwithstanding, the Trustee shall have the full power
and authority to receive such moneys and to apply the same to the purpose for
which they were received and shall not be affected by any notice to the contrary
which may be received by it within three Business Days prior to such date.
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior Indebtedness or a trustee or agent
on behalf of any such holder. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION 11.06 Trustee's Relation to Senior Indebtedness.
-----------------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other holder of Senior Indebtedness,
and nothing in Section 7.11 or elsewhere in this Indenture shall deprive the
Trustee of any of its rights as such holder.
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With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not owe any
fiduciary duty to the holders of Senior Indebtedness and shall not be liable to
any such holder if it shall mistakenly pay over or distribute to Holders of the
Junior Securities of any series or the Company or any other Person money or
assets to which any holder of Senior Indebtedness shall be entitled by virtue of
this Article or otherwise.
SECTION 11.07 No Impairment of Subordination.
------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
the Trustee or the Holder of any of the Securities of any series or by any act,
or failure to act, in good faith, by any such holder of Senior Indebtedness, or
by any noncompliance by the Company, the Trustee or the Holder of any of the
Securities of any series with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with.
SECTION 11.08 Article 11 Not To Prevent Events of Default.
-------------------------------------------
The failure to make a payment on account of principal of (premium, if
any) or interest on the Junior Securities of any series by reason of any
provision in this Article 11 shall not be construed as preventing the occurrence
of an Event of Default with respect to such series under Section 6.01.
SECTION 11.09 Paying Agents other than the Trustee.
------------------------------------
In any case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 11 shall in such case (unless the context
shall otherwise require) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such Paying
Agent were named in this Article 11 in addition to or in place of the Trustee.
SECTION 11.10 Securities Senior to Subordinated Indebtedness.
----------------------------------------------
The indebtedness represented by the Securities of any series will be
senior and prior in right of payment to all Subordinated Indebtedness, to the
extent and in the manner provided in such Subordinated Indebtedness.
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ARTICLE 12
SINKING FUND
SECTION 12.01 Mandatory and Optional Sinking Fund Payments.
--------------------------------------------
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of any series, except as otherwise permitted or
required by any form of Security of a series issued pursuant to this Indenture.
The minimum amounts of any sinking fund payments provided for by the
terms of Securities of any series are herein referred to as "mandatory sinking
fund payments", and any payments in excess of those minimum amounts provided for
by the terms of Securities of that series are herein referred to as "optional
sinking fund payments". If provided for by the terms of the Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 12.02. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of that series.
SECTION 12.02 Satisfaction of Sinking Fund Payments with Securities.
-----------------------------------------------------
The Company may, in satisfaction of all or any part of any sinking
fund payment with respect to the Securities of any series, as provided for by
the terms of that series (1) deliver to the Holders of outstanding Securities of
that series (other than any of such Securities previously called for redemption
or any of such Securities by mandatory sinking fund payment in respect of which
cash shall have been released to the Company), (2) apply as a credit Securities
of that series which have been redeemed either at the election of the Company
pursuant to the terms of that series of Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, provided that no Securities of such series have been previously so
credited and (3) apply as a credit Securities of that series which have been
converted or exchanged into shares of the Company's common stock or Securities
of another series pursuant to the terms of that series of Securities, provided
that such series of Securities have not been previously so credited. Such
Securities shall be received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly. If as a result of the delivery or credit of Securities of any
series in lieu of cash payments pursuant to this Section, the principal amount
of Securities of that series to be redeemed in order to exhaust the aforesaid
cash payment shall be less than $100,000, the Trustee need not call Securities
of that series for redemption, except upon the request of the Company, and such
cash payment shall be held by the Trustee or a Paying Agent and applied to the
next succeeding sinking fund payment, provided, however, that the Trustee or
such Paying Agent shall at the request of the Company from time to time pay over
and deliver to the Company any
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cash payment so being held by the Trustee or such Paying Agent upon delivery by
the Company to the Trustee of Securities of that series purchase by the Company
having an unpaid principal amount equal to the cash payment requested to be
released to the Company.
SECTION 12.03 Redemption of Securities for Sinking Funds.
------------------------------------------
Not less than 60 days prior to each mandatory sinking fund payment
date for any series of Securities, the Company will deliver to the Trustee an
Officers' Certificate specifying the amount of the mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivery or credit of Securities
pursuant to Section 12.02 hereof, and the optional amount, if any, to be added
in cash to the mandatory sinking fund payment, and will also deliver to the
Trustee any Securities to be so credited and not theretofore delivered. If such
Officers' Certificate shall specify an optional amount to be added in cash to
the mandatory sinking fund payment, the Company shall thereupon be obligated to
pay the amount therein specified. Not less than 30 days before each such
sinking fund payment date the Trustee shall select the Securities to be redeemed
upon such sinking fund payment date in the manner specified in Section 3.02
hereof and cause notice of the redemption thereof to be given in the name of and
at the expense of the Company in the manner provided in Section 3.03 hereof.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provisions shall control.
SECTION 13.02 Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
or first class mail, postage prepaid (except that any notice by the Trustee to
the Company of a default or an Event of Default under this Indenture shall be by
registered or certified mail, postage prepaid, return receipt requested), or by
a nationally-recognized overnight express courier service (which notices or
communications shall be deemed received the business day after the receipt
thereof by such service), addressed as follows:
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if to the Company:
Assisted Living Concepts, Inc.
9955 S.E. Washington, Suite 201
Portland, Oregon 97216
Attention: President
if to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street
12th Floor
Chicago, IL 60606
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate additional or
different addresses as shall be furnished in writing by either party. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if personally delivered, and five
(5) calendar days after mailing if sent by registered or certified mail (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to the address of such Securityholder as it appears on the registration books of
the Registrar and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice, as
required by this Indenture, then such method of notification as shall be made
with the approval of the Trustee shall constitute a sufficient mailing of such
notice.
If the Company mails any notice or communication to Securityholders,
it shall mail a copy to the Trustee and all Agents at the same time.
SECTION 13.03 Communications by Holders with Other Holders.
--------------------------------------------
Securityholders of any series may communicate pursuant to TIA
(S) 312(b) with other Securityholders of such series with respect to their
rights under this Indenture or the Securities of such series. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA
(S) 312(c).
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SECTION 13.04 Certificate and Opinion as to Conditions
----------------------------------------
Precedent.
---------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 13.05) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 13.05) stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 13.05 Statements Required in Certificate and Opinion.
----------------------------------------------
Each Certificate and Opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
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(4) a statement as to whether or not, in the opinion of such Person,
such covenant or condition has been complied with.
SECTION 13.06 Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar, Paying Agent or Conversion Agent may make
reasonable rules for its functions.
SECTION 13.07 Record Date.
-----------
Whenever the Company or the Trustee solicits an act of Securityholders
of any series, the Company or the Trustee may fix in advance of the solicitation
of such act a date as the record date for determining Securityholders of such
series entitled to perform said act. The record date shall be not more than 15
days prior to the date fixed for the solicitation of said act.
SECTION 13.08 Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banks or
trust companies in the city in which either the Trustee or the Company is
located are not required to be open. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
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SECTION 13.09 Governing Law.
-------------
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE
SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 13.10 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 13.11 No Recourse Against Others.
--------------------------
No shareholder, director or officer, as such, past, present or future,
of the Company or of any successor corporation or trust shall have any liability
for any obligation of the Company under the Securities or the Indenture or for
any claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder of a Security of any series by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
SECTION 13.12 Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 13.13 Multiple Counterparts.
---------------------
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent the same agreement.
SECTION 13.14 Table of Contents, Headings, etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15 Severability.
------------
In case any provision in this Indenture or in the Securities of any
series shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
-70-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
ASSISTED LIVING CONCEPTS, INC.
By: /s/ Stephen Gordon
__________________________________
Name: Steven Gordon
Title: Chief Financial Officer
and Chief Administrative
Officer
This rest of this page intentionally left blank.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: /s/ Dan Donovan
_______________________________
Authorized Officer
The rest of this page intentionally left blank.
<PAGE>
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT FOR EMPLOYEES
----------------------------------------
THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), effective as of
October 3, 1997, between Assisted Living Concepts, Inc., a Nevada corporation
(the "Company"), and William McBride III, an employee of the Company (the
employee is hereinafter referred to as the "Employee"):
WHEREAS, the Company has established the Assisted Living Concepts,
Inc. Amended and Restated 1994 Stock Option Plan (the "Plan"); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Plan provides for the issuance of shares of Common Stock,
par value $.01 per share, subject to certain restrictions thereon (hereinafter
referred to as "Restricted Stock"); and
WHEREAS, the Compensation Committee of the Company's Board of
Directors, appointed to administer the Plan, has determined that it would be to
the advantage and best interest of the Company and its stockholders to issue the
Restricted Stock provided for herein to the Employee in consideration of the
Employee's past and future services to the Company and other good and valuable
consideration provided for herein, and has advised the Company thereof and
instructed the undersigned officers to issue said Restricted Stock;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates. All capitalized terms used
herein without definition shall have the meaning ascribed to such terms in the
Plan.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
<PAGE>
Section 1.2 - Cause
- ----------- -----
"Cause" shall have the meaning ascribed to such term in the Employee's
employment agreement with the Company or a Subsidiary; provided, however, that
-------- -------
if "Cause" is not defined therein or if no such employment agreement is then in
effect, then "Cause" shall have such meaning, in conformance with applicable
law, as the Committee, in its sole and absolute discretion, shall determine is
appropriate.
Section 1.3 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.4 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in the Plan.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Assisted Living Concepts, Inc., a Nevada corporation.
Section 1.6 - Employment Agreement
- ----------- --------------------
"Employment Agreement" shall mean that certain employment agreement between
the parties which is being executed and delivered contemporaneously herewith, as
it may be amended from time to time by the parties.
Section 1.7 - Exchange Act
- ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.8 - Plan
- ----------- ----
"Plan" shall mean the Assisted Living Concepts, Inc. Amended and Restated
1994 Stock Option Plan, as amended from time to time.
Section 1.9 - Restricted Stock
- ----------- ----------------
"Restricted Stock" shall mean Common Stock of the Company issued under this
Agreement and subject to the Restrictions imposed hereunder.
Section 1.10 - Restrictions
- ------------ ------------
"Restrictions" shall mean the restrictions on sale or other transfer set
forth in Section 4.2 and the exposure to forfeiture set forth in Section 3.1.
2
<PAGE>
Section 1.11 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.12 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in which stock possessing fifty
percent or more of the total combined voting power, or fifty percent or more of
the value, of all classes of stock is owned directly or indirectly by the
Company.
ARTICLE 2
ISSUANCE OF RESTRICTED STOCK
----------------------------
In consideration of the execution by the Employee of the Employment
Agreement and for other good and valuable consideration, on the date hereof the
Company irrevocably issues to the Employee 200,000 shares of its $.01 par value
Common Stock upon the terms and conditions set forth in this Agreement.
ARTICLE 3
RESTRICTIONS
------------
Section 3.1 - Forfeiture of Restricted Stock
- ----------- ------------------------------
Immediately upon a termination of employment under the Employment Agreement
for Cause or by reason of voluntary resignation (not for "Good Reason" as
defined in the Employment Agreement), the Employee's rights in the Restricted
Stock then subject to Restrictions shall be forfeited.
Section 3.2 - Legend
- ----------- ------
Certificates representing shares of Restricted Stock issued pursuant to
this Agreement shall, until all Restrictions lapse or shall have been removed
and new certificates are issued pursuant to Section 3.3, bear the following
legend:
"The shares represented by this certificate are subject to reacquisition by
Assisted Living Concepts, Inc., and such shares may not be sold or
otherwise transferred except pursuant to the provisions of the Restricted
Stock Agreement by and between Assisted Living Concepts, Inc. and the
registered owner of such shares."
Section 3.3 - Lapse of Restrictions
- ----------- ---------------------
(a) Subject to Sections 3.1, 3.4, and 3.5, the Restrictions shall lapse in
four (4) cumulative installments commencing on the fourth anniversary of the
date of this Agreement
3
<PAGE>
as follows: on the forth, fifth, sixth, and seventh anniversaries of the date of
this Agreement, twenty-five percent (25%) of the shares of Restricted Stock and
the Restrictions on such shares shall lapse.
(b) Upon the lapse of the Restrictions, the Company shall cause new
certificates to be issued with respect to such shares and delivered to the
Employee or his legal representative, free from the legend provided for in
Section 3.2 and any of the other Restrictions. Notwithstanding the foregoing,
no such new certificate shall be delivered to the Employee or his legal
representative unless and until the Employee or his legal representative shall
have paid to the Company in cash the full amount of all federal and state
withholding or other employment taxes applicable to the taxable income of the
Employee resulting from the grant of Restricted Stock or the lapse or removal of
the Restrictions.
Section 3.4 - Removal of Restrictions; Acceleration of Lapse of Restrictions,
- ----------- ---------------------------------------------------------------
Etc.
- ----
(a) By resolution, the Committee may, on such terms and conditions as it
deems appropriate, remove any or all of the Restrictions.
(b) Subject to Section 3.5, if the shares of the Company's Common Stock as
a whole are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, the Committee, in its sole and absolute
discretion, shall have the discretion and power to determine and to make
effective provision for acceleration of the time or times at which any
Restrictions shall lapse or be removed. In addition, in the case of the
occurrence of any event described in this subsection 3.4, the Committee, subject
to the provisions of the Plan and this Agreement, shall make an appropriate and
proportionate adjustment in the number and kind of shares of Restricted Stock,
to the end that after such event the Employee's proportionate interest shall be
maintained as before the occurrence of such event. Any such adjustment made by
the Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
Section 3.5 - Lapse of Restrictions
- ----------- ---------------------
The Restrictions shall lapse, and the Restricted Stock shall cease to be
subject to forfeiture under Section 3.1, in the event that Employee shall be
entitled to the termination benefits payable under Section 6(a) or 6(b) of the
Employment Agreement.
Section 3.6 - Restrictions On New Shares
- ----------- --------------------------
In the event that the Employee receives any new or additional or different
shares or securities by reason of any transaction or event described in
subsection 3.4, such new or additional or different shares or securities which
are attributable to the Employee in his capacity as the owner of the Restricted
Stock then subject to Restrictions, shall be considered to be Restricted Stock
and shall be subject to all of the Restrictions, unless the Committee provides,
pursuant to Section 3.4, for the removal or lapse of the Restrictions on the
shares of
4
<PAGE>
Restricted Stock underlying the distribution of the new or additional shares or
securities, or unless the Restrictions automatically lapse pursuant to Section
3.5.
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret, amend or revoke any
such rules. All actions taken and all interpretations and determinations made
by the Committee in good faith shall be final and binding upon the Employee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or the Restricted Stock.
Section 4.2 - Restricted Stock Not Transferable
- ----------- ---------------------------------
Restricted Stock (including any shares received by holders thereof with
respect to shares of Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall be subject to the following
Restrictions until such Restrictions lapse or shall be removed pursuant to this
Agreement: Neither the Restricted Stock nor any interest or right therein or
part thereof shall be liable for the debts, contracts, or engagements of the
Employee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 4.2
-------- -------
shall not prevent transfers by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder.
Section 4.3 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
Shares of Restricted Stock may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock pursuant
to this Agreement prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange
5
<PAGE>
Commission or of any other governmental regulatory body, which the Committee
shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time as the Committee may from
time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
Section 4.4 - Escrow
- ----------- ------
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing the Restricted
Stock, including shares of Restricted Stock issued pursuant to Section 3.4,
until all of the Restrictions lapse or shall have been removed; provided,
--------
however, that in no event shall the Employee retain physical custody of any
- -------
certificates representing Restricted Stock issued to him.
Section 4.5 - Notices
- ----------- -------
Any notice to be given by the Employee under the terms of this Agreement
shall be addressed to the Secretary of the Company or his office. Any notice to
be given to the Employee shall be addressed to him at the address given beneath
his signature hereto. By a notice given pursuant to this Section, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Employee shall, if the Employee is
then deceased, be given to the Employee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 4.6 - Rights as Stockholder
- ----------- ---------------------
Except as otherwise provided herein, upon the delivery of Restricted Stock
to the escrow holder pursuant to Section 4.4, the holder of the Restricted Stock
shall have all the rights of a stockholder with respect to the Restricted Stock
(excluding the right to vote the Restricted Stock), including the right to
receive all dividends or other distributions paid or made with respect to the
Restricted Stock; provided, however, that any and all shares of Common Stock
-------- -------
received by holders of Restricted Stock with respect to such Restricted Stock as
a result of stock dividends, stock splits or any other form of recapitalization
shall also be subject to the Restrictions until the Restrictions on the
underlying shares of Restricted Stock lapse or are removed pursuant to this
Agreement.
6
<PAGE>
Section 4.7 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 4.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal laws of the state of incorporation of the Company without regard to the
principles of conflicts of laws thereof.
Section 4.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan and this Agreement are intended to
conform to the extent necessary with all provisions of all applicable federal
and state laws, rules and regulations (including, but not limited to the
Securities Act of 1933, as amended, and the Exchange Act) and to such approvals
by any listing, regulatory or other governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Restricted Stock is granted, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan, this Agreement and the Restricted Stock shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
Section 4.10 - Amendments
- ------------ ----------
This Agreement and the Plan may be amended without the consent of the
Employee provided that such amendment would not impair any rights of the
Employee under this Agreement. No amendment of this Agreement shall, without the
consent of the Employee, impair any rights of the Employee under this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation.
By /s/ Stephen Gordon
Name: Chief Financial Officer
Title: Stephen Gordon
Employee
/s/ William McBride III
William McBride III
Address
Employee's Taxpayer Identification
Number:
------------------------------------------
8
<PAGE>
EXHIBIT 10.2
RESTRICTED STOCK AGREEMENT FOR EMPLOYEES
----------------------------------------
THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), effective as of
October 3, 1997, between Assisted Living Concepts, Inc., a Nevada corporation
(the "Company"), and Keren Brown Wilson, an employee of the Company (the
employee is hereinafter referred to as the "Employee"):
WHEREAS, the Company has established the Assisted Living Concepts,
Inc. Amended and Restated 1994 Stock Option Plan (the "Plan"); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Plan provides for the issuance of shares of Common Stock,
par value $.01 per share, subject to certain restrictions thereon (hereinafter
referred to as "Restricted Stock"); and
WHEREAS, the Compensation Committee of the Company's Board of
Directors, appointed to administer the Plan, has determined that it would be to
the advantage and best interest of the Company and its stockholders to issue the
Restricted Stock provided for herein to the Employee in consideration of the
Employee's past and future services to the Company and other good and valuable
consideration provided for herein, and has advised the Company thereof and
instructed the undersigned officers to issue said Restricted Stock;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates. All capitalized terms used
herein without definition shall have the meaning ascribed to such terms in the
Plan.
Section 1.1 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
<PAGE>
Section 1.2 - Cause
- ----------- -----
"Cause" shall have the meaning ascribed to such term in the Employee's
employment agreement with the Company or a Subsidiary; provided, however, that
-------- -------
if "Cause" is not defined therein or if no such employment agreement is then in
effect, then "Cause" shall have such meaning, in conformance with applicable
law, as the Committee, in its sole and absolute discretion, shall determine is
appropriate.
Section 1.3 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.4 - Committee
- ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in the Plan.
Section 1.5 - Company
- ----------- -------
"Company" shall mean Assisted Living Concepts, Inc., a Nevada corporation.
Section 1.6 - Employment Agreement
- ----------- --------------------
"Employment Agreement" shall mean that certain employment agreement between
the parties which is being executed and delivered contemporaneously herewith, as
it may be amended from time to time by the parties.
Section 1.7 - Exchange Act
- ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.8 - Plan
- ----------- ----
"Plan" shall mean the Assisted Living Concepts, Inc. Amended and Restated
1994 Stock Option Plan, as amended from time to time.
Section 1.9 - Restricted Stock
- ----------- ----------------
"Restricted Stock" shall mean Common Stock of the Company issued under this
Agreement and subject to the Restrictions imposed hereunder.
Section 1.10 - Restrictions
- ------------ ------------
"Restrictions" shall mean the restrictions on sale or other transfer set
forth in Section 4.2 and the exposure to forfeiture set forth in Section 3.1.
2
<PAGE>
Section 1.11 - Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.12 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in which stock possessing fifty
percent or more of the total combined voting power, or fifty percent or more of
the value, of all classes of stock is owned directly or indirectly by the
Company.
ARTICLE 2
ISSUANCE OF RESTRICTED STOCK
----------------------------
In consideration of the execution by the Employee of the Employment
Agreement and for other good and valuable consideration, on the date hereof the
Company irrevocably issues to the Employee 50,000 shares of its $.01 par value
Common Stock upon the terms and conditions set forth in this Agreement.
ARTICLE 3
RESTRICTIONS
------------
Section 3.1 - Forfeiture of Restricted Stock
- ----------- ------------------------------
Immediately upon a termination of employment under the Employment Agreement
for Cause or by reason of voluntary resignation (not for "Good Reason" as
defined in the Employment Agreement), the Employee's rights in the Restricted
Stock then subject to Restrictions shall be forfeited.
Section 3.2 - Legend
- ----------- ------
Certificates representing shares of Restricted Stock issued pursuant to
this Agreement shall, until all Restrictions lapse or shall have been removed
and new certificates are issued pursuant to Section 3.3(b), bear the following
legend:
"The shares represented by this certificate are subject to reacquisition by
Assisted Living Concepts, Inc., and such shares may not be sold or
otherwise transferred except pursuant to the provisions of the Restricted
Stock Agreement by and between Assisted Living Concepts, Inc. and the
registered owner of such shares."
Section 3.3 - Lapse of Restrictions
- ----------- ---------------------
(a) Subject to Sections 3.1, 3.4, and 3.5, the Restrictions shall lapse in
four (4) cumulative installments commencing on the fourth anniversary of the
date of this Agreement
3
<PAGE>
as follows: on the forth, fifth, sixth, and seventh anniversaries of the date of
this Agreement, twenty-five percent (25%) of the shares of Restricted Stock and
the Restrictions on such shares shall lapse.
(b) Upon the lapse of the Restrictions, the Company shall cause new
certificates to be issued with respect to such shares and delivered to the
Employee or his legal representative, free from the legend provided for in
Section 3.2 and any of the other Restrictions. Notwithstanding the foregoing,
no such new certificate shall be delivered to the Employee or his legal
representative unless and until the Employee or his legal representative shall
have paid to the Company in cash the full amount of all federal and state
withholding or other employment taxes applicable to the taxable income of the
Employee resulting from the grant of Restricted Stock or the lapse or removal of
the Restrictions.
Section 3.4 - Removal of Restrictions; Acceleration of Lapse of Restrictions,
- ----------- ---------------------------------------------------------------
Etc.
- ----
(a) By resolution, the Committee may, on such terms and conditions as it
deems appropriate, remove any or all of the Restrictions.
(b) Subject to Section 3.5, if the shares of the Company's Common Stock as
a whole are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, the Committee, in its sole and absolute
discretion, shall have the discretion and power to determine and to make
effective provision for acceleration of the time or times at which any
Restrictions shall lapse or be removed. In addition, in the case of the
occurrence of any event described in this subsection 3.4(b), the Committee,
subject to the provisions of the Plan and this Agreement, shall make an
appropriate and proportionate adjustment in the number and kind of shares of
Restricted Stock, to the end that after such event the Employee's proportionate
interest shall be maintained as before the occurrence of such event. Any such
adjustment made by the Committee shall be final and binding upon the Employee,
the Company and all other interested persons.
Section 3.5 - Lapse of Restrictions
- ----------- ---------------------
The Restrictions shall lapse, and the Restricted Stock shall cease to be
subject to forfeiture under Section 3.1, in the event that Employee shall be
entitled to the termination benefits payable under Section 6(a) or 6(b) of the
Employment Agreement.
Section 3.6 - Restrictions On New Shares
- ----------- --------------------------
In the event that the Employee receives any new or additional or different
shares or securities by reason of any transaction or event described in
subsection 3.4(b), such new or additional or different shares or securities
which are attributable to the Employee in his capacity as the owner of the
Restricted Stock then subject to Restrictions, shall be considered to be
Restricted Stock and shall be subject to all of the Restrictions, unless the
Committee provides, pursuant to Section 3.4, for the removal or lapse of the
Restrictions on the shares of
4
<PAGE>
Restricted Stock underlying the distribution of the new or additional shares or
securities, or unless the Restrictions automatically lapse pursuant to Section
3.5.
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt such rules for the administration, interpretation and application
of the Plan as are consistent therewith and to interpret, amend or revoke any
such rules. All actions taken and all interpretations and determinations made
by the Committee in good faith shall be final and binding upon the Employee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or the Restricted Stock.
Section 4.2 - Restricted Stock Not Transferable
- ----------- ---------------------------------
Restricted Stock (including any shares received by holders thereof with
respect to shares of Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall be subject to the following
Restrictions until such Restrictions lapse or shall be removed pursuant to this
Agreement: Neither the Restricted Stock nor any interest or right therein or
part thereof shall be liable for the debts, contracts, or engagements of the
Employee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 4.2
-------- -------
shall not prevent transfers by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder.
Section 4.3 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
Shares of Restricted Stock may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock pursuant
to this Agreement prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange
5
<PAGE>
Commission or of any other governmental regulatory body, which the Committee
shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time as the Committee may from
time to time establish for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
Section 4.4 - Escrow
- ----------- ------
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing the Restricted
Stock, including shares of Restricted Stock issued pursuant to Section 3.4(b),
until all of the Restrictions lapse or shall have been removed; provided,
--------
however, that in no event shall the Employee retain physical custody of any
- -------
certificates representing Restricted Stock issued to him.
Section 4.5 - Notices
- ----------- -------
Any notice to be given by the Employee under the terms of this Agreement
shall be addressed to the Secretary of the Company or his office. Any notice to
be given to the Employee shall be addressed to him at the address given beneath
his signature hereto. By a notice given pursuant to this Section, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Employee shall, if the Employee is
then deceased, be given to the Employee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section. Any notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 4.6 - Rights as Stockholder
- ----------- ---------------------
Except as otherwise provided herein, upon the delivery of Restricted Stock
to the escrow holder pursuant to Section 4.4, the holder of the Restricted Stock
shall have all the rights of a stockholder with respect to the Restricted Stock
(excluding the right to vote the Restricted Stock), including the right to
receive all dividends or other distributions paid or made with respect to the
Restricted Stock; provided, however, that any and all shares of Common Stock
-------- -------
received by holders of Restricted Stock with respect to such Restricted Stock as
a result of stock dividends, stock splits or any other form of recapitalization
shall also be subject to the Restrictions until the Restrictions on the
underlying shares of Restricted Stock lapse or are removed pursuant to this
Agreement.
6
<PAGE>
Section 4.7 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 4.8 - Construction
- ----------- ------------
This Agreement shall be administered, interpreted and enforced under the
internal laws of the state of incorporation of the Company without regard to the
principles of conflicts of laws thereof.
Section 4.9 - Conformity to Securities Laws
- ----------- -----------------------------
The Employee acknowledges that the Plan and this Agreement are intended to
conform to the extent necessary with all provisions of all applicable federal
and state laws, rules and regulations (including, but not limited to the
Securities Act of 1933, as amended, and the Exchange Act) and to such approvals
by any listing, regulatory or other governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Restricted Stock is granted, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan, this Agreement and the Restricted Stock shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
Section 4.10 - Amendments
- ------------ ----------
This Agreement and the Plan may be amended without the consent of the
Employee provided that such amendment would not impair any rights of the
Employee under this Agreement. No amendment of this Agreement shall, without the
consent of the Employee, impair any rights of the Employee under this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation.
By /s/ Stephen Gordon
Name: Chief Financial Officer
Title: Stephen Gordon
Employee
/s/ Keren Brown Wilson
Keren Brown Wilson
Address
Employee's Taxpayer Identification
Number:
------------------------------------------
8
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made as of October 3, 1997
(the "COMMENCEMENT DATE"), by and between Assisted Living Concepts, Inc., a
corporation organized under the laws of the state of Nevada ("ALC" or the
"COMPANY") and William McBride III ("EXECUTIVE").
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment, Title and Duties.
-----------------------------
(a) ALC hereby employs Executive to serve as its Chief Executive
Officer of ALC. In such capacity, Executive shall report to the Board of
Directors of the Company, and shall have such duties, powers and
responsibilities as are customarily assigned to the Chief Executive Officer of a
publicly held corporation in a business such as that conducted by Company.
(b) Executive shall serve as the Chairman of the Board of Assisted
Living Concepts Services, Inc. ("ALCS"), a wholly-owned subsidiary of ALC.
(c) Executive's duties may require him to travel. When Executive is
not travelling on behalf of ALC, or as otherwise provided under this Agreement,
Executive may exercise his discretion whether to perform his duties in an office
provided him by Company at its corporate headquarters, which as of the date
hereof, is in Portland, Oregon, or in California.
2. Term of Agreement.
-----------------
(a) The initial term of this Agreement shall be for a four (4) year
period from and after the Commencement Date, unless terminated earlier by (i)
termination for Cause; (ii) the voluntary resignation of Executive for Good
Reason; (iii) the expiration of six (6) months from and after the date Executive
provides written notice of termination to Company; or (iv) Executive's death or
Permanent Disability (defined in SECTION 5(a) below).
(b) If this Agreement has not terminated as of the date of the
expiration of the initial term, this Agreement shall be automatically extended
on a continuous basis daily from and after that date, until the occurrence of
one of the following events of termination: (i) termination for Cause; (ii)
voluntary resignation of Executive for Good Reason; (iii) Executive's death or
Permanent Disability; (iv) the expiration of six (6) months from and after the
date Executive provides written notice of intent not to renew this Agreement to
Company; or (v) the expiration of four (4) years from and after the date Company
provides written notice of intent not to renew this Agreement to Executive.
(c) A termination hereunder shall constitute a termination of
employment with any wholly owned subsidiary or other affiliate of Company.
<PAGE>
3. Acceptance of Position. Executive accepts the position set forth
----------------------
in SECTION 1 above and agrees that during the term of this Agreement, Executive
will faithfully perform Executive's duties and, except as expressly approved by
the Board of Directors of ALC and except as set forth herein, will devote
substantially all of Executive's business time to the business and affairs of
ALC, and will not engage, for Executive's own account or for the account of any
other person or entity, in a business which competes with ALC. During the term
of this Agreement, Executive shall not directly own, or own as part of a
consortium, more than five percent (5%) of a publicly held corporation which
conducts the same business as does ALC or its affiliates. It is acknowledged
and agreed that Executive may, from time to time during the term of this
Agreement, serve as a member of the Board of Directors of other companies, in
which event the Board of Directors of ALC must expressly approve such service.
As of the date hereof, the Board of ALC approves of Executive serving on the
Board of Directors of MALAN. In addition, as of the date hereof, the Board of
ALC approves of Executive serving as an officer of Home and Community Care, Inc.
until it is merged into ALC or until November 30, 1997, whichever occurs
earlier.
4. Salary and Benefits. During the term of this Agreement:
-------------------
(a) ALC shall pay to Executive a base salary in an annual amount of
not less than Two Hundred Sixty-five Thousand Dollars ($265,000) per annum, paid
in approximately equal installments at intervals in accordance with the then
prevailing policy of the Company with respect to its senior executives
generally, but in no event, less frequently than monthly. ALC agrees to consider
from time to time increases in such base salary in the discretion of the Board
of Directors. Any increase, once granted by the Board of Directors, shall be
deemed to automatically amend this Agreement to provide that thereafter
Executive's base salary shall not be less than the annual amount to which the
base salary has been increased.
(b) Concurrently herewith ALC and Executive shall execute and deliver
a Restricted Stock Agreement for Employees in substantially the same form as
that attached hereto as EXHIBIT "A," pursuant to which Executive shall be issued
200,000 shares of restricted common stock of ALC pursuant to the Amended and
Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock Agreement
provides that the restrictions on the stock shall be lifted to the extent of 25%
of the stock per year commencing on the fourth anniversary date from the
Effective Date hereof, subject to earlier acceleration as provided in the
Restricted Stock Agreement.
(c) Executive shall participate in all health, retirement, Company-
paid insurance, sick leave, disability, expense reimbursement and other benefit
programs which ALC makes available to any of its senior executives, and shall be
eligible for bonuses in the discretion (as to bonuses) of the Board of
Directors.
(d) Executive shall be entitled to vacation time of not less than four
(4) weeks per year, provided that not more than two (2) weeks of such vacation
time may be taken consecutively without prior notice to, and non-objection by,
the Compensation Committee of the Board of Directors or, if there is no
Compensation Committee, the Board of Directors.
2
<PAGE>
5. Certain Terms Defined. For purposes of this Agreement:
---------------------
(a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Executive unable to perform Executive's duties hereunder for a period
of ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Executive unable to return to Executive's
duties.
(b) A termination of Executive's employment by ALC shall be deemed
for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony; (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets or, except as provided in SECTION 3 of this Agreement, breach of
Executive's agreement not to engage in business for another enterprise of the
type engaged in by the Company or not to purchase more than five percent (5%) of
stock in a publicly held corporation which conducts the same business as does
ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings ALC into disrepute, and results in
material damage to the Company. The Company shall have the right to suspend
Executive, with pay, for a reasonable period to investigate allegations of
conduct which, if proven, would establish a right to terminate this Agreement
for Cause, or to permit a felony charge to be tried. Immediately upon the
conclusion of such temporary period, unless Cause to terminate this Agreement
has been established, Executive shall be restored to all duties and
responsibilities as if such suspension had never occurred.
(c) A resignation by Executive shall not be deemed to be voluntary
and shall be deemed to be a resignation with "GOOD REASON" if it is based upon
one or more of the following: (i) a material diminution in Executive's title,
duties or salary; (ii) a reduction in benefits which is not part of an across-
the-board reduction in benefits of all senior executive personnel; or (iii) a
direction by the Board of Directors that Executive report to any person or group
other than the Board of Directors. It shall also constitute Good Reason for
Executive to resign Executive's employment if the shareholders of ALC shall fail
to elect or re-elect Executive to the Board of Directors of ALC, unless
Executive declines to be elected to such Board of Directors, or if the directors
fail to elect Executive to serve as Chief Executive Officer of ALC and/or
Chairman of the Board, unless Executive declines to be elected such.
Executive's statement that a resignation was based upon one of the events stated
in this SECTION 5(c) shall be conclusive and binding for purposes of this
Agreement, if the resignation occurs within three (3) months following the
event.
(d) "AFFILIATE" means any corporation affiliated with any Person
whose actions result in a Change in Control (or which, as a result of the
completion of the transactions causing a Change in Control shall become
affiliated) within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "CODE").
3
<PAGE>
(e) "BASE SALARY" means, as of any date of termination of employment,
the highest annual base salary of Executive in any of the last five fiscal years
preceding such date of termination of employment.
(f) "BENEFICIAL OWNER" shall have the meaning given to such term in
Rule 13d-3 under Exchange Act (defined in SUBSECTION (i) below);
(g) A "CHANGE IN CONTROL" occurs if:
(i) any Person (other than Executive) or that Person's Affiliate
is or becomes the Beneficial Owner, directly or indirectly, of securities of ALC
representing 30% of more of the combined voting power of ALC's then outstanding
securities; or
(ii) the stockholders of ALC approve a merger or consolidation
of ALC with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of ALC outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
ALC or such surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected to
implement a recapitalization of ALC (or similar transaction) in which no Person
acquires more than 30% of the combined voting power of ALC's then outstanding
securities shall not constitute a Change in Control; or
(iii) the stockholders of ALC approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of ALC's assets; or
(iv) a majority of the members of the Board of Directors of ALC
cease to be Continuing Directors.
(h) "CONTINUING DIRECTORS" means, as of any date of determination,
any member of the Board of Directors of ALC who (i) was a member of such Board
of Directors on the date of the Agreement or (ii) was nominated for election or
elected to such Board of Directors who were members of such Board at the time of
such nomination or election.
(i) "PERSON" is given the meaning as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include ALC, any trustee or other fiduciary holding
securities under an employee benefit plan of ALC, or any corporation owned,
directly or indirectly, by the stockholders of ALC in substantially the same
proportions as their ownership of stock of ALC.
6. Certain Benefits Upon Termination.
---------------------------------
(a) If Executive's employment by ALC terminates for any reason
(including by reason of death or Permanent Disability), except for a termination
for Cause or a voluntary resignation by Executive without a Good Reason or
pursuant to SECTION 2(a)(iii) or
4
<PAGE>
2(b)(iv), and SECTION 6(b) is inapplicable to such termination, then ALC shall
pay Executive a lump sum severance payment (the "SEVERANCE PAYMENT") equal to
four times Executive's Base Salary.
(b) If within one (1) year after a Change in Control of the Company,
Executive gives notice of termination of employment for any reason, gives notice
of non-renewal, or Executive otherwise terminates employment (other than due to
Executive's death or Permanent Disability) or is terminated by the Company
without Cause, ALC shall pay Executive a Severance Payment in cash equal to $4
million. In the event of a Change in Control and Executive dies or becomes
Permanently Disabled within one year after such Change in Control, then the
Severance Payment shall be equal to four times Executive's Base Salary.
(c) Company shall offer to Executive the opportunity to participate in
whatever Company-provided medical and dental plans exist as of the date of
termination from that date for a period of three (3) years commencing
Executive's date of termination, if such plans permit such participation;
provided, however, in the event there is a Change in Control of the Company and
Executive's employment terminates, then Executive shall not be given the
opportunity to participate in any such medical and dental plans except as may
otherwise be provided by law.
(d) In the event either (a) or (b) above occurs, (i) ALC shall pay
all accrued but unpaid or unused vacation, sick pay and expense reimbursement
benefit, (ii) all restrictions on Executive's restricted stock shall lapse,
(iii) the exercisability of all stock options held by Executive shall accelerate
and (iv) all other benefits shall vest (unless a plan governs vesting, such as
the deferred compensation plan, in which event the plan's terms and conditions
shall govern vesting). In the event that Executive holds stock options covered
by agreements that are affected by the provisions of SECTION 6(d)(iii), Company
shall promptly take such steps as are necessary to effect the amendment of such
agreements to reflect such provisions. Executive acknowledges that he has been
advised by his own legal counsel as to the effect of such amendments on the
status of any such options as "qualified" options under the Code, the tax effect
on Executive of such amendment, and the ramifications for Executive of such
amendments under Section 16 of the Securities Exchange Act of 1934 and the
reporting and short-swing profit provisions thereof.
(e) In the event that Executive's employment terminates by reason of
Executive's death, all benefits provided in this SECTION 6 shall be paid to
Executive's estate or as Executive's executor shall direct, but payment may be
deferred until Executive's executor or personal representative has been
appointed and qualified pursuant to the laws in effect in Executive's
jurisdiction of residence at the time of Executive's death.
(f) Company shall make all cash payments to which Executive is
entitled hereunder within thirty (30) days following the date of termination of
Executive's employment or earlier, if required by applicable law.
(g) In the event Executive has provided notice to the Company of his
intent to terminate or not renew this Agreement pursuant to SECTION 2(a)(iii) OR
2(b)(iv) or
5
<PAGE>
Company has provided written notice to the Executive of its intent not to renew
this Agreement pursuant to SECTION 2(b)(v):
(i) Salary and Benefits. The salary and other benefits to
-------------------
which Executive would have otherwise been entitled shall continue
through the remainder of the period of notice specified by SECTION
2(a)(iii), 2(b)(iv) OR 2(b)(v), provided that Executive is otherwise
in compliance with the terms of this Agreement, unless (I) Executive
subsequently terminates his employment without Good Reason or the
Company terminates Executive's employment with Cause, (II) Executive
is entitled to the extraordinary payment provided in SECTION 6(a)
pursuant to the provisions of SECTION 6(g)(ii), or (III) Executive is
entitled to the extraordinary payment provided in SECTION 6(b).
(ii) Section 6(a) Benefit. Executive shall be entitled to
--------------------
the extraordinary payment provided in SECTION 6(a) (unless Executive
is otherwise entitled to the extraordinary payment provided by SECTION
6(b)) in the event that, subsequent to such notice, (I) Executive is
terminated without Cause by the Company, (II) Executive's employment
terminates due to death or Permanent Disability, or (III) Executive
terminates his employment with Good Cause.
(iii) Section 6(b) Benefit. Executive shall have no rights
--------------------
under SECTION 6(b); provided, however, that if Company and a third
party have executed a commitment letter or agreement under which a
Change in Control is to occur and such agreement was entered into
prior to the Company having provided notice to Executive of its intent
not to renew pursuant to SECTION 2, then Executive shall be entitled
to the extraordinary payment provided in SECTION 6(b), if that Change
in Control in fact occurs and Executive otherwise is entitled to those
benefits as set forth in SECTION 6(b).
(h) In the event Executive is entitled hereunder to any payments
or benefits set forth in SECTION 6(a) OR (b), Executive shall have no obligation
to notify Company of employment subsequent to Executive's termination or to
offset Company's obligation by payments due to such employment and shall have no
duty to mitigate.
(i) The provisions for Severance Payments contained in this
SECTION 6 may be triggered only once during the term of this Agreement, so that,
for instance, should Executive terminate owing to a Permanent Disability and
should there thereafter be a Change in Control, then Executive would be entitled
to be paid only under 6(a) and not under 6(b) as well. In addition, Executive
shall not be entitled to receive severance benefits of any kind from any wholly
owned subsidiary or other affiliated entity of ALC if in connection with the
same event of series of events the Severance Payments provided for in this
SECTION 6 have been triggered.
(j) Gross-Up.
--------
(i) If it is determined that any payment, distribution
or benefit received or to be received by Executive from the Company (whether
payable pursuant to the
6
<PAGE>
terms of this Agreement or any other plan, arrangements or agreement with the
Company or an affiliate of the Company ("PAYMENTS") would be subject to the
excise tax imposed by Section 4999 of the Code (the "EXCISE TAX"), then
Executive shall be entitled to receive an additional payment (the "EXCISE TAX
GROSS-UP PAYMENT") in an amount such that the aggregate amount of the Payment
and Excise Tax Gross-Up Payment to be retained by Executive, after the deduction
of any Excise Tax on the Payments and any federal, state and local income taxes
and excise tax on the Excise Tax Gross-Up Payment provided for in this SECTION
6(j)(i) , shall be equal to the Payments. In determining this amount, the
amount of the Excise tax Gross-Up Payment attributable to federal income taxes
shall be reduced by the maximum reduction in federal income taxes that could be
obtained by the deduction of the portion of the Excise Tax Gross-Up Payment
attributable to state and local income taxes. Finally, the Excise Tax Gross-Up
Payment shall be reduced by income or excise tax withholding payments made by
the Company or any affiliate of either to any federal, state or local taxing
authority with respect to the Excise Tax Gross-Up Payment that was not deducted
from compensation payable to Executive.
(ii) All determinations required to be made under this SECTION 6 (j),
including whether and when an Excise Tax Gross-Up Payment is required and the
amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, except as specified in SECTION 6(j)(i) above,
shall be made by the Company's independent auditors (the "ACCOUNTING FIRM"),
which shall provide detailed supporting calculations both to the Company and
Executive within fifteen (15) business days after the Company makes any Payments
to Executive. Such determination of tax liability made by the Accounting Firm
shall be subject to review by Executive's tax advisor and, if Executive's tax
advisor does not agree with such determination reached by the Accounting Firm,
then the Accounting Firm and Executive's tax advisor shall jointly designate a
nationally recognized public accounting firm, which shall make such
determination. All reasonable fees and expenses of the accountants and tax
advisors retained by either Executive or the Company shall be borne by the
Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this
SECTION 6(J), shall be paid by the Company to Executive within five (5) days
after the receipt of such determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and
Executive.
(iii) As a result of the uncertainty in the application of Subsection
4999 of the Code at the time of the initial determination hereunder, it is
possible that Excise Tax Gross-up Payment will not have been made by the Company
that should have been made consistent with the calculations required to be made
hereunder ("UNDERPAYMENT").
In the event that Executive thereafter is required to make a payment of any
Excise Tax, any such Underpayment calculated in accordance with and in the same
manner as the Excise Tax Gross-up Payment exceeds the amount subsequently
determined to be due, such excess shall constitute a loan from the Company to
Executive payable on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274 (b)(2)(B) of the Code).
(k) Company agrees to take reasonable steps to ensure that in the
event Company has an obligation to perform under SECTION 6(b), Company shall
have the financial
7
<PAGE>
ability to do so.
7. Indemnification.
---------------
(a) ALC and Executive shall enter into an indemnification agreement
in substantially the same form as that which is attached hereto as EXHIBIT "B"
and incorporated herein by this reference.
(b) ALC shall include Executive as an insured in its directors and
officers insurance policy and shall provide evidence of such coverage to
Executive upon Executive's written request.
8. Dispute Resolution.
------------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
(b) Arbitration. In the event the parties fail to resolve the
-----------
Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the American Arbitration
Association. The parties agree to arbitration as an alternative to court
proceedings in order (i) to obtain a prompt evidentiary hearing and an
arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and
(iii) to do so economically. During the arbitration proceeding, the arbitrator,
in the arbitrator's sole discretion, shall have the right to grant requests for
discovery of documents, the taking of depositions, and the issuance of subpoenas
in accordance with Rules of the Service or AAA, whichever is applicable. Each
party hereby promises to cooperate in the arbitration process to effectuate
these purposes. The arbitration shall be conducted in accordance with the Rules
of the Service or, if the Service is no longer doing business, then in
accordance with the Rules of the AAA which are in effect at the time of the
arbitration. Judgment rendered by the arbitrator may be entered in any court
having competent jurisdiction in accordance with Oregon law.
(c) Waiver of Jury Trial. By submitting a Dispute to mediation and
--------------------
arbitration, the parties hereto understand that they will not enjoy the benefits
of a jury trial. Accordingly, the parties hereto expressly waive the right to a
jury trial.
(d) Nonexclusive Remedy. Notwithstanding the above provisions
--------------------
regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
8
<PAGE>
9. Attorneys Fees.
--------------
(a) In the event of mediation, the parties shall bear their own
attorneys fees and costs, except that the cost of mediation shall be shared
equally.
(b) In the event of arbitration, the arbitrator shall award
reasonable attorneys fees and costs of the mediation and arbitration to the
prevailing party, including the fees of the arbitrator, unless such award of
fees and costs would be manifestly unjust for reasons set forth by the
arbitrator in his written decision. In determining the amount of reasonable
attorneys fees to a party, the arbitrator may take into account (i) each party's
respective efforts to achieve an economical and expeditious resolution of the
dispute in accordance with this SECTION; and (ii) the final settlement offers,
if any, of the parties at least ten (10) calendar days prior to the commencement
of the hearing. In accordance with the rules of evidence, however, settlement
offers shall not be considered in relation to the merits of any Dispute that is
subject to this SECTION other than the award of attorneys fees and costs.
(c) Notwithstanding (b) above, if a suit, action or other proceeding
of any nature whatsoever (including any contested matter or adversary proceeding
under the U.S. Bankruptcy Code) is instituted in connection with any controversy
arising out of this Agreement or to interpret or enforce any rights hereunder,
the prevailing party shall be entitled to recover its reasonable attorneys,
paralegals, accountants and other experts fees, and all other fees, costs and
expenses actually incurred in connection therewith, as determined by the judge
at trial or on appeal or review, in addition to all other amounts provided by
law.
(d) ALC agrees to reimburse Executive in an amount not to exceed $2500
for Executive's attorneys fees incurred in the negotiations for, and preparation
of, this Agreement.
10. Notices. All notices and other communications provided to either
-------
party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
11. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of Executive's heirs, representatives and executors and ALC's
successors and assigns, respectively.
12. Construction. In construing this Agreement, if any portion of
------------
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as appropriate, and
no meaning or effect shall be given to the captions of the sections in this
Agreement, which are inserted for convenience of reference only.
9
<PAGE>
13. Headings. The section headings hereof have been inserted for
--------
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
15. Entire Agreement. This Agreement constitutes the final and
----------------
entire agreement and supersedes all other prior agreements and undertakings,
both written and oral, including without limitation the Prior Employment
Agreement, among Executive and the Company, with respect to the subject matter
hereof.
16. Counterpart. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
IN WITNESS WHEREOF, this Agreement has been executed on the dates set
forth below, to be effective as of the date specified in the first paragraph of
this Agreement.
"EXECUTIVE"
Date: 10/3, 1997 /s/ William McBride III
_____________________________________
William McBride III, as an individual
Home Address:
_____________________________________
_____________________________________
"ALC OR COMPANY"
Date: 10/3, 1997 Assisted Living Concepts, Inc.
/s/ Stephen Gordon
_____________________________________
Stephen Gordon, Chief Financial Officer
Address:
9955 S.E. Washington St., Third Floor
Portland, OR 97216
10
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "AGREEMENT") is made as
of _______________________, 1997 (the "EFFECTIVE DATE"), by and between Assisted
Living Concepts, Inc., a corporation organized under the laws of the state of
Nevada ("ALC" or the "COMPANY") and Keren Brown Wilson ("EXECUTIVE"), amends and
restates the Employment Agreement, dated October 24, 1994, by and between ALC
and Executive (the "PRIOR EMPLOYMENT AGREEMENT").
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment, Title and Duties.
-----------------------------
(a) ALC hereby employs Executive to serve as its President and
Chief Executive Officer; provided, however, in the event William McBride accepts
ALC's offer to become Chief Executive Officer of ALC, then Executive shall serve
as ALC's President and Chief Operating Officer. In such capacity, Executive
shall report to the Board of Directors of the Company, and shall have such
duties, powers and responsibilities as are customarily assigned to persons
serving in such capacities for a publicly held corporation in a business such as
that conducted by the Company. Executive shall serve as Vice Chairman of the
Board of Directors of ALC.
(b) The parties understand and agree that Executive also shall
serve as the President and Chief Executive Officer of the wholly-owned
development and operations subsidiary, Assisted Living Concepts Services, Inc.,
a Nevada corporation, and shall serve as Chairman of its Board of Directors.
2. Term of Agreement.
-----------------
(a) The initial term of this Agreement shall be for a four (4)
year period from and after the Effective Date, unless terminated earlier by (i)
termination for Cause; (ii) the voluntary resignation of Executive for Good
Reason; or (iii) the expiration of six (6) months from and after the date
Executive provides written notice of termination to Company; or (iv) Executive's
death or Permanent Disability (defined in SECTION 5(A) below).
(b) If this Agreement has not terminated as of the date of the
expiration of the initial term, this Agreement shall be automatically extended
on a continuous basis daily from and after that date, until the occurrence of
one of the following events of termination: (i) termination for Cause; (ii)
voluntary resignation of Executive for Good Reason; (iii) Executive's death or
Permanent Disability; (iv) the expiration of six (6) months from and after the
date Executive provides written notice of intent not to renew this Agreement to
Company; or (v) the expiration of four (4) years from and after the date Company
provides written notice of intent not to renew this Agreement to Executive.
<PAGE>
(c) A termination hereunder shall constitute a termination of
employment with any wholly owned subsidiary or other affiliate of Company.
3. Acceptance of Position. Executive accepts the position set forth
----------------------
in SECTION 1 above and agrees that during the term of this Agreement, Executive
will faithfully perform Executive's duties and, except as expressly approved by
the Board of Directors of ALC and except as set forth herein, will devote
substantially all of Executive's business time to the business and affairs of
ALC, and will not engage, for Executive's own account or for the account of any
other person or entity, in a business which competes with ALC. During the term
of this Agreement, Executive shall not directly own, or own as part of a
consortium, more than five percent (5%) of a publicly held corporation which
conducts the same business as does ALC or its affiliates. It is acknowledged
and agreed that Executive may, from time to time during the term of this
Agreement, serve as a member of the Board of Directors of other companies, in
which event the Board of Directors of ALC must expressly approve such service.
4. Salary and Benefits. During the term of this Agreement:
-------------------
(a) ALC shall pay to Executive a base salary in an annual amount
of not less than Two Hundred Thousand Dollars ($200,000) per annum, paid in
approximately equal installments at intervals in accordance with the then
prevailing policy of the Company with respect to its senior executives
generally, but in no event, less frequently than monthly. ALC agrees to consider
from time to time increases in such base salary in the discretion of the Board
of Directors. Any increase, once granted by the Board of Directors, shall be
deemed to automatically amend this Agreement to provide that thereafter
Executive's base salary shall not be less than the annual amount to which the
base salary has been increased.
(b) Concurrently herewith ALC and Executive shall execute and
deliver a Restricted Stock Agreement for Employees in substantially the same
form as that attached hereto as EXHIBIT "A," pursuant to which Executive shall
be issued 50,000 shares of restricted common stock of ALC pursuant to ALC's
Amended and Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock
Agreement provides that the restrictions on the stock shall be lifted to the
extent of 25% of the stock per year commencing on the fourth anniversary date
from the Effective Date hereof, subject to earlier acceleration as provided in
the Restricted Stock Agreement.
(c) Executive shall participate in all health, retirement,
Company-paid insurance, sick leave, disability, expense reimbursement and other
benefit programs which ALC makes available to any of its senior executives, and
shall be eligible for bonuses in the discretion (as to bonuses) of the Board of
Directors.
(d) Executive shall be entitled to vacation time of not less
than four (4) weeks per year, provided that not more than two (2) weeks of such
vacation time may be taken consecutively without prior notice to, and non-
objection by, the Compensation Committee of the Board of Directors or, if there
is no Compensation Committee, the Board of Directors.
2
<PAGE>
5. Certain Terms Defined. For purposes of this Agreement:
---------------------
(a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Executive unable to perform Executive's duties hereunder for a period
of ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Executive unable to return to Executive's
duties.
(b) A termination of Executive's employment by ALC shall be deemed
for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony; (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets or, except as provided in SECTION 3 of this Agreement, breach of
Executive's agreement not to engage in business for another enterprise of the
type engaged in by the Company or not to purchase more than five percent (5%) of
stock in a publicly held corporation which conducts the same business as does
ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings ALC into disrepute, and results in
material damage to the Company. The Company shall have the right to suspend
Executive, with pay, for a reasonable period to investigate allegations of
conduct which, if proven, would establish a right to terminate this Agreement
for Cause, or to permit a felony charge to be tried. Immediately upon the
conclusion of such temporary period, unless Cause to terminate this Agreement
has been established, Executive shall be restored to all duties and
responsibilities as if such suspension had never occurred.
(c) A resignation by Executive shall not be deemed to be voluntary
and shall be deemed to be a resignation with "GOOD REASON" if it is based upon
one or more of the following: (i) a material diminution in Executive's title,
duties or salary; (ii) a reduction in benefits which is not part of an across-
the-board reduction in benefits of all senior executive personnel; or (iii) a
direction by the Board of Directors that Executive report to any person or group
other than the Board of Directors. It shall also constitute Good Reason for
Executive to resign Executive's employment if the shareholders of ALC shall fail
to elect or re-elect Executive to the Board of Directors of ALC, unless
Executive declines to be elected to such Board of Directors, or if the directors
fail to elect Executive Vice Chairman of the Board, unless Executive declines to
be elected such. Executive's statement that a resignation was based upon one of
the events stated in this SECTION 5(C) shall be conclusive and binding for
purposes of this Agreement, if the resignation occurs within three (3) months
following the event.
(d) "AFFILIATE" means any corporation affiliated with any Person
whose actions result in a Change in Control (or which, as a result of the
completion of the transactions causing a Change in Control shall become
affiliated) within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "CODE").
(e) "BASE SALARY" means, as of any date of termination of
employment,
3
<PAGE>
the highest annual base salary of Executive in any of the last five fiscal years
preceding such date of termination of employment.
(f) "BENEFICIAL OWNER" shall have the meaning given to such term
in Rule 13d-3 under Exchange Act (defined in Subsection (i) below);
(g) A "CHANGE IN CONTROL" occurs if:
(i) any Person (other than Executive) or that Person's
Affiliate is or becomes the Beneficial Owner, directly or indirectly, of
securities of ALC representing 30% of more of the combined voting power of ALC's
then outstanding securities; or
(ii) the stockholders of ALC approve a merger or
consolidation of ALC with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of ALC
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of ALC or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of ALC (or similar transaction) in
which no Person acquires more than 30% of the combined voting power of ALC's
then outstanding securities shall not constitute a Change in Control; or
(iii) the stockholders of ALC approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of ALC's assets; or
(iv) a majority of the members of the Board of Directors of
ALC cease to be Continuing Directors.
(h) "CONTINUING DIRECTORS" means, as of any date of determination,
any member of the Board of Directors of ALC who (i) was a member of such Board
of Directors on the date of the Agreement or (ii) was nominated for election or
elected to such Board of Directors who were members of such Board at the time of
such nomination or election.
(i) "PERSON" is given the meaning as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include ALC, any trustee or other fiduciary holding
securities under an employee benefit plan of ALC, or any corporation owned,
directly or indirectly, by the stockholders of ALC in substantially the same
proportions as their ownership of stock of ALC.
6. Certain Benefits Upon Termination.
---------------------------------
(a) If Executive's employment by ALC terminates for any reason
(including by reason of death or Permanent Disability), except for a termination
for Cause or
4
<PAGE>
a voluntary resignation by Executive without a Good Reason or pursuant to
SECTION 2(A)(III) or 2(B)(IV), and SECTION 6(B) is inapplicable to such
termination, then ALC shall pay Executive a lump sum severance payment (the
"SEVERANCE PAYMENT") equal to four times Executive's Base Salary.
(b) If within one (1) year after a Change in Control of the
Company, Executive gives notice of termination of employment for any reason,
gives notice of non-renewal, or Executive otherwise terminates employment (other
than due to Executive's death or Permanent Disability) or is terminated by the
Company without Cause, ALC shall pay Executive a Severance Payment in cash equal
to $3 million. In the event of a Change in Control and Executive dies or becomes
Permanently Disabled within one year after such Change in Control, then the
Severance Payment shall be equal to four times Executive's Base Salary.
(c) Company shall offer to Executive the opportunity to
participate in whatever Company-provided medical and dental plans exist as of
the date of termination from that date for a period of three (3) years
commencing Executive's date of termination, if such plans permit such
participation; provided, however, in the event there is a Change in Control of
the Company and Executive's employment terminates, then Executive shall not be
given the opportunity to participate in any such medical and dental plans except
as may otherwise be provided by law.
(d) In the event either (a) or (b) above occurs, (i) ALC shall pay
all accrued but unpaid or unused vacation, sick pay and expense reimbursement
benefit, (ii) all restrictions on Executive's restricted stock shall lapse,
(iii) the exercisability of all stock options held by Executive shall accelerate
and (iv) all other benefits shall vest (unless a plan governs vesting, such as
the deferred compensation plan, in which event the plan's terms and conditions
shall govern vesting).
(e) In the event that Executive's employment terminates by reason
of Executive's death, all benefits provided in this SECTION 6 shall be paid to
Executive's estate or as Executive's executor shall direct, but payment may be
deferred until Executive's executor or personal representative has been
appointed and qualified pursuant to the laws in effect in Executive's
jurisdiction of residence at the time of Executive's death.
(f) Company shall make all cash payments to which Executive is
entitled hereunder within thirty (30) days following the date of termination of
Executive's employment or earlier, if required by applicable law.
(g) In the event Executive has provided notice to the Company of
his intent to terminate or not renew this Agreement pursuant to SECTION
2(A)(III) OR 2(B)(IV) or Company has provided written notice to the Executive of
its intent not to renew this Agreement pursuant to SECTION 2(B)(V):
(i) Salary and Benefits. The salary and other benefits to
-------------------
which Executive would have otherwise been entitled shall continue
through the remainder of the period of notice specified by SECTION
2(A)(III), 2(B)(IV) OR 2(B)(V), provided that Executive is otherwise
in compliance with the terms of this
5
<PAGE>
Agreement, unless (I) Executive subsequently terminates his employment
without Good Reason or the Company terminates Executive's employment
with Cause, (II) Executive is entitled to the extraordinary payment
provided in SECTION 6(A) pursuant to the provisions of SECTION
6(G)(II), or (III) Executive is entitled to the extraordinary payment
provided in SECTION 6(B).
(ii) Section 6(a) Benefit. Executive shall be entitled to
--------------------
the extraordinary payment provided in SECTION 6(A) (unless Executive
is otherwise entitled to the extraordinary payment provided by SECTION
6(B)) in the event that, subsequent to such notice, (I) Executive is
terminated without Cause by the Company, (II) Executive's employment
terminates due to death or Permanent Disability, or (III) Executive
terminates his employment with Good Cause.
(iii) Section 6(b) Benefit. Executive shall have no rights
--------------------
under SECTION 6(B); provided, however, that if Company and a third
party have executed a commitment letter or agreement under which a
Change in Control is to occur and such agreement was entered into
prior to the Company having provided notice to Executive of its intent
not to renew pursuant to SECTION 2, then Executive shall be entitled
to the extraordinary payment provided in SECTION 6(B), if that Change
in Control in fact occurs and Executive otherwise is entitled to those
benefits as set forth in SECTION 6(B).
(h) In the event Executive is entitled hereunder to any payments
or benefits set forth in SECTION 6(A) OR (B), Executive shall have no obligation
to notify Company of employment subsequent to Executive's termination or to
offset Company's obligation by payments due to such employment and shall have no
duty to mitigate.
(i) The provisions for Severance Payments contained in this
SECTION 6 may be triggered only once during the term of this Agreement, so that,
for instance, should Executive terminate owing to a Permanent Disability and
should there thereafter be a Change in Control, then Executive would be entitled
to be paid only under 6(a) and not under 6(b) as well. In addition, Executive
shall not be entitled to receive severance benefits of any kind from any wholly
owned subsidiary or other affiliated entity of ALC if in connection with the
same event of series of events the Severance Payments provided for in this
SECTION 6 have been triggered.
(j) Gross-Up.
--------
(i) If it is determined that any payment, distribution
or benefit received or to be received by Executive from the Company (whether
payable pursuant to the terms of this Agreement or any other plan, arrangements
or agreement with the Company or an affiliate of Company ("PAYMENTS") would be
subject to the excise tax imposed by Section 4999 of the Code (the "EXCISE
TAX"), then Executive shall be entitled to receive an additional payment (the
"EXCISE TAX GROSS-UP PAYMENT") in an amount such that the aggregate amount of
the Payment and Excise Tax Gross-Up Payment to be retained by Executive, after
the deduction of any Excise Tax on the Payments and any federal, state and local
income taxes and excise tax on the Excise Tax Gross-Up Payment provided for in
this SECTION 6(J)(I), shall be equal to the
6
<PAGE>
Payments. In determining this amount, the amount of the Excise tax Gross-Up
Payment attributable to federal income taxes shall be reduced by the maximum
reduction in federal income taxes that could be obtained by the deduction of the
portion of the Excise Tax Gross-Up Payment attributable to state and local
income taxes. Finally, the Excise Tax Gross-Up Payment shall be reduced by
income or excise tax withholding payments made by the Company or any affiliate
of either to any federal, state or local taxing authority with respect to the
Excise Tax Gross-Up Payment that was not deducted from compensation payable to
Executive.
(ii) All determinations required to be made under this
SECTION 6 (J), including whether and when an Excise Tax Gross-Up Payment is
required and the amount of such Excise Tax Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, except as specified in SECTION
6(J)(I) above, shall be made by the Company's independent auditors (the
"ACCOUNTING FIRM"), which shall provide detailed supporting calculations both to
the Company and Executive within fifteen (15) business days after the Company
makes any Payments to Executive. Such determination of tax liability made by the
Accounting Firm shall be subject to review by Executive's tax advisor and, if
Executive's tax advisor does not agree with such determination reached by the
Accounting Firm, then the Accounting Firm and Executive's tax advisor shall
jointly designate a nationally recognized public accounting firm, which shall
make such determination. All reasonable fees and expenses of the accountants and
tax advisors retained by either Executive or the Company shall be borne by the
Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this SECTION
6(J), shall be paid by the Company to Executive within five (5) days after the
receipt of such determination. Any determination by a jointly designated public
accounting firm shall be binding upon the Company and Executive.
(iii) As a result of the uncertainty in the application
of Subsection 4999 of the Code at the time of the initial determination
hereunder, it is possible that Excise Tax Gross-up Payment will not have been
made by the Company that should have been made consistent with the calculations
required to be made hereunder ("UNDERPAYMENT"). In the event that Executive
thereafter is required to make a payment of any Excise Tax, any such
Underpayment calculated in accordance with and in the same manner as the Excise
Tax Gross-up Payment exceeds the amount subsequently determined to be due, such
excess shall constitute a loan from the Company to Executive payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274 (b)(2)(B) of the Code).
(k) Company agrees to take reasonable steps to ensure that in the
event Company has an obligation to perform under SECTION 6(B), Company shall
have the financial ability to do so.
7. Indemnification.
---------------
(a) ALC and Executive shall enter into an indemnification
agreement in substantially the same form as that which is attached hereto as
EXHIBIT "B" and incorporated herein by this reference.
(b) ALC shall include Executive as an insured in its directors
and officers
7
<PAGE>
insurance policy and shall provide evidence of such coverage to Executive upon
Executive's written request.
8. Dispute Resolution.
------------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
(b) Arbitration. In the event the parties fail to resolve the
-----------
Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the American Arbitration
Association. The parties agree to arbitration as an alternative to court
proceedings in order (i) to obtain a prompt evidentiary hearing and an
arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and
(iii) to do so economically. During the arbitration proceeding, the arbitrator,
in the arbitrator's sole discretion, shall have the right to grant requests for
discovery of documents, the taking of depositions, and the issuance of subpoenas
in accordance with Rules of the Service or AAA, whichever is applicable. Each
party hereby promises to cooperate in the arbitration process to effectuate
these purposes. The arbitration shall be conducted in accordance with the Rules
of the Service or, if the Service is no longer doing business, then in
accordance with the Rules of the AAA which are in effect at the time of the
arbitration. Judgment rendered by the arbitrator may be entered in any court
having competent jurisdiction in accordance with Oregon law.
(c) Waiver of Jury Trial. By submitting a Dispute to mediation
--------------------
and arbitration, the parties hereto understand that they will not enjoy the
benefits of a jury trial. Accordingly, the parties hereto expressly waive the
right to a jury trial.
(d) Nonexclusive Remedy. Notwithstanding the above provisions
--------------------
regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
9. Attorneys Fees.
--------------
(a) In the event of mediation, the parties shall bear their own
attorneys fees and costs, except that the cost of mediation shall be shared
equally.
(b) In the event of arbitration, the arbitrator shall award
reasonable attorneys fees and costs of the mediation and arbitration to the
prevailing party, including the fees of the arbitrator, unless such award of
fees and costs would be manifestly unjust for reasons set forth by the
arbitrator in his written decision. In determining the amount of reasonable
attorneys fees to a party, the arbitrator may take into account (i) each party's
respective efforts
8
<PAGE>
to achieve an economical and expeditious resolution of the dispute in
accordance with this SECTION; and (ii) the final settlement offers, if any, of
the parties at least ten (10) calendar days prior to the commencement of the
hearing. In accordance with the rules of evidence, however, settlement offers
shall not be considered in relation to the merits of any Dispute that is subject
to this SECTION other than the award of attorneys fees and costs.
(c) Notwithstanding (b) above, if a suit, action or other
proceeding of any nature whatsoever (including any contested matter or adversary
proceeding under the U.S. Bankruptcy Code) is instituted in connection with any
controversy arising out of this Agreement or to interpret or enforce any rights
hereunder, the prevailing party shall be entitled to recover its reasonable
attorneys, paralegals, accountants and other experts fees, and all other fees,
costs and expenses actually incurred in connection therewith, as determined by
the judge at trial or on appeal or review, in addition to all other amounts
provided by law.
(d) ALC agrees to reimburse Executive in an amount not to exceed
$2500 for Executive's attorneys fees incurred in the negotiations for, and
preparation of, this Agreement.
10. Notices. All notices and other communications provided to either
-------
party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
11. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of Executive's heirs, representatives and executors and ALC's
successors and assigns, respectively.
12. Construction. In construing this Agreement, if any portion of
------------
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as appropriate, and
no meaning or effect shall be given to the captions of the sections in this
Agreement, which are inserted for convenience of reference only.
13. Headings. The section headings hereof have been inserted for
--------
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
15. Entire Agreement. This Agreement constitutes the final and
----------------
entire agreement and supersedes all other prior agreements and undertakings,
both written and oral,
9
<PAGE>
including without limitation the Prior Employment Agreement, among Executive and
the Company, with respect to the subject matter hereof.
16. Counterpart. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
IN WITNESS WHEREOF, this Agreement has been executed on the dates set
forth below, to be effective as of the date specified in the first paragraph of
this Agreement.
"EXECUTIVE"
/s/ Keren Brown Wilson
Date: 10/3 1997 _______________________________________
Keren Brown Wilson, as an individual
Home Address:
__________________________
Portland, OR
"ALC OR COMPANY"
/s/ Stephen Gordon
Date: 10/3 1997 _______________________________________
Stephen Gordon, Chief Financial Officer
Address:
9955 S.E. Washington St., Third Floor
Portland, OR 97216
10
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 3rd day
of October 1997 by and between William McBride III ("Indemnitee") and Assisted
Living Concepts, Inc. a Nevada corporation (the "Company").
RECITALS
I. The Company has recognized the difficulty that publicly held
corporations are having in attracting and retaining qualified directors,
officers and key employees as a result of the increasing risk of claims and
actions against them arising out of their association with the Company.
II. Indemnitee is an officer, director and/or key employee of the Company.
III. Indemnitee is willing to serve, to continue to serve and to take on
additional service for or on behalf of the Company.
IV. In view of the mutual desire of the parties that Indemnitee render
valuable services to the Company, the parties have agreed to enter into this
Indemnification Agreement.
THEREFORE IT IS AGREED:
A. Definitions. The following definitions shall apply to this Agreement:
-----------
1. "Act" shall be the Nevada Corporation Act, NRS (S)(S) 78.010-
.795, and all amendments thereto hereinafter enacted.
2. "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals and attorneys'
fees and disbursements and any expenses of establishing a right to
indemnification under this Agreement.
3. "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable Expenses incurred with respect to a Proceeding.
4. "Party" includes an individual who was, is or is threatened to be
made a named defendant or respondent in a proceeding.
5. "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
<PAGE>
B. Indemnification. The Company shall indemnify Indemnitee against
---------------
Liability and Expenses actually and necessarily incurred by him or her in any
Proceeding in which he or she is made a Party by reason of being or having been
a director, officer or key employee of the Company, except in relation to
matters as to which indemnification is prohibited by the Act; but such
indemnification shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under any bylaw or agreement of the Company, general
or specific action of the Company's board of directors, vote of the Company's
shareholders or otherwise.
C. Procedure for Indemnification. After the final disposition of any
-----------------------------
Proceeding in which Indemnitee may be entitled to indemnification pursuant to
this Agreement, Indemnitee may send to the Company a written request for
indemnification. The Company shall, in accordance with the provisions of the
Act regarding determination and authorization of indemnification, make a finding
whether the indemnification requested is permitted by the laws of the state of
Nevada no later than 60 days following receipt by the Company of such request.
The Company shall cause the indemnification requested to be authorized and paid
unless the Company finds that the indemnification requested is not so permitted.
Indemnitee shall be given an opportunity to be heard and to present evidence in
connection with the consideration of the party or parties determining
Indemnitee's right to indemnification under the Act. If the Company does not
authorize indemnification hereunder, Indemnitee shall have the right to seek
court-ordered indemnification in accordance with the provisions of the Act. In
any such action, neither the making of, nor the failure to make, any finding by
the Company that indemnification of the Indemnitee is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the Indemnitee has not met the standard of conduct required by the Act. In
making its determination and in any court proceeding, the Company shall have the
burden of proving that Indemnitee has not met the standard of conduct required
by the Act to entitle Indemnitee to indemnification.
D. Procedure for Advancement of Expenses. The Company shall pay for or
-------------------------------------
reimburse the reasonable Expenses incurred by Indemnitee as a result of being
Party to a Proceeding in advance of final disposition of the Proceeding promptly
upon receipt of a written request for payment of such Expenses that is in
accordance with the requirements of the Act for such written statements. Such
written statement shall also include or be accompanied by documentation of the
Expenses incurred certified true and correct by Indemnitee. When available,
such documentation of expenses shall include copies of bills or statements
evidencing the Expenses incurred. If the requirements of this Section 4 are
met, the Company shall pay the amount requested promptly notwithstanding the
absence of a final disposition of the Proceeding.
E. Partial Indemnity. If Indemnitee is entitled under any provision of
-----------------
this Agreement to indemnification by the Company for some or a portion of the
Expenses or Liability incurred by Indemnitee in the preparation, investigation,
defense, appeal or settlement of any Proceeding but not, however, for the total
amount thereof, the Company shall indemnify Indemnitee for the portion of such
Expenses or Liability to which Indemnitee is entitled in accordance with this
Agreement.
2
<PAGE>
F. Insurance. The Company may, but shall not be required to, purchase
---------
and keep in force during the term of this Agreement a policy or policies of
liability insurance on behalf of Indemnitee against Liability and Expenses
incurred in any Proceeding. Nothing herein shall be construed to prohibit
Indemnitee from maintaining his or her own policy of liability insurance.
G. Exclusions. The Company shall not be liable to make any payment
----------
hereunder:
1. If it shall be finally adjudicated that such payment is
prohibited by law;
2. On account of any Proceeding brought under Section 16(b) of the
Securities Exchange Act of 1934, as such law is amended from time to time, or
under any similar law that replaces Section 16(b), in which judgment is rendered
against Indemnitee for an accounting for profits made from the purchase or sale
by Indemnitee of the securities of the Company;
3. For Liability or Expenses in any Proceeding brought by Indemnitee
against the Company unless (i) the Proceeding is brought as a Proceeding for
indemnity under this Agreement, (ii) Indemnitee is successful in whole or in
part in a Proceeding or (iii) the indemnification is included in a settlement of
the Proceeding or is awarded by a court;
4. To the extent payment is actually made to Indemnitee under a
valid, enforceable and collectible insurance policy, whether provided by the
Company or by Indemnitee (the "Insurance Policy"), by or out of a fund created
by the Company and under the control of a trustee or otherwise (the "Fund") or
from other sources provided by the Company ("Other Sources"); or
5. For amounts paid in settlement of a claim effected without the
Company's prior written consent, which consent shall not be unreasonably
withheld.
If Indemnitee shall become obligated or required to pay any amount that the
Company would be obligated to pay hereunder except for the exclusion in Section
7.4, the Company shall advance such amount to Indemnitee if payment is not
reasonably expected to be made under the Insurance Policy, by the Fund or from
Other Sources prior to the time that Indemnitee must make such payment,
provided, however, that Indemnitee shall immediately pay over to the Company,
from the funds Indemnitee later receives under the Insurance Policy, from the
Fund or from Other Sources, an amount equal to the amount advanced.
H. Defense of Claim. If any Proceeding asserted or commenced against
----------------
Indemnitee is also asserted or commenced against the Company, the Company shall
be entitled to participate in the Proceeding at its own expense and, except as
otherwise provided herein below, to the extent that it may wish the Company
shall be entitled to assume the defense thereof. After notice from the Company
to Indemnitee of its election to assume the defense of any such Proceeding,
Indemnitee shall have the right to employ Indemnitee's own counsel in such
Proceeding, but the Expenses of such counsel incurred after notice from the
3
<PAGE>
Company to Indemnitee of its assumption of the defense thereof shall be the
Expenses of Indemnitee, and the Company may not be obligated to Indemnitee under
this Agreement for any Expenses subsequently incurred by Indemnitee in
connection therewith other than the reasonable costs of investigation, travel
and lodging Expenses arising out of Indemnitee's participation in the defense of
such Proceeding unless (i) otherwise authorized by the Company, (ii)
Indemnitee's counsel shall have reasonably concluded, and so notified the
Company in writing, that there may be a conflict of interest between the Company
and Indemnitee in the conduct of the defense of such Proceeding or (iii) the
Company shall not in fact have employed counsel to assume the defense of such
Proceeding. If the Company may be obligated for some or all of the Expenses of
Indemnitee under this Section 8, the determination of Indemnitee's entitlement
to indemnification shall be made in accordance with Section 3.
I. Change in Control.
-----------------
1. The Company agrees that, if there is a Change in Control (as
hereinafter defined) of the Company, then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnification and Expense
advances under this Agreement, the Company shall seek legal advice only from
special, independent counsel selected by the Company with the consent of
Indemnitee, which consent shall not be unreasonably withheld, with respect to
matters arising out of this Agreement, including but not limited to the right of
Indemnitee to indemnification hereunder. Such counsel shall, among other
things, render its written opinion to the Company and Indemnitee as to whether
and to what extent Indemnitee would be permitted to be indemnified under the Act
and as to the amount of reasonable indemnification. Such written opinion shall
be binding upon the Company and Indemnitee. The Company shall agree to pay the
reasonable fees of such special counsel and to indemnify fully such counsel
against any and all expenses, including attorney fees, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
2. For the purpose of this Section 9, a "Change in Control" shall be
deemed to have occurred if:
a. Any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportion as their ownership of the
Company, becomes the "Beneficial Owner," as defined in Rule 13d-3 under the 1934
Act, directly or indirectly, of securities of the Company representing twenty-
five percent (25%) or more of the combined voting power of the Company's then
outstanding voting securities ("Voting Stock");
b. During any period of twenty-four (24) consecutive months, not
including any period prior to the execution of this Agreement, individuals who
at the beginning of such period constitute the board of directors of the Company
and any new director, other than a director designated by a person who has
entered into an agreement with
4
<PAGE>
the Company to effect a transaction described in Section 9.2.1 or 9.2.3, whose
election was approved by a vote of at least two-thirds (2/3rds) of the shares
entitled to vote, cease for any reason to constitute a majority of the board; or
c. The stockholders of the Company (i) approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the Voting Stock outstanding immediately
prior thereto continuing to represent, either by remaining outstanding or by
being converted into Voting Stock of the surviving entity, at least seventy
percent (70%) of the combined voting power of the Voting Stock of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, (ii) approve a plan of complete liquidation of the Company or
(iii) approve an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
J. Potential Change in Control.
---------------------------
1. In the event of a Potential Change in Control (as hereinafter
defined), the Company shall, upon written request by Indemnitee, create a trust
(the "Trust") for the benefit of Indemnitee and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and defending any
Proceeding for which Indemnitee may be entitled to indemnification under this
Agreement, and any and all Liability for which Indemnitee is entitled to
indemnification hereunder from time to time actually paid, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in
the Trust pursuant to the foregoing funding obligations shall be determined in
accordance with the provisions of the Act with regard to determination and
authorization of indemnification.
2. The terms of the Trust shall provide that upon a Change in
Control:
a. The Trust shall not be revoked or the principal thereof
invaded without the prior written consent of Indemnitee;
b. The trustee of the Trust (the "Trustee") shall advance,
within two (2) business days of a written request by Indemnitee in accordance
with the requirements of Section 4, any and all Expenses to Indemnitee, and
Indemnitee hereby agrees to reimburse the Trust under the circumstances under
which Indemnitee would be required to reimburse the Company pursuant to the Act
and Section 4;
c. The Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above;
d. The Trustee shall promptly pay to Indemnitee all amounts for
which Indemnitee shall be entitled to indemnification pursuant to this Agreement
or otherwise; and
5
<PAGE>
e. All unexpended funds in the Trust shall revert to the Company
upon a final determination by the special counsel established in accordance with
Section 9 or a court of competent jurisdiction, as the case may be, that
Indemnitee has been fully indemnified under the terms of this Agreement.
3. The Trustee shall be selected by Indemnitee with the consent of
the Company, which consent shall not be unreasonably withheld, and all
reasonable expenses, fees and other disbursements of the Trustee in connection
with the establishment and administration of the Trust shall be paid by the
Company.
4. Nothing in this Section 10 shall relieve the Company of any of its
obligations under this Agreement.
5. A "Potential Change in Control" shall be deemed to have occurred
if: (i) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person, including the
Company, publicly announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, who is or becomes the beneficial owner,
directly or indirectly, of stock of the Company representing nine and one-half
percent (9.5%) or more of the combined voting power of the Company's then
outstanding Voting Stock, increases his or her beneficial ownership of such
stock by five (5) percentage points or more over the percentage so owned by such
person; or (iv) the board of directors adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
K. Nonexclusivity and Continuation of Rights. The indemnification
-----------------------------------------
provided by this Agreement shall not be deemed exclusive of any other rights
consistent with the laws of the state of Nevada to which Indemnitee may be
entitled under the Company's articles of incorporation, bylaws or any other
agreement, vote of shareholders or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Company, and shall continue
notwithstanding that Indemnitee may have ceased to be connected with the
Company.
L. Heirs, Successors and Assigns. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the heirs, successors and assigns of the Company and
Indemnitee.
M. Severability. Wherever possible, each provision in this Agreement
------------
shall be interpreted in such manner as to be effective and valid under the laws
of the state of Nevada, but if any provision of this Agreement shall be
invalidated by any court of competent jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
6
<PAGE>
N. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
O. Modification and Amendment. No amendment, modification, termination
--------------------------
or claimed waiver of any of the provisions hereof shall be valid unless in
writing and signed by both of the parties hereto.
P. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee: If to the Company:
William McBride III Assisted Living Concepts, Inc.
_______________________ Attn: Corporate Secretary
_______________________ 9955 SE Washington, Suite 201
_______________________ Portland, OR 97216
or to such other address as may have been furnished to the other party.
7
<PAGE>
Q. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first hereinabove written.
INDEMNITEE Assisted Living Concepts, Inc.
a Nevada corporation
/s/ William McBride III /s/ Stephen Gordon
_________________________ By ___________________________
William McBride III Chief Financial Officer
Stephen Gordon
8
<PAGE>
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 3rd day
of October 1997 by and between Keren Brown Wilson ("Indemnitee") and Assisted
Living Concepts, Inc. a Nevada corporation (the "Company").
RECITALS
A. The Company has recognized the difficulty that publicly held
corporations are having in attracting and retaining qualified directors,
officers and key employees as a result of the increasing risk of claims and
actions against them arising out of their association with the Company.
B. Indemnitee is an officer, director and/or key employee of the Company.
C. Indemnitee is willing to serve, to continue to serve and to take on
additional service for or on behalf of the Company.
D. In view of the mutual desire of the parties that Indemnitee render
valuable services to the Company, the parties have agreed to enter into this
Indemnification Agreement.
THEREFORE IT IS AGREED:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "Act" shall be the Nevada Corporation Act, NRS (S)(S) 78.010-
.795, and all amendments thereto hereinafter enacted.
1.2 "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals and attorneys'
fees and disbursements and any expenses of establishing a right to
indemnification under this Agreement.
1.3 "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable Expenses incurred with respect to a Proceeding.
1.4 "Party" includes an individual who was, is or is threatened to be
made a named defendant or respondent in a proceeding.
1.5 "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
<PAGE>
2. Indemnification. The Company shall indemnify Indemnitee against
---------------
Liability and Expenses actually and necessarily incurred by him or her in any
Proceeding in which he or she is made a Party by reason of being or having been
a director, officer or key employee of the Company, except in relation to
matters as to which indemnification is prohibited by the Act; but such
indemnification shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under any bylaw or agreement of the Company, general
or specific action of the Company's board of directors, vote of the Company's
shareholders or otherwise.
3. Procedure for Indemnification. After the final disposition of any
-----------------------------
Proceeding in which Indemnitee may be entitled to indemnification pursuant to
this Agreement, Indemnitee may send to the Company a written request for
indemnification. The Company shall, in accordance with the provisions of the
Act regarding determination and authorization of indemnification, make a finding
whether the indemnification requested is permitted by the laws of the state of
Nevada no later than 60 days following receipt by the Company of such request.
The Company shall cause the indemnification requested to be authorized and paid
unless the Company finds that the indemnification requested is not so permitted.
Indemnitee shall be given an opportunity to be heard and to present evidence in
connection with the consideration of the party or parties determining
Indemnitee's right to indemnification under the Act. If the Company does not
authorize indemnification hereunder, Indemnitee shall have the right to seek
court-ordered indemnification in accordance with the provisions of the Act. In
any such action, neither the making of, nor the failure to make, any finding by
the Company that indemnification of the Indemnitee is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the Indemnitee has not met the standard of conduct required by the Act. In
making its determination and in any court proceeding, the Company shall have the
burden of proving that Indemnitee has not met the standard of conduct required
by the Act to entitle Indemnitee to indemnification.
4. Procedure for Advancement of Expenses. The Company shall pay for or
-------------------------------------
reimburse the reasonable Expenses incurred by Indemnitee as a result of being
Party to a Proceeding in advance of final disposition of the Proceeding promptly
upon receipt of a written request for payment of such Expenses that is in
accordance with the requirements of the Act for such written statements. Such
written statement shall also include or be accompanied by documentation of the
Expenses incurred certified true and correct by Indemnitee. When available,
such documentation of expenses shall include copies of bills or statements
evidencing the Expenses incurred. If the requirements of this Section 4 are
met, the Company shall pay the amount requested promptly notwithstanding the
absence of a final disposition of the Proceeding.
5. Partial Indemnity. If Indemnitee is entitled under any provision of
-----------------
this Agreement to indemnification by the Company for some or a portion of the
Expenses or Liability incurred by Indemnitee in the preparation, investigation,
defense, appeal or settlement of any Proceeding but not, however, for the total
amount thereof, the Company shall indemnify Indemnitee for the portion of such
Expenses or Liability to which Indemnitee is entitled in accordance with this
Agreement.
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<PAGE>
6. Insurance. The Company may, but shall not be required to, purchase
---------
and keep in force during the term of this Agreement a policy or policies of
liability insurance on behalf of Indemnitee against Liability and Expenses
incurred in any Proceeding. Nothing herein shall be construed to prohibit
Indemnitee from maintaining his or her own policy of liability insurance.
7. Exclusions. The Company shall not be liable to make any payment
----------
hereunder:
7.1 If it shall be finally adjudicated that such payment is
prohibited by law;
7.2 On account of any Proceeding brought under Section 16(b) of the
Securities Exchange Act of 1934, as such law is amended from time to time, or
under any similar law that replaces Section 16(b), in which judgment is rendered
against Indemnitee for an accounting for profits made from the purchase or sale
by Indemnitee of the securities of the Company;
7.3 For Liability or Expenses in any Proceeding brought by Indemnitee
against the Company unless (i) the Proceeding is brought as a Proceeding for
indemnity under this Agreement, (ii) Indemnitee is successful in whole or in
part in a Proceeding or (iii) the indemnification is included in a settlement of
the Proceeding or is awarded by a court;
7.4 To the extent payment is actually made to Indemnitee under a
valid, enforceable and collectible insurance policy, whether provided by the
Company or by Indemnitee (the "Insurance Policy"), by or out of a fund created
by the Company and under the control of a trustee or otherwise (the "Fund") or
from other sources provided by the Company ("Other Sources"); or
7.5 For amounts paid in settlement of a claim effected without the
Company's prior written consent, which consent shall not be unreasonably
withheld.
If Indemnitee shall become obligated or required to pay any amount that the
Company would be obligated to pay hereunder except for the exclusion in Section
7.4, the Company shall advance such amount to Indemnitee if payment is not
reasonably expected to be made under the Insurance Policy, by the Fund or from
Other Sources prior to the time that Indemnitee must make such payment,
provided, however, that Indemnitee shall immediately pay over to the Company,
from the funds Indemnitee later receives under the Insurance Policy, from the
Fund or from Other Sources, an amount equal to the amount advanced.
8. Defense of Claim. If any Proceeding asserted or commenced against
----------------
Indemnitee is also asserted or commenced against the Company, the Company shall
be entitled to participate in the Proceeding at its own expense and, except as
otherwise provided herein below, to the extent that it may wish the Company
shall be entitled to assume the defense thereof. After notice from the Company
to Indemnitee of its election to assume the defense of any such Proceeding,
Indemnitee shall have the right to employ Indemnitee's own counsel in such
Proceeding, but the Expenses of such counsel incurred after notice from the
Company to Indemnitee of its assumption of the defense thereof shall be the
Expenses of Indemnitee, and the
-3-
<PAGE>
Company may not be obligated to Indemnitee under this Agreement for any Expenses
subsequently incurred by Indemnitee in connection therewith other than the
reasonable costs of investigation, travel and lodging Expenses arising out of
Indemnitee's participation in the defense of such Proceeding unless (i)
otherwise authorized by the Company, (ii) Indemnitee's counsel shall have
reasonably concluded, and so notified the Company in writing, that there may be
a conflict of interest between the Company and Indemnitee in the conduct of the
defense of such Proceeding or (iii) the Company shall not in fact have employed
counsel to assume the defense of such Proceeding. If the Company may be
obligated for some or all of the Expenses of Indemnitee under this Section 8,
the determination of Indemnitee's entitlement to indemnification shall be made
in accordance with Section 3.
9. Change in Control.
-----------------
9.1 The Company agrees that, if there is a Change in Control (as
hereinafter defined) of the Company, then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnification and Expense
advances under this Agreement, the Company shall seek legal advice only from
special, independent counsel selected by the Company with the consent of
Indemnitee, which consent shall not be unreasonably withheld, with respect to
matters arising out of this Agreement, including but not limited to the right of
Indemnitee to indemnification hereunder. Such counsel shall, among other
things, render its written opinion to the Company and Indemnitee as to whether
and to what extent Indemnitee would be permitted to be indemnified under the Act
and as to the amount of reasonable indemnification. Such written opinion shall
be binding upon the Company and Indemnitee. The Company shall agree to pay the
reasonable fees of such special counsel and to indemnify fully such counsel
against any and all expenses, including attorney fees, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
9.2 For the purpose of this Section 9, a "Change in Control" shall be
deemed to have occurred if:
9.2.1 Any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportion as their ownership of the
Company, becomes the "Beneficial Owner," as defined in Rule 13d-3 under the 1934
Act, directly or indirectly, of securities of the Company representing twenty-
five percent (25%) or more of the combined voting power of the Company's then
outstanding voting securities ("Voting Stock");
9.2.2 During any period of twenty-four (24) consecutive months,
not including any period prior to the execution of this Agreement, individuals
who at the beginning of such period constitute the board of directors of the
Company and any new director, other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in Section 9.2.1 or 9.2.3, whose election was approved by a vote of at
-4-
<PAGE>
least two-thirds (2/3rds) of the shares entitled to vote, cease for any reason
to constitute a majority of the board; or
9.2.3 The stockholders of the Company (i) approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the Voting Stock outstanding immediately
prior thereto continuing to represent, either by remaining outstanding or by
being converted into Voting Stock of the surviving entity, at least seventy
percent (70%) of the combined voting power of the Voting Stock of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, (ii) approve a plan of complete liquidation of the Company or
(iii) approve an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
10. Potential Change in Control.
---------------------------
10.1 In the event of a Potential Change in Control (as hereinafter
defined), the Company shall, upon written request by Indemnitee, create a trust
(the "Trust") for the benefit of Indemnitee and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and defending any
Proceeding for which Indemnitee may be entitled to indemnification under this
Agreement, and any and all Liability for which Indemnitee is entitled to
indemnification hereunder from time to time actually paid, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in
the Trust pursuant to the foregoing funding obligations shall be determined in
accordance with the provisions of the Act with regard to determination and
authorization of indemnification.
10.2 The terms of the Trust shall provide that upon a Change in
Control:
10.2.1 The Trust shall not be revoked or the principal thereof
invaded without the prior written consent of Indemnitee;
10.2.2 The trustee of the Trust (the "Trustee") shall advance,
within two (2) business days of a written request by Indemnitee in accordance
with the requirements of Section 4, any and all Expenses to Indemnitee, and
Indemnitee hereby agrees to reimburse the Trust under the circumstances under
which Indemnitee would be required to reimburse the Company pursuant to the Act
and Section 4;
10.2.3 The Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above;
10.2.4 The Trustee shall promptly pay to Indemnitee all amounts
for which Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise; and
-5-
<PAGE>
10.2.5 All unexpended funds in the Trust shall revert to the
Company upon a final determination by the special counsel established in
accordance with Section 9 or a court of competent jurisdiction, as the case may
be, that Indemnitee has been fully indemnified under the terms of this
Agreement.
10.3 The Trustee shall be selected by Indemnitee with the consent of
the Company, which consent shall not be unreasonably withheld, and all
reasonable expenses, fees and other disbursements of the Trustee in connection
with the establishment and administration of the Trust shall be paid by the
Company.
10.4 Nothing in this Section 10 shall relieve the Company of any of
its obligations under this Agreement.
10.5 A "Potential Change in Control" shall be deemed to have occurred
if: (i) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person, including the
Company, publicly announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, who is or becomes the beneficial owner,
directly or indirectly, of stock of the Company representing nine and one-half
percent (9.5%) or more of the combined voting power of the Company's then
outstanding Voting Stock, increases his or her beneficial ownership of such
stock by five (5) percentage points or more over the percentage so owned by such
person; or (iv) the board of directors adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
11. Nonexclusivity and Continuation of Rights. The indemnification
-----------------------------------------
provided by this Agreement shall not be deemed exclusive of any other rights
consistent with the laws of the state of Nevada to which Indemnitee may be
entitled under the Company's articles of incorporation, bylaws or any other
agreement, vote of shareholders or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Company, and shall continue
notwithstanding that Indemnitee may have ceased to be connected with the
Company.
12. Heirs, Successors and Assigns. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the heirs, successors and assigns of the Company and
Indemnitee.
13. Severability. Wherever possible, each provision in this Agreement
------------
shall be interpreted in such manner as to be effective and valid under the laws
of the state of Nevada, but if any provision of this Agreement shall be
invalidated by any court of competent jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
-6-
<PAGE>
14. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
15. Modification and Amendment. No amendment, modification, termination
--------------------------
or claimed waiver of any of the provisions hereof shall be valid unless in
writing and signed by both of the parties hereto.
16. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee: If to the Company:
Keren Brown Wilson Assisted Living Concepts, Inc.
_______________________ Attn: Corporate Secretary
_______________________ 9955 SE Washington, Suite 201
_______________________ Portland, OR 97216
or to such other address as may have been furnished to the other party.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first hereinabove written.
INDEMNITEE Assisted Living Concepts, Inc.
a Nevada corporation
/s/ Keren Brown Wilson /s/ Stephen Gordon
_________________________ By ________________________
Keren Brown Wilson Chief Financial Officer
Stephen Gordon
-7-
<PAGE>
EXHIBIT 10.7
ASSISTED LIVING CONCEPTS, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
1. PURPOSE
This Stock Option Plan (the "Plan") is intended as a performance incentive
for officers, employees, consultants and other key persons of Assisted Living
Concepts, Inc. (the "Company") or its Subsidiaries (as hereinafter defined) to
enable the persons to whom options or restricted stock are granted (the
"Grantees") to acquire or increase a proprietary interest in the success of the
Company. The Company intends that this purpose will be effected by the granting
of "incentive stock options" ("Incentive Options") as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options ("Nonqualified Options") (each individually and collectively, an
"Option) and restricted stock ("Restricted Stock"). The term "Subsidiaries"
includes any corporations in which at the time of the grant of any Option
hereunder, stock possessing fifty percent or more of the total combined voting
power, or fifty percent or more of the value, of all classes of stock is owned
directly or indirectly by the Company. For purposes of Section 422 of the
Internal Revenue Code only, the portion of the Plan providing for the grant of
Restricted Stock is a separate plan.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Incentive and Nonqualified Options. Options granted under the Plan may
----------------------------------
be either Incentive Options or Nonqualified Options, and shall be designated as
such at the time of grant. Each Option intended to qualify as an "incentive
stock option" under the Code shall be labeled as an "Incentive Stock Option" at
the time of grant and, if such option shall fail so to qualify, it shall be
deemed to be a Nonqualified Option.
(b) Compensation Committee. The Plan shall be administered by a committee
----------------------
(the "Compensation Committee") which shall consist solely of two or more
directors of the Company appointed by the Board of Directors of the Company (the
"Board of Directors") each of whom is both a "non-employee director" as defined
by Rule 16b-3 or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"), and an "outside director" for
purposes of Section 162(m) of the Code. Action by the Compensation Committee
shall require the affirmative vote of a majority of all its members. The Board
of Directors shall conduct the general administration of the Plan with respect
to Options granted to non-employee Directors. In addition, the Board of
Directors, in its absolute discretion, may at any time and from time to time
exercise any and all rights or duties of the Committee under the Plan except
with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or
any regulations or rules issued thereunder, are required to be determined in the
sole and absolute discretion of the Committee.
(c) Powers of Committee. Subject to the Award Limit (as defined below) and
-------------------
the terms and conditions of the Plan, the Compensation Committee shall have the
power:
<PAGE>
(A) To determine from time to time the Options and Restricted Stock to
be granted to eligible persons under the Plan and to prescribe the terms
and provisions (which need not be identical) of Options and Restricted
Stock granted under the Plan to such persons;
(B) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for administration of
the Plan. In this connection, the Compensation Committee may correct any
defect or supply any omission, or reconcile any inconsistency in the Plan,
in any Option agreement or restricted stock agreement, or in any related
agreements, in the manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All decisions and
determinations by the Compensation Committee in the exercise of this power
shall be final and binding upon the Company and the Grantees; and
(C) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
3. STOCK
(a) Number of Shares. The stock granted under the Plan, or subject to the
----------------
Options and Restricted Stock granted under the Plan, shall be shares of the
Company's authorized but unissued common stock, par value $.01 per share (the
"Common Stock"). The total number of shares that may be issued under the Plan
shall not exceed an aggregate of 1,104,000 shares of Common Stock. The maximum
number of shares which may be subject to Options granted under the Plan to any
individual in any calendar year shall not exceed 100,000 shares of Common Stock
(the "Award Limit"). The total number of shares that may be issued under the
Plan and Award Limit shall be subject to adjustment as provided in Section 7
hereof. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit, and
if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and a grant
of a new Option and both the Option deemed to be canceled and the Option deemed
to be granted are counted against the Award Limit.
(b) Application of Available Shares. Whenever any outstanding Option under
-------------------------------
the Plan expires, is canceled or is otherwise terminated (other than by
exercise), or any shares of Restricted Stock are repurchased by the Company
pursuant to Section 15.(f) or forfeited pursuant to Section 15.(e), the shares
of Common Stock allocable to the unexercised portion of such Option and such
shares of Restricted Stock may again be the subject of Options or Restricted
Stock under the Plan.
(c) Issuance of Replacement Options. The Compensation Committee also is
-------------------------------
authorized to grant a new Option to an eligible person under the Plan upon the
surrender for cancellation of an Option previously granted to such person under
the Plan. Provided that the provisions of Section 5.(a) are satisfied, this new
Option may have a lower exercise price per
2
<PAGE>
share than the Option previously granted to such person.
4. ELIGIBILITY
(a) General. Incentive Options may be granted only to officers or other
-------
full-time employees of the Company or its Subsidiaries, including members of the
Board of Directors who are also full-time employees of the Company or its
Subsidiaries. Nonqualified Options or Restricted Stock may be granted to
directors, officers or other employees of the Company or its Subsidiaries and to
consultants and other key persons who provide services to the Company or its
Subsidiaries (regardless of whether they are also employees).
(b) Certain Shareholders. No person shall be eligible to receive any
--------------------
Incentive Option under the Plan if, at the date of grant, such person
beneficially owns stock representing in excess of ten percent of the voting
power of all outstanding capital stock of the Company, unless notwithstanding
anything in this Plan to the contrary (i) the purchase price for stock subject
to such Option is at least 110% of the fair market value of such stock at the
time of the grant and (ii) the Option by its terms is not exercisable more than
5 years from the date of grant thereof.
(c) Annual Limit. Notwithstanding any other provision of the Plan, the
------------
aggregate fair market value (determined as of the time the Option is granted) of
the stock with respect to which Incentive Options are exercisable for the first
time by any individual during any calendar year (under all plans of the Company
and any parent and Subsidiaries) shall not exceed $100,000.
(d) Non-Employee Director Grants. Each current Director of the Company who
----------------------------
is not also a full-time employee of the Company or any of its Subsidiaries shall
automatically be granted a Nonqualified Option to purchase 20,000 shares of
Common Stock upon the consummation of the initial public offering of securities
of the Company that is the subject of a registration statement filed with the
Securities and Exchange Commission (the "Public Offering") at a purchase price
equal to the per share price for Common Stock in the Public Offering. Subject
to the Award Limit, at the time that any other person who is not also a full-
time employee of the Company or any of its Subsidiaries is first elected as a
Director of the Company, such person shall automatically be granted a
Nonqualified Option to purchase 20,000 shares of Common Stock, at a purchase
price per share equal to the fair market value of the Common Stock on the date
of such person's election, as determined pursuant to Section 5.(d) hereof. Each
Option granted pursuant to this Section 4.(d) shall vest with respect to 6,667,
6,667, and 6,666 shares on the first, second and third anniversaries,
respectively, of the grant and shall expire on the earlier of the seventh
anniversary of the date of vesting or one year following the Director's ceasing
to be a Director for any reason; provided that no Option shall vest more than
one year following the Director's ceasing to be a Director. The additional
terms and conditions of such Options shall be as set forth in the Plan and in
the Option agreement with each such Director. The provisions of this Section
4.(d) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
as amended, or the rules thereunder.
3
<PAGE>
5. TERMS OF THE OPTION AGREEMENTS AND RESTRICTED STOCK AGREEMENTS
Subject to the terms and conditions of the Plan, each Option agreement
shall contain such provisions as the Compensation Committee shall from time to
time deem appropriate; provided, however, option agreements evidencing Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code.
Option agreements need not be identical, but each Option agreement and, with
respect to Section 5.(f), each restricted stock agreement, by appropriate
language shall include the substance of all of the following provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
--------------------------------------
provision of the Plan or of any Option agreement, each Option shall expire on
the date specified in the Option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the Option was granted. The Option agreement may provide that any
outstanding Option granted to such Grantee under the Plan shall be exercisable
for such period following termination of employment as may be specified in the
Option agreement, subject to the expiration date of such Option.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
--------------------------
to which an Option may be exercised at any one time shall be one hundred (100)
shares, or such lesser number as is subject to exercise under the Option at the
time.
(c) Exercise. Except as provided in Section 4.(d) hereof with respect to
--------
Options granted pursuant to that Section, each Option shall be exercisable in
such installments (which need not be equal) and at such times as may be
designated by the Compensation Committee. No Option shall first be exercisable,
either in whole or in part, until the expiration of six months from the date of
grant. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the Option expires.
(d) Purchase Price. Except as set forth in Section 4.(d) with respect to
--------------
Options granted pursuant to that Section, the purchase price per share of Common
Stock subject to each Option shall be determined by the Compensation Committee;
provided, however, that the purchase price per share of Common Stock subject to
each Incentive Option and each Option intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, shall be not less
than 100% of the fair market value of the Common Stock on the date such Option
is granted. For the purposes of the Plan (including as to Options granted
pursuant to Section 4.(d)), the fair market value of the Common Stock shall be
determined in good faith by the Compensation Committee; provided, however, that
if the Common Stock is listed on the American Stock Exchange ("AMEX") on the
date the Option is granted, the fair market value shall be the closing price
reported for the Common Stock on the AMEX for such date or, if no sales were
reported for such date, for the last date preceding such date for which a sale
was reported.
4
<PAGE>
(e) Rights of Grantees. No Grantee shall be deemed for any purpose to be
------------------
the owner of any shares of Common Stock subject to any Option unless and until
(i) the Option shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Company, (iii) the Company shall have issued and
delivered the shares to the Grantee, and (iv) the Grantee's name shall have been
entered as a stockholder of record on the books of the Company. Thereupon, the
Grantee shall have full voting, dividend and other ownership rights with respect
to such shares of Common Stock.
(f) Transfer. No Option or Restricted Stock granted hereunder shall be
--------
transferable by the Grantee other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, as amended,
or the rules thereunder, unless and until such Option has been exercised, the
shares underlying such options or Restricted Stock have been issued, and all
restrictions applicable to such shares have lapsed or been removed; and such
Option may be exercised during the Grantee's lifetime only by the Grantee, or
his or her guardian or legal representative.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Notice. Any Option granted under the Plan may be exercised by the
------
Grantee in whole or part, subject to Section 5.(b) hereof, in part by delivering
to the Company on any business day a written notice specifying the number of
shares of Common Stock the Grantee then desires to purchase (the "Notice").
(b) Payment. Payment for the shares of the Common Stock purchased pursuant
-------
to the exercise of an Option shall be made either: (i) in cash, or by certified
or bank check or other payment acceptable to the Company, equal to the Option
exercise price for the number of shares specified in the Notice (the "Total
Option Price"); (ii) if authorized by the applicable Option agreement and if
permitted by law, by delivery of shares of Common Stock that the Grantee may
freely transfer having a fair market value, determined by reference to the
provisions of Section 5.(d) hereof, equal to or less than the Total Option
Price, plus cash in an amount equal to the excess, if any, of the Total Option
Price over the fair market value of such shares of Common Stock; or (iii) by the
Grantee delivering the Notice to the Company together with irrevocable
instructions to a broker to promptly deliver the Total Option Price to the
Company in cash or by other method of payment acceptable to the Company;
provided, however, that the Grantee and the broker shall comply with such
procedures and enter into such agreements of indemnity or other agreements as
the Company shall prescribe as a condition of payment under this clause (iii).
(c) Delivery of Certificates. The delivery of certificates representing
------------------------
shares of Common Stock to be purchased pursuant to the exercise of an Option
will be contingent upon the Company's receipt of the Total Option Price and of
any written representations from the Grantee required by the Compensation
Committee, and the fulfillment of any other requirements contained in the Option
agreement or applicable provisions of law.
5
<PAGE>
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) General. If the shares of the Company's Common stock as a whole are
-------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares subject to the Plan (including, but not limited to,
adjustments of the limitations in Section 3.(a) on the maximum number and kind
of shares which may be issued and adjustments of the Award Limit), and in the
number, kind, and per share exercise price of shares subject to unexercised
Options or portions thereof granted prior to any such change. In the event of
any such adjustment in an outstanding Option, the Grantee thereafter shall have
the right to purchase the number of shares under such Option at the per share
price, as so adjusted, which the Grantee could purchase at the total purchase
price applicable to the Option immediately prior to such adjustment.
(b) Determination and Discretion of Compensation Committee. Adjustments
------------------------------------------------------
under this Section 7 shall be determined by the Compensation Committee and such
determinations shall be conclusive. The Compensation Committee shall have the
discretion and power in any such event to determine and to make effective
provision for acceleration of the time or times at which any Option or portion
thereof shall become exercisable and for acceleration of the time or times at
which any restrictions on any Restricted Stock shall lapse or be removed. No
fractional shares of Common Stock shall be issued under the Plan on account of
any adjustment specified above.
(c) Limitations. No adjustment or action described in this Section 7 or
-----------
in any other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code, or any successor provisions thereto. With respect to Options which are
intended to qualify as performance-based compensation under Section 162(m)(4)(C)
of the Code, no adjustment or action described in this Section 7 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Option to fail to so qualify under Section
162(m)(4)(C) of the Code, or any successor provisions thereto except that, to
the extent permitted by Section 162(m) of the Code or the regulations
thereunder, Options may, as determined by the Committee (or the Board of
Directors, in the case of Options granted to non-employees Directors) in its
sole and absolute discretion, become exercisable upon a "change of ownership or
control" (within meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any
successor regulation thereto). Furthermore, no such adjustment or action shall
be authorized to the extent such adjustment or action would result in short-
swing profits liability under Section 16 or violate the exemptive conditions of
Rule 16b-3 unless the Committee (or the Board of Directors, in the case of
Options granted to non-employees Directors) determines that the Option is not to
comply with such exemptive conditions.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization,
6
<PAGE>
merger, consolidation or other business combination in which the Company is
acquired by another entity or in which the Company is not the surviving entity,
or (iii) the sale of all or substantially all of the assets of the Company to
another entity, the Plan and the Options issued hereunder shall terminate upon
the effectiveness of any such transaction or event, unless provision is made in
connection with such transaction for the assumption of Options theretofore
granted, or the substitution for such Options of new Options of the successor
entity or parent thereof, with appropriate adjustment as to the number and kind
of shares and the per share exercise prices, as provided in Section 7. In the
event of such termination, all outstanding Options shall be exercisable in full
for at least fifteen days prior to the date of such termination whether or not
otherwise exercisable during such period. In the case of any event described
in clause (i), (ii) or (iii) above, in its discretion, and on such terms and
conditions as it deems appropriate, the Compensation Committee may provide
either by the terms of a restricted stock agreement or by a resolution adopted
prior to the occurrence of such event that, for a specified period of time prior
to such event, the restrictions imposed under a restricted stock agreement or
upon some or all shares of Restricted Stock may be terminated, and some or all
shares of such Restricted Stock may cease to be subject to repurchase under
Section 15.(f) or forfeiture under Section 15.(e) after such event
9. TAX WITHHOLDING
(a) Payment by Grantee. Each Grantee shall, no later than the date as of
------------------
which the value of any Option or Restricted Stock granted hereunder or of any
Common Stock issued upon the exercise of such Option first becomes includable in
the gross income of the Grantee for federal income tax purposes (the "Tax
Date"), pay to the Company, or make arrangements satisfactory to the Company
regarding payment of any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income.
(b) Payment in Shares. An Grantee may elect to have such tax withholding
-----------------
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from shares of Common Stock to be issued pursuant to an Option exercise
a number of shares with an aggregate fair market value (determined by the
Compensation Committee in accordance with Section 5.(d) as of the date the
withholding is effected) that would satisfy the withholding amount due, or (ii)
transferring to the Company shares of Common Stock owned by the Grantee with an
aggregate fair market value (determined by the Compensation Committee in
accordance with Section 5.(d) as of the date the withholding is effected) that
would satisfy the withholding amount due. With respect to any Grantee who is
subject to Section 16(b) of the Act, the following additional restrictions shall
apply:
(A) the election to satisfy tax withholding obligations in the manner
permitted by this Section 9.(b) shall be made either (1) during the period
beginning on the third business day following the date of release of
quarterly or annual summary statements of sales and earnings of the Company
and ending on the twelfth business day following such date, or (2) at least
six months prior to the Tax Date;
(B) such election shall be irrevocable;
7
<PAGE>
(C) such election shall be subject to the consent or disapproval of
the Compensation Committee; and
(D) such election shall not be made within six months of the date of
grant of the Option or Restricted Stock.
10. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and
provided that any such amendments that require stockholder approval under
applicable laws and regulations shall also be approved by shareholders of the
Company at an annual or special meeting of such shareholders to the extent
required by and in accordance with any such laws or regulations. Furthermore,
no modifications of the Award Limit shall be effective prior to the approval of
the Company's stockholders. Except as provided in Sections 5, 7, and 8
hereof, rights and obligations under any Option granted before any amendment of
the Plan shall not be altered or impaired by such amendment, except with the
consent of the Grantee.
11. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock Options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan nor any Option or any Restricted Stock granted
hereunder shall be deemed to confer upon any employee or any other individual
any right to continued employment or service with the Company or its
subsidiaries.
12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) Application of Laws; Approvals. The obligation of the Company to sell
------------------------------
and deliver shares of Common Stock with respect to Options and as Restricted
Stock granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Compensation Committee.
(b) Governing Law. The Plan shall be governed by Nevada law, except to the
-------------
extent that such law is preempted by federal law.
(c) Section 16(b) of the Act. Transactions under the Plan are intended to
------------------------
comply with Rule 16b-3 or any successor rule thereto promulgated under the Act.
Any provision of the Plan or of any Option agreement or Restricted Stock
agreement inconsistent with such compliance shall be inoperative and shall not
affect the validity of the Plan or the availability of any exemption from
Section 16(b) of the Act.
8
<PAGE>
13. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's shareholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date or by written consent of all of the
shareholders of the Company. No Options granted under the Plan prior to such
shareholder approval may be exercised until such approval has been obtained. No
Options may be granted under the Plan after the tenth anniversary of the
effective date of the Plan.
14. CONFLICTS WITH THE COMPANY'S ARTICLES OF INCORPORATION
Notwithstanding any other provision of this Plan, no Grantee shall acquire
or have any right to acquire any Common Stock, and shall not have other rights
under this Plan, which are prohibited under the Company's Articles of
Incorporation.
15. AWARD OF RESTRICTED STOCK
(a) Award of Restricted Stock. The Compensation Committee shall from time
-------------------------
to time, in its absolute discretion:
(A) Select from among the officers, directors, employees, consultants
or other key persons (including officers, directors, employees, consultants
or other key persons who have previously received other awards under this
Plan) such of them as in its opinion should be awarded Restricted Stock;
and
(B) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
The Compensation Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock. In all cases, legal consideration shall
be required for each issuance of Restricted Stock. Upon the selection of an
officer, director, employee, consultant or other key person to be awarded
Restricted Stock, the Compensation Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
(b) Restricted Stock Agreement. Restricted Stock shall be issued only
--------------------------
pursuant to a written restricted stock agreement, which shall be executed by the
selected officer, director, employee, consultant or other key person and an
authorized officer of the Company and which shall contain such terms and
conditions as the Compensation Committee shall determine, consistent with this
Plan.
(c) Consideration. As consideration for the issuance of Restricted Stock,
-------------
in addition to payment of the purchase price, if any, the Restricted Stockholder
shall agree, in the written restricted stock agreement, to remain in the employ
of (or to consult for or continue to serve as a key person or to serve as
Director of, as applicable) the Company or any Subsidiary for
9
<PAGE>
a period of at least one year after the Restricted Stock is issued (or such
shorter period as may be fixed in the restricted stock agreement or by action of
the Compensation Committee following grant of the Restricted Stock). Nothing in
this Plan or in any restricted stock agreement hereunder shall confer on any
Restricted Stockholder any right to continue in the employ of, or as a
consultant for or as a key person or director of, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Restricted
Stockholder at any time for any reason whatsoever, with or without good cause.
(d) Rights as Stockholders. Upon delivery of the shares of Restricted
----------------------
Stock to the escrow holder pursuant to Section 15.(g), the Restricted
Stockholder shall have, unless otherwise provided by the Compensation Committee,
all the rights of a stockholder with respect to said shares, subject to the
restrictions in his restricted stock agreement, including the right to receive
all dividends and other distributions paid or made with respect to the shares;
provided, however that in the discretion of the Compensation Committee,
- -------- -------
any extraordinary with respect to the Common Stock shall be subject to the
restrictions set forth in Section 15.(e).
(e) Restriction. All shares of Restricted Stock issued under this Plan
-----------
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual restricted stock
agreement, be subject to such restrictions as the Compensation Committee shall
provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that by a resolution adopted after the Restricted Stock is
- -------- -------
issued, the Compensation Committee may, on such terms and conditions as it may
determine to be appropriate, remove any or all of the restrictions imposed by
the terms of the restricted stock agreement. Restricted Stock may not be sold
or encumbered until all restrictions are removed or lapse. Unless provided
otherwise by the Compensation Committee, if no consideration was paid by the
Restricted Stockholder upon issuance, a Restricted Stockholder's rights in
unvested Restricted Stock shall lapse upon termination of employment,
termination of directorship or termination of service, as applicable, with the
Company or a Subsidiary.
(f) Repurchase of Restricted Stock. The Compensation Committee shall
------------------------------
provide in the terms of each individual restricted stock agreement that the
Company shall have the right to repurchase from the Restricted Stockholder the
Restricted Stock then subject to restrictions under the restricted stock
agreement immediately upon the Restricted Stockholder's termination of
employment, termination of directorship or termination of service, as
applicable, from the Company or a Subsidiary at a cash price per share equal to
the price paid by the Restricted Stockholder for such Restricted Stock;
provided, however, that provision may be made that no such right of repurchase
- -------- -------
shall exist in the event of a termination of employment, termination of
directorship or termination of service without cause, or following a change in
control of the Company or because of the Restricted Stockholder's retirement,
death or disability, or otherwise.
10
<PAGE>
(g) Escrow. The Secretary of the Company or such other escrow holder as
------
the Compensation Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the restricted stock agreement with respect to the shares evidenced by
such certificate lapse or shall have been removed.
(h) Legend. In order to enforce the restrictions imposed upon shares of
------
Restricted Stock hereunder, the Compensation Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under restricted stock agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
11
<PAGE>
EXHIBIT 10.8
AGREEMENT
AND
PLAN OF MERGER
AND REORGANIZATION
BY AND BETWEEN
ASSISTED LIVING CONCEPTS, INC.,
A NEVADA CORPORATION
AND
HOME AND COMMUNITY CARE, INC.,
A NEVADA CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
THE MERGER............................................... 1
Section 1.1 The Merger............................................... 1
Section 1.2 Effective Time........................................... 1
Section 1.3 Effects of the Merger.................................... 1
Section 1.4 Conversion of HCI Common Stock........................... 1
Section 1.5 ALC Common Stock......................................... 2
Section 1.6 Certificates of Incorporation............................ 2
Section 1.7 Bylaws................................................... 2
Section 1.8 Board of Directors....................................... 3
ARTICLE II
PAYMENT OF CASH UPON EXCHANGE OF SHARES.................. 3
Section 2.1 ALC to Make Cash Available............................... 3
Section 2.2 Exchange of Shares....................................... 3
Section 2.3 Earnout.................................................. 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HCI.................... 5
Section 3.1 Corporate Organization................................... 5
Section 3.2 Capitalization........................................... 6
Section 3.3 Authority; No Violation.................................. 7
Section 3.4 Consents and Approvals................................... 7
Section 3.5 Vote or Consent Required................................. 8
Section 3.6 Financial Statements; Undisclosed Liabilities............ 8
Section 3.7 Broker's Fees............................................ 8
Section 3.8 Absence of Certain Changes or Events..................... 8
Section 3.9 Legal Proceedings........................................ 9
Section 3.10 Taxes and Tax Returns.................................... 10
Section 3.11 Employees................................................ 10
Section 3.12 Compliance with Applicable Law........................... 11
Section 3.13 Certain Contracts........................................ 12
Section 3.14 Environmental Liability.................................. 12
Section 3.15 Properties............................................... 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ALC.................... 13
Section 4.1 Corporate Organization................................... 13
Section 4.2 Newco Capitalization..................................... 13
Section 4.3 Authority; No Violation.................................. 13
Section 4.4 Consents and Approvals................................... 14
</TABLE>
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TABLE OF CONTENTS (cont'd)
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<S> <C> <C>
Section 4.5 Vote or Consent Required.................................... 15
Section 4.6 Opinion of Financial Advisor................................ 15
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS................... 15
Section 5.1 Conduct of Businesses Prior to the Effective Time........... 15
Section 5.2 Forbearances................................................ 15
ARTICLE VI
ADDITIONAL AGREEMENTS....................................... 17
Section 6.1 Cooperation as to Regulatory Matters........................ 17
Section 6.2 Access to Information....................................... 18
Section 6.3 Stockholders' Approvals..................................... 18
Section 6.4 Legal Conditions to Merger.................................. 18
Section 6.5 Indemnification; Directors' and Officers' Insurance......... 19
Section 6.6 Additional Agreements....................................... 19
Section 6.7 Advise of Changes........................................... 19
Section 6.8 Qualified Sites and Identified Sites........................ 20
Section 6.9 Formation of Newco.......................................... 20
Section 6.10 No Solicitation of Alternate Transaction.................... 20
Section 6.11 Bring-Down of Representation and Warranties................. 20
Section 6.12 Guarantee of HCI Obligations................................ 21
ARTICLE VII
CONDITIONS PRECEDENT........................................ 21
Section 7.1 Conditions to Each Party's Obligation
To Effect the Merger....................................... 21
Section 7.2 Conditions to Obligations of ALC............................ 22
Section 7.3 Conditions to Obligations of HCI............................ 22
ARTICLE VIII
TERMINATION AND AMENDMENT................................... 23
Section 8.1 Termination................................................. 23
Section 8.2 Effect of Termination....................................... 24
Section 8.3 Amendment................................................... 24
Section 8.4 Extension; Waiver........................................... 24
ARTICLE IX
GENERAL PROVISIONS.......................................... 25
Section 9.1 Closing..................................................... 25
Section 9.2 Nonsurvival of Representations,
Warranties and Agreements.................................. 25
</TABLE>
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TABLE OF CONTENTS (cont'd)
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Section 9.3 Expenses................................................ 25
Section 9.4 Notices................................................. 25
Section 9.5 Interpretation.......................................... 26
Section 9.6 Counterparts............................................ 26
Section 9.7 Entire Agreement........................................ 26
Section 9.8 Governing Law........................................... 26
Section 9.9 Severability............................................ 26
Section 9.10 Publicity............................................... 26
Section 9.11 Assignment; Third Party Beneficiaries................... 27
Section 9.12 Enforcement of the Agreement............................ 27
</TABLE>
EXHIBITS
A Form of Articles of Merger
B Form of Exchange Certificate
C Disclosure Schedule of Home and Community Care, Inc.
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
October 4, 1997 (this "Agreement"), is by and between Assisted Living Concepts,
---------
Inc., a Nevada corporation ("ALC"), and Home and Community Care, Inc., a Nevada
---
corporation ("HCI").
---
WHEREAS, the Boards of Directors of ALC and HCI have determined that
it is in the best interests of their respective companies and their stockholders
to effect the acquisition of HCI, subject to the terms and conditions set forth
in this Agreement;
WHEREAS, in furtherance of such acquisition, the Boards of Directors
of ALC and HCI have approved the merger of a newly formed, wholly owned
subsidiary of ALC incorporated in the State of Nevada ("Newco") with and into
-----
HCI (the "Merger"), in accordance with the Nevada Revised Statutes (the "NRS"),
------ ---
pursuant to which HCI will be the surviving corporation in the Merger;
WHEREAS, ALC and HCI desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, ALC and HCI agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
of this Agreement, in accordance with the NRS at the Effective Time (as defined
in Section 1.2 hereof), Newco shall merge with and into HCI. HCI shall be the
surviving corporation (hereinafter sometimes called the "Surviving Corporation")
---------------------
in the Merger, and shall continue its corporate existence under the laws of the
State of Nevada. The name of the Surviving Corporation shall be Home and
Community Care, Inc. Upon consummation of the Merger, the separate corporate
existence of Newco shall terminate.
Section 1.2 Effective Time. The Merger shall become effective as set
forth in the Articles of Merger, substantially in the form of Exhibit A hereto
(the "Articles of Merger"), which shall be filed with the Secretary of State of
------------------
the State of Nevada (the "Nevada Secretary") on the Closing Date (as defined in
----------------
Section 9.1 hereof). The term "Effective Time" shall be the date when the
--------------
Merger becomes effective, as set forth in the Articles of Merger.
Section 1.3 Effects of the Merger. At and after the Effective Time,
the Merger shall have the effects set forth in the NRS and this Agreement.
Section 1.4 Conversion of HCI Common Stock. At the Effective Time,
subject to Section 2.2(d) hereof, by virtue of the Merger and without any action
on the part of ALC, Newco, HCI or the holder of any of the following securities:
(a) Each share of Common Stock, $.001 par value, of HCI ("HCI Common
----------
Stock") issued and outstanding immediately prior to the Effective Time (other
- -----
than shares of HCI
<PAGE>
Common Stock held (x) in HCI's treasury, (y) directly or indirectly by ALC or
any Subsidiaries (as defined in Section 3.1(a) hereof) of HCI or ALC or (z) by
any holder who becomes entitled to the payment of the fair value for his shares
of HCI Common Stock under NRS 92A.300 through 92A.500, inclusive (the
"Dissenters' Rights Statues") if the NRS provides for such payment in connection
--------------------------
with the Merger ("Dissenting Shares")), shall be converted into the right to
-----------------
receive $1.00 in cash, such cash to be paid from the Cash Fund (as defined in
Section 2.1(a) hereof) at or prior to the later of (i) the Effective Time or
(ii) the closing date of a public offering of securities by ALC resulting in
gross proceeds of at least $25 million, but in no event later than December 31,
1997 (payable in certified or ALC company check) (the "Merger Consideration").
--------------------
(b) All of the shares of HCI Common Stock converted into cash pursuant
to this Article I shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist as of the Effective Time, and each
certificate (each a "Certificate") previously representing any such shares of
-----------
HCI Common Stock (other than Certificates representing shares of HCI Common
Stock held (x) in HCI's treasury, (y) directly or indirectly by ALC or any
Subsidiaries of HCI or ALC or (z) by holders of Dissenting Shares) shall
thereafter represent the right to receive the Merger Consideration with respect
to the number of shares of HCI Common Stock represented by such Certificate.
(c) At the Effective Time, all shares of HCI Common Stock that are
owned by HCI as treasury stock and all shares of HCI Common Stock that are owned
directly or indirectly by ALC, Newco or HCI or any of their respective
Subsidiaries shall be cancelled and shall cease to exist and no stock of ALC or
other consideration shall be delivered in exchange therefor.
(d) Each share of common stock, $.01 par value, of Newco ("Newco
-----
Common Stock") issued and outstanding immediately prior to the Effective Time
- ------------
shall be converted into and become one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(e) At the Effective Time, the holders of Dissenting Shares, if any,
shall be entitled to payment for such Dissenting Shares only to the extent
permitted by and in accordance with the provisions of the Dissenters' Rights
Statutes; provided, however, that if, in accordance with such Dissenters' Rights
Statutes, any holder of Dissenting Shares shall forfeit such right to payment of
the fair value of such Dissenting Shares, such Dissenting Shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration in accordance
with Section 1.4(a) hereof.
Section 1.5 ALC Common Stock. At and after the Effective Time, each
share of Common Stock, $.01 par value, of ALC (the "ALC Common Stock") issued
----------------
and outstanding immediately prior to the Effective Time shall remain an issued
and outstanding share of ALC Common Stock and shall not be affected by the
Merger.
Section 1.6 Certificates of Incorporation. At the Effective Time,
the Articles of Incorporation of HCI, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law.
Section 1.7 Bylaws. At the Effective Time, the Bylaws of HCI, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
2
<PAGE>
Section 1.8 Board of Directors. At the Effective Time, the Board of
Directors of Newco, as in effect immediately prior to the Effective Time, shall
be the Board of Directors of the Surviving Corporation until their resignation
or removal or until their successors have been duly elected.
ARTICLE II
PAYMENT OF CASH UPON EXCHANGE OF SHARES
Section 2.1 ALC to Make Cash Available. At or prior to the later of
(a) the Effective Time or (b) the closing date of a public offering of
securities by ALC resulting in gross proceeds of at least $25 million, but in no
event later than December 31, 1997, ALC shall deposit, or shall cause to be
deposited, with a third party mutually agreed upon by HCI and ALC (the "Exchange
--------
Agent"), for the benefit of the holders of Certificates, for exchange in
- -----
accordance with this Article II, cash representing the aggregate Merger
Consideration to be paid to holders of HCI Common Stock pursuant to Section 1.4
hereof and paid pursuant to Section 2.2(a) hereof (the "Cash Fund").
---------
Section 2.2 Exchange of Shares.
(a) As soon as practicable after the Effective Time, and in no event
later than ten business days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent), an Exchange Certificate (as defined below) and instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration with respect to the number of shares of HCI Common Stock
represented by such Certificates. The Exchange Agent shall obtain an express
representation (the "Exchange Certificate") from each holder of a Certificate or
Certificates that the respective Certificates are delivered to the Exchange
Agent free and clear of all liens and that no liens or security interests exist
which continue to encumber the Certificates upon surrender of the Certificates
to the Exchange Agent. A form of the Exchange Certificate is attached as
Exhibit B. Upon proper surrender of a Certificate for exchange and cancellation
to the Exchange Agent, together with such properly completed letter of
transmittal, duly executed, and a completed and signed Exchange Certificate, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration with respect to the number of shares of HCI Common Stock
represented by such Certificates. No interest will be paid or accrued on the
Merger Consideration.
(b) If any cash is to be paid to a person or entity having a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of the payment of such cash that the
Certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such cash shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the payment of cash to
a person or entity having a name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(c) All Merger Consideration paid upon the surrender of Certificates
in accordance with the terms of this Article II shall be deemed to have been
paid in full satisfaction of all rights pertaining to the shares of HCI Common
Stock theretofore represented by such Certificates
3
<PAGE>
(subject, however, to the obligation to pay a $2.50 per share distribution that
has been or will be effected by HCI and payable in the form of cash,
cancellation of indebtedness (including interest thereon) or issuance of
indebtedness). At or after the Effective Time, there shall be no transfers on
the stock transfer books of HCI of the shares of HCI Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be cancelled and exchanged for Merger
Consideration as provided in this Article II.
(d) Any portion of the Cash Fund that remains unclaimed by the
stockholders of HCI for twelve months after the Effective Time shall be paid to
ALC. Any stockholders of HCI who have not theretofore complied with this
Article II shall thereafter look only to ALC for payment of the Merger
Consideration with respect to such stockholders' shares of HCI Common Stock
pursuant to this Agreement, without any interest thereon. Notwithstanding
anything to the contrary contained herein, none of ALC, Newco, HCI, the Exchange
Agent or any other person shall be liable to any former holder of shares of HCI
Common Stock for any amount properly delivered to any public official pursuant
to applicable abandoned property, escheat or similar laws.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by ALC, the
posting by such person of a bond in such amount as ALC may determine is
reasonably necessary as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration deliverable
in respect thereof pursuant to this Agreement.
(f) ALC or the Exchange Agent shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement to
any holder of shares of HCI Common Stock such amounts as ALC or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by ALC or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares in respect of which such deduction and
withholding was made.
Section 2.3 Earnout.
(a) In addition to the Merger Consideration provided to holders of HCI
Common Stock, following the Effective Time, each former stockholder of HCI that
had shares of HCI Common Stock exchanged for Merger Consideration (other than
holders of Dissenting Shares) pursuant to Section 2.2 hereof (the "Former HCI
----------
Stockholders") shall also be entitled to certain Earnout Payments (as defined
- ------------
below), if any, in accordance with the provisions of this Section 2.3.
(b) Subject to paragraph (c) below, within 10 business days following
the earlier of (i) the last day of ALC's fiscal quarter during which either (x)
a permanent certificate of occupancy has been obtained, (y) a temporary
certificate of occupancy and a license to operate a facility have been obtained
or (z) a sale/leaseback transaction has been closed with respect to an
Identified Site (as defined in Section 6.8 hereof), and (ii) two years following
the Effective Time with respect to any Identified Sites for which none of (x),
(y) or (z) of the foregoing clause of this sentence have occurred, ALC shall
provide an Earnout Payment, together with a notice setting forth the calculation
of such Earnout Payment certified by the Chief Financial Officer or Controller
of ALC (the "Earnout Payment Notice"), to each Former HCI Stockholder for each
----------------------
"unit" at an assisted living facility that (I) is located on (or within 15
4
<PAGE>
miles of) such Identified Site referred to in clause (i) of this sentence or
(II) ALC intends to develop on (or within 15 miles of) such Identified Site
referred to in clause (ii) of this sentence; it being understood that if more
than one assisted living facility is located on (or within 15 miles of) an
Identified Site, then Earnout Payments shall be provided by ALC with respect to
all such assisted living facilities on (or within 15 miles of) such Identified
Site. For purposes of this Agreement, an "Earnout Payment" shall be payable in
---------------
certified or ALC company check and shall equal (A) $7,500 multiplied by (B) the
number of "units" located on or to be developed on (or within 15 miles of) such
Identified Site divided by (B) 4,857,500, for each share of HCI Common Stock
held by such Former HCI Stockholder immediately prior to the Effective Time.
ALC shall mail the Earnout Payment, together with the Earnout Payment Notice, to
the address indicated by the respective Former HCI Stockholder on the Exchange
Certificate submitted to the Exchange Agent in compliance with Section 2.2(a)
hereof.
(c) ALC shall be obligated to provide Earnout Payments with respect
to each and every assisted living facility that meets the criteria of paragraph
(b) of this Section 2.3, not to exceed 39 of such facilities in the aggregate.
(d) Any portion of the Earnout Payment that remains unclaimed by a
Former HCI Stockholder for twelve months after the date of the mailing of the
Earnout Payment Notice shall be deemed abandoned and shall revert to ALC.
Thereafter, such Former HCI Stockholder shall have no claim or interest in the
abandoned Earnout Payment. Notwithstanding anything to the contrary contained
herein, none of ALC, Newco, HCI, the Exchange Agent or any other person shall be
liable to any Former HCI Stockholder for any property delivered to any public
official pursuant to applicable abandoned property, escheat or similar laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HCI
HCI hereby represents and warrants to ALC as follows:
Section 3.1 Corporate Organization.
(a) HCI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. HCI has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except for such failures to be so
qualified which, individually or in the aggregate, would not have or reasonably
be expected to have a Material Adverse Effect (as defined below) on HCI. As
used in this Agreement, the term "Material Adverse Effect" means, with respect
-----------------------
to ALC, HCI or the Surviving Corporation, as the case may be, a material adverse
effect on the business, results of operations or financial condition of such
party and its Subsidiaries (but only to the extent of such party's interest
therein) taken as a whole or a material adverse effect on such party's ability
to consummate the Merger and the transactions contemplated thereby; provided,
however, that in determining whether a Material Adverse Effect has occurred
there shall be excluded any effect on the referenced party of any action or
omission of HCI or ALC or any Subsidiary of either of them taken with the prior
written consent of ALC or HCI, as applicable, in contemplation of the Merger.
As used in this Agreement, the word
5
<PAGE>
"Subsidiary" when used with respect to any party means any corporation,
----------
partnership, limited liability company or other organization, whether
incorporated or unincorporated, any equity interests of which are owned by such
party or by a Subsidiary of such party, or which is consolidated with such party
for financial reporting purposes. The copies of the Articles of Incorporation
and Bylaws of HCI which have previously been made available to ALC, are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement.
(b) Each Subsidiary of HCI is a corporation, duly incorporated and
validly existing under the laws of the State of Nevada and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each Subsidiary of HCI is duly qualified to do business and in good standing in
all jurisdictions (whether federal, state, local or foreign) where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified, except for such failures to be so qualified which, individually or in
the aggregate, would not have or reasonably be expected to have a Material
Adverse Effect on HCI.
Section 3.2 Capitalization.
(a) The authorized capital stock of HCI consists of 40,000,000 shares
of HCI Common Stock. As of the date of this Agreement, there were 4,857,500
shares of HCI Common Stock outstanding (2,857,500 shares of which are shares of
voting common stock (the "HCI Voting Common Stock") and 2,000,000 shares of
-----------------------
which are shares of non-voting common stock (the "HCI Non-Voting Common
---------------------
Stock")), and no shares of HCI Common Stock held in HCI's treasury and, except
- -----
for such shares, there were no other shares of HCI capital stock outstanding.
All of the issued and outstanding shares of HCI Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, HCI does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of HCI Common Stock or any other equity securities of HCI or any securities
representing the right to purchase or otherwise receive any shares of HCI Common
Stock or any other equity securities of HCI, or requiring HCI to repurchase,
redeem or otherwise acquire any shares of its capital stock or any capital
stock, voting securities or ownership interests in any Subsidiary of HCI. There
are no bonds, debentures, notes or other indebtedness of HCI having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of HCI may vote.
(b) Pacesetter Home Care Group, Inc., a Nevada corporation
("Pacesetter"), Pacesetter Hospice, Inc., a Nevada corporation, Pacesetter Prime
----------
Home Care, Inc., a Nevada corporation, and Pacesetter Home Health, Inc., a
Nevada corporation ("Home Health"), are all of HCI's Subsidiaries, and HCI owns,
-----------
directly or indirectly, 100% of the issued and outstanding shares of capital
stock, voting securities or other ownership interests of each of HCI's
Subsidiaries, free and clear of any liens, charges, encumbrances, adverse rights
or claims and security interests whatsoever ("Liens"), and all of such shares
-----
are duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. None of HCI's Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase, issuance, repurchase, redemption or other
acquisition of any shares of capital stock, voting securities or other ownership
interests of such Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock, voting securities or
other ownership interests of such Subsidiary. At the Effective Time, there will
not be any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which
6
<PAGE>
HCI or any of its Subsidiaries will be bound calling for the purchase or
issuance of any shares of the capital stock, voting securities or other
ownership interests of HCI or any of its Subsidiaries.
Section 3.3 Authority; No Violation.
(a) HCI has full corporate power and authority to execute and deliver
this Agreement and the other documents contemplated to be executed and delivered
by HCI in connection with the transactions contemplated hereby (this Agreement,
together with such other documents, collectively, the "HCI Documents"), and to
-------------
consummate the transactions contemplated hereby and thereby. The execution and
delivery of each of the HCI Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by the Board
of Directors of HCI. The Board of Directors of HCI has directed that the
Articles of Merger and the transactions contemplated hereby be submitted to
HCI's stockholders for approval at a meeting or by written consent of such
stockholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of HCI Voting Common
Stock, no other corporate proceedings on the part of HCI are necessary to
approve the HCI Documents and to consummate the transactions contemplated hereby
and thereby. This Agreement has been, and prior to the Effective Time, each
other HCI Document will have been, duly and validly executed and delivered by
HCI and (assuming due authorization, execution and delivery by ALC) this
Agreement constitutes, and each other HCI Document will constitute, a valid and
binding obligation of HCI, enforceable against HCI in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of the HCI Documents by HCI nor
the consummation by HCI of the transactions contemplated hereby and thereby, nor
compliance by HCI with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Articles of Incorporation or Bylaws of HCI or
any of the similar governing documents of any of its Subsidiaries or (ii)
assuming that the consents and approvals referred to in Section 3.4 hereof are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to HCI or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of HCI or any of its Subsidiaries under, any of the terms, conditions or
provisions of any HCI Contract (as defined in Section 3.13(a) hereof) or any
loan or credit agreement, note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which HCI or any
of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause
(ii) above) for such violations, conflicts, breaches or defaults which,
individually or in the aggregate, will not have and would not reasonably be
expected to have a Material Adverse Effect on HCI.
Section 3.4 Consents and Approvals. Except for (i) the filing of the
Articles of Merger with the Nevada Secretary pursuant to NRS 92A.200, (ii) the
adoption of the Articles of Merger by the requisite vote of the holders of HCI
Voting Common Stock and the stockholder of Newco, (iii) the filing of the
Articles of Incorporation of Newco with the Nevada Secretary, and (iv) consents
and approvals, the failure of which to obtain will not have and would not be
reasonably expected to have a Material Adverse Effect on HCI, no consents or
approvals of, or filings or registrations with, any court, administrative agency
or commission or other governmental authority or instrumentality (each a
7
<PAGE>
"Governmental Entity") or with any third party are necessary in connection with
-------------------
(A) the execution and delivery by HCI of the HCI Documents and (B) the
consummation by HCI of the Merger and the other transactions contemplated hereby
and thereby.
Section 3.5 Vote or Consent Required. The affirmative vote or
consent of at least a majority of the outstanding shares of HCI Voting Common
Stock is the only vote or consent of the holders of any class or series of HCI's
capital stock necessary (under applicable law or otherwise) to approve this
Agreement, the Merger and the transactions contemplated hereby and thereby.
Section 3.6 Financial Statements; Undisclosed Liabilities. The
financial statements of Pacesetter Home Care Group, Inc., HCI's predecessor, for
the year ended December 31, 1996 and the consolidated financial statements of
HCI for the period ended June 30, 1997, each of which have previously been
provided to ALC, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except that the unaudited statements exclude
----
footnotes) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presented, in accordance with
the applicable requirements of GAAP, the consolidated financial position of HCI
(or its predecessor) as of the dates thereof and the consolidated results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
disclosed in Section 3.6 of the disclosure schedule of HCI delivered to ALC
concurrently herewith (the "HCI Disclosure Schedule"), (ii) for those
-----------------------
liabilities that are fully reflected or reserved against on the consolidated
balance sheet of HCI included in its financial statements for the period ended
June 30, 1997, and (iii) for liabilities incurred in the ordinary course of
business consistent with past practice since June 30, 1997, neither HCI nor any
of its Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
that, either alone or when combined with all other liabilities incurred since
June 30, 1997, has had, or would reasonably be expected to have, a Material
Adverse Effect on HCI. On September 30, 1997, the outstanding indebtedness of
HCI and its Subsidiaries did not exceed $5.7 million. The books and records of
HCI and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
Section 3.7 Broker's Fees. None of HCI, any of its Subsidiaries nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by the HCI Documents.
Section 3.8 Absence of Certain Changes or Events.
(a) Except as disclosed in Section 3.8 of the HCI Disclosure Schedule
and except as set forth in Section 3.9(d) hereof, since June 30, 1997, no event
(including, without limitation, any earthquake or other act of God) has occurred
which, either alone or combined with all other events occurring since June 30,
1997, would reasonably be expected to have a Material Adverse Effect on HCI.
(b) Since June 30, 1997, HCI and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary course of
business, and neither HCI nor any of its Subsidiaries has (i) except for normal
increases in the ordinary course of business consistent with past practice and
except as required by applicable law, increased the wages, salaries,
compensation, pension or other fringe benefits or perquisites payable to any
executive officer or director, or granted any severance or termination pay,
entered into any contract to make or grant any severance or termination
8
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pay, or paid any bonus, in each case to any such executive officer or director,
other than pursuant to preexisting agreements or arrangements, (ii) made any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of HCI's capital stock
(except for a $2.50 per share distribution that has been or will be effected by
HCI and payable in the form of cash, cancellation of indebtedness (including
interest thereon) or issuance of indebtedness), (iii) effected any split,
combination or reclassification of any of HCI's capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of its capital stock or any issuance of an ownership interest
in any Subsidiary of HCI, (iv) made any change in accounting methods, principles
or practices by HCI or any Subsidiary of HCI, except as may be required by a
change in GAAP or (v) suffered any strike, work stoppage, slow-down or other
labor disturbance.
Section 3.9 Legal Proceedings.
(a) Except as provided in Section 3.9(d) hereof, none of HCI nor any
of its Subsidiaries is a party to any, and there are no pending or, to the best
of HCI's knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against HCI or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by the HCI Documents.
(b) There is no injunction or governmental order, judgment or similar
decree applicable to HCI or any of its Subsidiaries which imposes any
restrictions on HCI or any of its Subsidiaries.
(c) Except as provided in Section 3.9(d) hereof, HCI and its
Subsidiaries and the home health agencies and hospice services that they operate
have, and are in compliance (without any defaults) with all permits,
authorizations, licenses, certifications and approvals they need to conduct the
businesses in which they are engaged and to be paid for the services they
provide, including Medicare and Medicaid provider certification, except where
the failure to be in such compliance would not have or reasonably be expected to
have a Material Adverse Effect on HCI. Except as provided in Section 3.9(d)
hereof, there are no pending or, to the knowledge of HCI, threatened
proceedings, actions or governmental or regulatory investigations of any nature
(including without limitation regulatory actions by the Health Care Financing
Administration ("HCFA")) that restrict, limit or terminate the permits,
----
authorizations, licenses, certifications and approvals referred to in the
foregoing sentence, except for such proceedings, actions or investigations that
would not have or reasonably be expected to have a Material Adverse Effect on
HCI.
(d) On September 17, 1997, Home Health received a 23-day notice of
termination, pursuant to HCFA State Operations Manual (S) 3010(B), (the
"September Notice") to the effect that HCFA would terminate the status of Home
----------------
Health's main office in Forth Worth, Texas (the "Fort Worth Office") on October
-----------------
6, 1997 if by September 26, 1997 Home Health did not submit to HCFA a
satisfactory "Plan of Correction" addressing certain noted deficiencies. Home
Health delivered to HCFA a plan of correction on September 26, 1997, and at that
time, Home Health was verbally informed by HCFA staff that such plan of
correction appropriately responded to HCFA's concerns and that HCFA no longer
considered Home Health's license to operate its Forth Worth Office to be
scheduled for termination on October 6, 1997. As of the date of this Agreement,
neither HCI nor Home Health have received any written confirmation from HCFA
which indicates that the Fort Worth Office's license is no longer subject to
termination as a consequence of the September Notice.
9
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Section 3.10 Taxes and Tax Returns.
(a) HCI and each of its Subsidiaries has timely filed or caused to be
filed, and has heretofore furnished to ALC true and complete copies of, any
returns, declarations, reports, estimates, information returns and statements
required to be filed under federal, state, local or any foreign tax laws ("Tax
---
Returns") with respect to HCI or any of its Subsidiaries, except where the
- -------
failure to file timely such Tax Returns would not, individually or in the
aggregate, have and would not reasonably be expected to have a Material Adverse
Effect on HCI. All Taxes due, whether or not shown to be due on such Tax
Returns, have been paid or adequate reserves have been established for the
payment of such Taxes, except where the failure to pay or establish adequate
reserves would not, individually or in the aggregate, have and would not
reasonably be expected to have a Material Adverse Effect on HCI. No material
(i) audit or examination of any Tax Return with respect to HCI or any of its
Subsidiaries is currently in progress or has been conducted and neither HCI nor
any of its Subsidiaries has received notice of any proposed audit or
examination, (ii) deficiencies for any taxes have been proposed, asserted or
assessed or (iii) refund litigation with respect to any Tax Return is pending.
All material Tax Returns filed by HCI and each of its Subsidiaries are complete
and accurate in all material respects.
(b) For purposes of this Agreement, "Taxes" shall mean all taxes,
-----
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority.
Section 3.11 Employees.
(a) Section 3.11(a) of the HCI Disclosure Schedule lists each Employee
Benefit Plan and Benefit Arrangement covering employees or former employees of
HCI or its Subsidiaries. HCI has delivered to ALC copies of written documents
comprising such Employee Benefit Plans and Benefit Arrangements.
(b) Except as set forth in Section 3.11(b) of the HCI Disclosure
Schedule:
(i) Neither HCI nor any of its ERISA Affiliates sponsors or
has previously sponsored, maintained, contributed to or incurred an obligation
to contribute to any Employee Benefit Plan regulated under Title IV of ERISA,
including any Multiemployer Plan.
(ii) Neither HCI nor any of its ERISA Affiliates sponsors or
has previously sponsored, maintained, contributed to or incurred an obligation
to contribute to any Employee Benefit Plan that provides or will provide
benefits described in Section 3(1) of ERISA to any former employee or retiree of
HCI or any ERISA Affiliate of any of them, except as required under Part 6 of
Title I or ERISA and Section 4980B of the Code.
(iii) In all material respects, all Employee Benefit Plans
and Benefit Arrangements covering employees or former employees of HCI or its
Subsidiaries comply with ERISA and the Code.
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(iv) To the best knowledge of HCI, none of the Employee
Benefit Plans covering employees or former employees of HCI or its Subsidiaries
has engaged in or been a party to a transaction that is prohibited under Section
4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of
the Code or Section 408 of ERISA, respectively.
(v) No employee or former employee of HCI or its
Subsidiaries shall accrue or receive additional benefits, service or accelerated
rights to payment of benefits under any Employee Benefit Plan or Benefit
Arrangement covering employees or former employees of HCI or its Subsidiaries or
become entitled to severance, termination allowance or similar payments as a
result of the transactions contemplated by this Agreement.
(vi) Each Employee Benefit Plan that covers or has covered
employees or former employees of HCI or its Subsidiaries and is intended to
qualify under Section 401(a) of the Code is the subject of a favorable
determination letter from the Internal Revenue Service, a copy of which has been
delivered to ALC.
(vii) The following definitions apply to this Section 3.11:
"Benefit Arrangement" means any material benefit arrangement that is
-------------------
not an Employee Benefit Plan, including (i) each employment or consulting
agreement, (ii) each arrangement providing insurance benefits, (iii) each
incentive bonus or deferred bonus arrangement, (iv) each arrangement providing
termination allowance, severance or similar benefits, (v) each equity
compensation plan, and (vi) each deferred compensation plan.
"Employee Benefit Plan" means any employee benefit plan, as defined in
---------------------
Section 3(3) of ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of HCI means any other person that, together with
---------------
HCI as of the relevant measuring date under ERISA, was or is required to be
treated as a single employer under Section 414 of the Code.
"Multiemployer Plan" means a multiemployer plan, as defined in
------------------
Sections 3(37) and 4001(a)(3) of ERISA.
Section 3.12 Compliance with Applicable Law. HCI and each of its
Subsidiaries have complied with and are not in default in any material respect
under any, applicable law, statute, order, rule, regulation, policy and/or
guideline of any Governmental Entity relating to HCI or any of its Subsidiaries,
except where such noncompliance or default would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect on
HCI, and neither HCI nor any of its Subsidiaries knows of, or has received
notice of, any noncompliance or default of any of the above which, individually
or in the aggregate, would have or would reasonably be expected to have a
Material Adverse Effect on HCI.
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Section 3.13 Certain Contracts.
(a) Except as set forth in Section 3.13(a) of the HCI
Disclosure Schedule, neither HCI nor any of its Subsidiaries is a party to or is
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) which is a material to the conduct of HCI's business, (ii) which
materially restricts the conduct of any line of business by HCI, (iii)
evidencing or concerning any loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness of HCI or any of its Subsidiaries is evidenced or (iv) with or to a
labor union or guild (including any collective bargaining agreement). Each
contract, arrangement, commitment or understanding of the type described in this
Section 3.13(a), other than the HCI Documents, whether or not set forth in
Section 3.13(a) of the HCI Disclosure Schedule, is referred to herein as a "HCI
---
Contract," and neither HCI nor any of its Subsidiaries knows of, or has received
- --------
notice of, any violation of the above by any of the other parties thereto which,
individually or in the aggregate, would have or would reasonably be expected to
have a Material Adverse Effect on HCI.
(b) (i) Each HCI Contract is valid and binding and in full
force and effect, (ii) HCI and each of its Subsidiaries has in all material
respects performed all obligations required to be performed by it to date under
each HCI Contract, and (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute a material default on
the part of HCI or any of its Subsidiaries under any such HCI Contract, except,
in each case, where such invalidity, failure to be binding, failure to so
perform or default, individually or in the aggregate, would not have or
reasonably be expected to have a Material Adverse Effect on HCI.
Section 3.14 Environmental Liability. Except as disclosed in "phase
one" environmental reports listed in Section 3.14 of the HCI Disclosure
Schedule, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose, or that reasonably could be expected to result in the imposition, on HCI
or any of its Subsidiaries of any liabilities or obligations arising under
common law standards relating to environmental protection, human health or
safety, or under any local, state or federal environmental statute, regulation
or ordinance, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (collectively, the
"Environmental Laws"), pending or, to the knowledge of HCI, threatened, against
------------------
HCI or any of its Subsidiaries, which liabilities or obligations, individually
or in the aggregate, would have or would reasonably be expected to have a
Material Adverse Effect on HCI. To the knowledge of HCI or any of its
Subsidiaries, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that, individually or in the aggregate,
would impose any liabilities or obligations that would have or would reasonably
be expected to have a Material Adverse Effect on HCI.
Section 3.15 Properties. Section 3.15 of the HCI Disclosure Schedule
contains a complete and accurate list of all real property owned by HCI (the
"Owned Real Property"). HCI has provided to ALC accurate and complete copies of
-------------------
title reports covering all Owned Real Property (the "Title Reports"). Section
-------------
3.15 of the HCI Disclosure Schedule also contains a complete and accurate list
of all options to purchase ("Options to Purchase") or purchase and sale
-------------------
agreements ("Purchase Agreements") to which HCI is a party. All such Purchase
-------------------
Agreements are valid, binding and enforceable against HCI in accordance with
their terms and are in full force and effect; no event of default has occurred
which (whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a default thereunder on the part
of HCI. The zoning ordinances applicable to each Owned Real Property and, to
the knowledge of HCI, each real property subject to a
12
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Purchase Agreement are not inconsistent with the development, construction, use
and operation of an assisted living facility. HCI has good and marketable fee
simple title to all Owned Real Property, subject only to the following liens,
claims and encumbrances: (i) materialmen's, mechanics', carriers', workmen's,
repairmen's or other like liens arising in the ordinary course of HCI's business
for amounts not yet due or which are being contested in good faith by
appropriate proceedings; (ii) liens for current taxes not yet due or any taxes
being contested in good faith by appropriate proceedings; and (iii) any other
liens, claims or encumbrances affecting title to the Owned Real Property which
are set forth on the Title Reports.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ALC
ALC hereby represents and warrants to HCI as follows:
Section 4.1 Corporate Organization.
(a) ALC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada. ALC has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted.
(b) On the Closing Date, Newco will be a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. On the Closing Date, Newco will have the corporate power and authority
to effect the Merger and will be duly qualified in Nevada as may be necessary to
effect the Merger. The copies of the Articles of Incorporation and Bylaws of
Newco, which will be made available to HCI prior to the Closing Date, will be
true, complete and correct copies of such documents as in effect on the Closing
Date.
Section 4.2 Newco Capitalization, Etc. As of the Closing Date, ALC
will own directly 100% of the issued and outstanding shares of capital stock,
voting securities or other ownership interests of Newco.
Section 4.3 Authority; No Violation.
(a) ALC has full corporate power and authority to execute and
deliver this Agreement and the other documents contemplated to be executed and
delivered by ALC in connection with the transactions contemplated hereby (this
Agreement, together with such other documents, collectively, the "ALC
---
Documents") and to consummate the transactions contemplated hereby and thereby.
- ---------
The execution and delivery of each of the ALC Documents and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of ALC. No other corporate proceedings on the
part of ALC are necessary to approve ALC Documents and to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and prior
to the Effective Time, each other ALC Document will have been, duly and validly
executed and delivered by ALC and (assuming due authorization, execution and
delivery by HCI) this Agreement constitutes, and each other ALC Document will
constitute, a valid and binding obligation of ALC, enforceable against ALC in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
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(b) Neither the execution and delivery of ALC Documents by
ALC nor the consummation by ALC of the transactions contemplated hereby and
thereby, nor compliance by ALC with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Articles of Incorporation or
Bylaws of ALC or any of the similar governing documents of any of its
Subsidiaries or (ii) assuming that the consents and approvals referred to in
Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to ALC
or any of its Subsidiaries or any of their respective properties or assets, or
(y) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any Lien upon any of the
respective properties or assets of ALC or any of its Subsidiaries under, any of
the terms, conditions or provisions of any material contract (as defined in Item
601(b)(10) of Regulation S-K of the Securities and Exchange Commission to which
ALC or any of its Subsidiaries is a party, any contract which materially
restricts the conduct of the business of ALC or any loan or credit agreement,
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which ALC or any of its Subsidiaries is a
party, or by which they or any of their respective properties or assets may be
bound or affected, except (in the case of clause (ii) above) for such
violations, conflicts, breaches or defaults which either individually or in the
aggregate will not have and would not reasonably be expected to have a Material
Adverse Effect on ALC.
(c) On the Closing Date, Newco will have full corporate power
and authority to execute and deliver all documents to be executed and delivered
by Newco on the Closing Date in connection with the Merger and the transactions
contemplated thereby (the "Newco Documents"). The execution and delivery of each
---------------
of the Newco Documents and the consummation of the transactions contemplated
hereby and thereby will have been duly and validly approved by the Board of
Directors of Newco and the stockholder of Newco. No other corporate proceedings
on the part of Newco will be necessary to authorize the execution and delivery
and performance of the Newco Documents and the consummation of the Merger. Prior
to the Effective Time, each Newco Document will have been, duly and validly
executed and delivered by Newco and (assuming due authorization, execution and
delivery by the other parties to such documents) will constitute, a valid and
binding obligation of Newco, enforceable against Newco in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(d) Neither the execution and delivery of Newco Documents by
Newco nor the consummation by Newco of the transactions contemplated hereby and
thereby, nor compliance by Newco with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Articles of Incorporation or
Bylaws of Newco or (ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Newco.
Section 4.4 Consents and Approvals. Except for (i) the filing of the
Articles of Merger with the Nevada Secretary pursuant to the NRS, (ii) the
adoption of the Articles of Merger by the requisite vote of the stockholder of
Newco, (iii) the filing of the Articles of Incorporation of Newco with the
Nevada Secretary, and (iv) consents and approvals, the failure of which to
obtain would not, individually or in the aggregate, have and would not be
reasonably expected to have a Material Adverse Effect on ALC, no consents or
approvals of, or filings or registrations with, any Governmental Entity or any
third party are necessary in connection with (A) the execution and delivery by
ALC of the ALC Documents, (B) the execution and delivery by Newco of the Newco
Documents, and (C) the
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consummation by ALC and Newco of the Merger and the other transactions
contemplated hereby and thereby.
Section 4.5 Vote or Consent Required. No holders of outstanding
shares of ALC Common Stock are required to vote or consent to the approval this
Agreement, the Merger or the transactions contemplated hereby (under applicable
law or otherwise). ALC, as the sole stockholder of Newco, will be required to
consent to the approval of Merger and the transactions contemplated thereby
(under applicable law or otherwise).
Section 4.6 Opinion of Financial Advisor. ALC has received the
opinion of McDonald & Company Securities, Inc., dated September 8, 1997,
satisfactory to ALC, a signed version of which has been provided to HCI, to the
effect that the consideration to be received by the holders of the HCI Common
Stock under this Agreement is fair to ALC from a financial point of view.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Businesses Prior to the Effective Time.
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement or as required by
applicable law, HCI shall, and shall cause its Subsidiaries to, (i) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (ii) use reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees and (iii) take no action
which would reasonably be expected to adversely affect or delay the ability of
either HCI to obtain any approvals of any Governmental Entity required to
consummate the transactions contemplated hereby or to perform its covenants and
agreements under the HCI Documents. HCI agrees that HCI and its Subsidiaries
will not incur indebtedness in excess of $6.0 million in the aggregate without
the prior written consent of ALC, which consent shall not be unreasonably
withheld, conditioned or delayed.
Section 5.2 Forbearances. Except (i) for the acquisition of parcels
of land where assisted living facilities can be developed that are subject to
Options to Purchase as of the date of this Agreement (which acquisition(s) shall
have been consented to in writing by ALC (which consent shall not be
unreasonably withheld, conditioned or delayed)) or that are subject to Purchase
Agreements as of the date of this Agreement, (ii) for the execution and delivery
by HCI of Purchase Agreements with respect to additional parcels of land on
which assisted living facilities can be developed (the execution and delivery of
which shall have been consented to in writing by ALC (which consent shall not be
unreasonably withheld, conditioned or delayed)), (iii) for the execution and
delivery by HCI of Options to Purchase with respect to additional parcels of
land on which assisted living facilities can be developed, and (iv) for the
execution and delivery of the LTC Commitment (as defined in Section 7.1(e)
hereof), during the period from the date of this Agreement to the Effective Time
and, except as expressly contemplated or permitted by this Agreement or as
required by applicable law, rule or regulation, HCI shall not and shall not
permit any of its Subsidiaries to:
(a) adjust, split, combine or reclassify any capital stock;
make, declare or pay any dividend or make any other distribution on (other than
a $2.50 per share distribution by HCI payable in the form of cash, cancellation
of indebtedness (including interest thereon) or issuance of indebtedness), or
directly or indirectly redeem, purchase or otherwise acquire, any shares of its
capital
15
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stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, voting securities or other ownership interests, or
grant any stock appreciation rights or grant any individual, corporation or
other entity any right to acquire any shares of its capital stock, voting
securities or other ownership interests (except for the issuance of employee
stock options and restricted stock consistent with past practices); or
repurchase, redeem or otherwise acquire any shares of its capital stock or any
capital stock, voting securities or ownership interests in any Subsidiary; or
issue any additional shares of capital stock, voting securities or other
ownership interests;
(b) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity other
than a direct or indirect wholly owned Subsidiary, or cancel, release or assign
any indebtedness to any such person or any claims held by any such person, in
each case that is material to such party, except (i) in the ordinary course of
business consistent with past practice, (ii) pursuant to contracts or agreements
in force at the date of this Agreement in accordance with the terms of such
contract or agreement as in effect on the date of this Agreement, (iii) pursuant
to plans disclosed in writing prior to the execution of this Agreement to the
other party or (iv) for the cancellation of approximately $5.0 million of
indebtedness (plus interest thereon) owing under certain outstanding promissory
notes issued by stockholders of HCI;
(c) except for transactions in the ordinary course of business
consistent with past practice, make any material acquisition or investment
either by purchase of stock or securities, merger or consolidation,
contributions to capital, property transfers, or purchases of any property or
assets of any other individual, corporation or other entity other than a wholly
owned Subsidiary thereof;
(d) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any contract or
agreement, or make any change in any of its leases or contracts, in each case
that is material to such party, other than renewals of contracts and leases
without materially adverse changes of terms thereof;
(e) incur any liability for indebtedness, guarantee the obligations of
others, indemnify others or, except in the ordinary course of business, incur
any other liability;
(f) increase in any material respect the compensation or fringe
benefits of any of its employees or pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees other than in
the ordinary course of business consistent with past practice, or become a party
to, amend or commit it itself to any material pension, retirement, profit-
sharing or welfare benefit plan or agreement or employment agreement with or for
the benefit of any employee or accelerate the vesting of any stock options or
other stock-based compensation;
(g) settle any claim, action or proceeding involving money damages
which is material to HCI, except in the ordinary course of business consistent
with past practice;
(h) take any action that would prevent or impede the Merger from
qualifying for the purchase method of accounting;
(i) amend its Articles of Incorporation, Bylaws or similar governing
documents in any case in a manner that would materially and adversely effect any
party's ability to consummate the Merger or the economic benefits of the Merger
to either party;
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(j) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set forth
in Article VII not being satisfied or in a violation of any provision of this
Agreement, except, in every case, as may be required by applicable law;
(k) except for capital expenditures approved by LTC
Development, Inc. (which approval shall not be unreasonably withheld), incur any
capital expenditures in excess of $5,000 individually or $25,000 in the
aggregate;
(l) make any change in accounting methods, principles or
practices, except as required by a change in GAAP; or
(m) agree to, or make any commitment to, take any of the
actions prohibited by this Section 5.2.
For purposes of the provisions of this Section 5.2, the execution and
delivery of Purchase Agreements with respect to assisted living facilities and
the purchase of such facilities are not considered transactions in the ordinary
course of business.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Cooperation as to Regulatory Matters.
(a) The parties hereto shall cooperate with each other and
use reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger), to comply with the terms
and conditions of all such permits, consents, approvals and authorizations of
all such Governmental Entities, and to defend any lawsuits or other legal
proceedings challenging this Agreement and the transactions contemplated by this
Agreement.
(b) ALC and HCI shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, Newco, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any statement, filing, notice or application
made by or on behalf of ALC, HCI, Newco or any of their respective Subsidiaries
to any Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement.
(c) ALC and HCI shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined below) will not be
obtained or that the receipt of any such approval will be materially delayed.
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Section 6.2 Access to Information.
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, HCI shall, and shall cause each of its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of the other property access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records, and to its officers, employees, accountants,
counsel and other representatives and, during such period, HCI shall, and shall
cause its Subsidiaries to, make available to the other party (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
(other than reports or documents which HCI, as the case may be, is not permitted
to disclose under applicable law) and (ii) all other information concerning its
business, properties and personnel as such other party may reasonable request.
None of HCI nor any of its Subsidiaries shall be required to provide access to
or to disclose information where such access or disclosure would violate or
prejudice the rights of its customers, jeopardize the attorney-client privilege
of the institution in possession or control of such information or contravene
any law, rule, regulation, order, judgment, decree, fiduciary duty or binding
agreement entered into prior to the date of this Agreement. The parties hereto
will make appropriate substitute disclosure arrangements under circumstances in
which the restrictions of the preceding sentence apply.
(b) Neither HCI nor ALC shall disclose to any third party,
other than its directors, officers, employees, accountants, attorneys, advisors
or other representatives, information furnished by the other party or any of
such party's Subsidiaries or representatives pursuant to Section 6.2(a) hereof,
unless such information is otherwise publicly available.
Section 6.3 Stockholders' Approvals. HCI shall either: (i) obtain
written consent from holders of the requisite shares of HCI Voting Stock to
effect the Merger or (ii) duly call, give notice of, convene and hold a meeting
of its stockholders to be held, in each case, as soon as practicable following
the date hereof for the purpose of obtaining the requisite stockholder approvals
required in connection with this Agreement and the Merger. Subject to the
provisions of the next sentence, HCI shall, through its Board of Directors,
recommend to its stockholders approval of such matters. The Board of Directors
of HCI may fail to make such recommendation, or withdraw, modify or change any
such recommendation in a manner adverse to the other party hereto, if such Board
of Directors, after having consulted with and considered the advice of outside
counsel, has reasonably determined in good faith that the making of such
recommendation, or the failure to withdraw, modify or change its recommendation,
would constitute a breach of the fiduciary duties of the members of such Board
of Directors under applicable law.
Section 6.4 Legal Conditions to Merger. Subject to the terms and
conditions of this Agreement, each of ALC and HCI shall, and shall cause their
respective Subsidiaries to use their reasonable best efforts (i) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger and, subject to the conditions set forth
in Article VII hereof, to consummate the transactions contemplated by this
Agreement and (ii) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be obtained
by HCI or ALC or any of their respective Subsidiaries in connection with the
Merger and the other transactions contemplated by this Agreement.
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Section 6.5 Indemnification; Directors' and Officers' Insurance.
(a) ALC agrees that from and after the Effective Time, ALC
shall, and shall cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of HCI and its Subsidiaries,
determined as of the Effective Time (the "Indemnified Parties"), against any
-------------------
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively "Costs") incurred in
-----
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that HCI or such Subsidiary would have been required to indemnify under
the Articles of Incorporation or Bylaws of HCI or such Subsidiary in effect on
the date hereof to indemnify such person (and such party shall also advance
expenses as incurred to the fullest extent permitted under applicable law;
provided, that the person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
(b) An Indemnified Party wishing to claim indemnification
under Section 6.5(a) or (b) hereof upon learning of any such claim, action,
suit, proceeding or investigations shall promptly notify the indemnifying party
thereof, but the failure to so notify shall not relieve the indemnifying party
of any liability it may have to such Indemnified Party except to the extent such
failure materially prejudices the indemnifying party. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), the indemnifying party shall have the right to assume
the defense thereof and it shall not be liable to such Indemnified Parties for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except that,
if the indemnifying party elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the indemnifying party and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the
indemnifying party shall pay all reasonable fees and expense of such counsel for
the Indemnified Parties promptly as statements therefor are received. If such
indemnity is not available with respect to any Indemnified Party, then the
indemnifying party and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits.
(c) The provisions of this Section 6.5 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
Section 6.6 Additional Agreements. 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 Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the merger, the proper officers and directors of each party of
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by, and at the sole expense of, ALC;
provided, further, that the vote or written consent of the Former HCI
Stockholders that, immediately prior to the Effective Time, were holders of a
majority of the outstanding shares of HCI Common Stock (including HCI Voting
Common Stock and HCI Non-Voting Common Stock) shall be effective for any such
further action required on the part of the Former HCI Stockholders and shall be
effective and binding upon all Former HCI Stockholders.
Section 6.7 Advise of Changes. HCI shall promptly advise ALC of any
change or event which, individually or in the aggregate with other such changes
or events, has a Material Adverse
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Effect on HCI or which it believes would or would be reasonably likely to cause
or constitute a material breach of any of its representations, warranties or
covenants contained herein.
Section 6.8 Qualified Sites and Identified Sites. On or prior to
Closing, HCI shall notify ALC of: (i) all parcels of land that HCI owns where
assisted living facilities can be developed, and (ii) all Options to Purchase or
Purchase Agreements to which HCI is a party with respect to such parcels of land
where assisted living facilities can be developed. Such notice shall list all
such parcels and shall identify up to 39 of such parcels as "Qualified Sites"
---------------
for the purposes of this Agreement. Within 90 calendar days following the
Effective Time (the "First 90-Day Period"), ALC shall notify the Former HCI
-------------------
Stockholders in writing of the Qualified Sites on which (or within 15 miles of
which) ALC intends to develop an assisted living facility and may identify up to
10 Qualified Sites on which (or within 15 miles of which) it may have an
intention to develop an assisted living facility (the "Possible Sites"). Within
--------------
90 calendar days following the First 90-Day Period (the "Second 90-Day Period"),
--------------------
ALC shall notify the Former HCI Stockholders in writing of the Possible Sites on
which (or within 15 miles of which) ALC intends to develop an assisted living
facility. Each Qualified Site on which (or within 15 miles of which) ALC
indicates during the First 90-Day Period that an assisted living facility will
be developed shall be considered an "Identified Site" for purposes of this
---------------
Agreement. In addition, each Possible Site on which (or within 15 miles of
which) ALC indicates during the Second 90-Day Period that an assisted living
facility will be developed shall be considered an "Identified Site" for purposes
---------------
of this Agreement. For the two-year period following the Effective Time, ALC
shall not develop, construct, obtain a certificate of occupancy with respect to,
purchase and/or operate an assisted living facility that is at (or within 15
miles of) a Qualified Site, unless such Qualified Site is an Identified Site.
Section 6.9 Formation of Newco. As soon as reasonably practicable
following the execution of this Agreement, ALC shall cause Newco to be formed as
a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada with the corporate power and authority to effect the
Merger.
Section 6.10 No Solicitation of Alternate Transaction. HCI and its
Subsidiaries will not, directly or indirectly, and will use its reasonable best
efforts to cause its officers, directors and agents not to solicit, initiate or
deliberately encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, HCI or any merger, consolidation or
business combination with HCI; provided, however, that consistent with its
fiduciary obligations under applicable law as advised by counsel, HCI may
participate in any discussions or negotiations regarding, and may furnish to any
other person information with respect to, any of the foregoing. HCI shall
promptly notify ALC if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made.
Section 6.11 Bring-Down of Representation and Warranties. At the
Effective Time, by the filing of the Articles of Merger with the Nevada
Secretary, each of HCI and ALC shall be deemed to have affirmed in all material
respects the representations and warranties that are not qualified as to
materiality in Articles III and IV, respectively, as if made on such Closing
Date (except to the extent such representations and warranties speak as of an
earlier date) and shall be deemed to have affirmed the representations and
warranties that are qualified as to materiality in Articles III and IV,
respectively, as if made on such Closing Date (except to the extent such
representations and warranties speak as of an earlier date); provided, however,
HCI shall have the right to amend the HCI Disclosure Schedule, so long as such
amended HCI Disclosure Schedule is not materially different from the HCI
Disclosure Schedule provided to ALC on the date of this Agreement; it being
understood that HCI shall, nonetheless, be permitted to amend Sections 3.15 of
the HCI Disclosure Schedule, whether or not material, to provide
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for the addition of any Owned Real Property and/or Purchase Agreements (so long
as such Owned Real Property is acquired and/or such Purchase Agreements are
entered into, as the case may be, in accordance with the provisions of Section
5.2(a) hereof) and/or to provide for the addition of any Options to Purchase, in
each case, with respect to parcels of land on which assisted living facilities
can be developed (as contemplated by Section 6.8 hereof).
Section 6.12 Guarantee of HCI Obligations. At the Effective Time,
ALC shall guarantee the performance of all obligations of HCI owing to LTC
Properties, Inc. ("LTC"), including without limitation, the obligations of HCI
---
pursuant to the LTC Commitment (as defined in Section 7.1(e) hereof) and
pursuant to the note to be issued to LTC in connection with the $2.50 per share
distribution to HCI stockholders.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement, the Merger and the
transactions contemplated hereby and thereby shall have been approved and
adopted by the requisite affirmative votes or written consent of the holders of
HCI Common Stock entitled to vote thereon.
(b) Other Approvals. All material regulatory approvals
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired or been terminated (all such
approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals") and no such approval shall
------------------------------
contain any conditions or restrictions which the Board of Directors of either
ALC or HCI reasonably determines in good faith will have or reasonably be
expected to have a Material Adverse Effect on ALC and its Subsidiaries
(including the Surviving Corporation and its Subsidiaries) taken as a whole.
(c) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
----------
consummation of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restricts or makes illegal the consummation
of the Merger.
(d) Consents. All consents and waivers from third parties
necessary in connection with the consummation of the transactions contemplated
by this Agreement shall have been obtained, other than such consents and waivers
from third parties which, if not obtained, would not result in a Material
Adverse Effect on ALC and its Subsidiaries (including the Surviving Corporation
and its Subsidiaries) taken as a whole.
(e) Commitment Between HCI and LTC. HCI and LTC shall have
entered into a commitment (the "LTC Commitment"), subject to the approval of ALC
--------------
(which approval shall not
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be unreasonably withheld), with respect to the financing by LTC of up to
$50,000,000 in connection with HCI's development and construction of assisted
living facilities.
Section 7.2 Conditions to Obligations of ALC. The obligation of ALC
to effect the Merger is also subject to the satisfaction or waiver by ALC at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of HCI set forth in Article III hereof that are not qualified as to
materiality shall be true and correct in all material respects as of the date of
this Agreement (except to the extent such representations and warranties speak
as of an earlier date) and as of the Closing Date as though made on and as of
the Closing Date; the representations and warranties of HCI set forth in Article
III hereof that are qualified as to materiality shall be true and correct in all
respects as if made on such date as of the date of this Agreement (except to the
extent such representations and warranties speak as of an earlier date) and as
of the Closing Date as though made on and as of the Closing Date.
(b) Performance of Obligations of HCI. HCI shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) Licensing and Certification. The licenses and
certifications of HCI and its Subsidiaries that are necessary for HCI and its
Subsidiaries, as the case may be, to be Medicare and Medicaid providers or to
provide home health or hospice services, shall not be subject to a notice of
termination or suspension or be suspended or terminated and there shall be no
notice of termination, issued pursuant to HCFA State Operations Manual (S)
3010(B), pending as against any assisted living facility operated by HCI.
(d) Estoppel Certificate. LTC shall have executed and
delivered a certificate to ALC confirming that: (i) LTC is aware of no defects
by HCI on any of its obligations to LTC; (ii) all commitments made by LTC to HCI
pursuant to the LTC Commitment shall remain in full force and effect after the
consummation of the transactions contemplated by this Agreement; and (iii) the
terms in the construction loans between HCI and LTC requiring a 30-day notice of
prepayment shall be modified to a 10-day notice of prepayment; provided,
however, that at the time of any such prepayment HCI shall confirm its
obligation to effect sale and leaseback transactions of the properties subject
to such construction loans in accordance with the terms of the LTC Commitment.
(e) ALC/HCI License Agreement. HCI shall have paid ALC all
license fees owed to ALC pursuant to the Agreement Regarding License to Use
Proprietary Information and Materials entered into as of the 15th day of June,
1997 by and between HCI and ALC.
(f) Closing Certificates. HCI shall provide any closing
certificates, in a form reasonably acceptable to ALC, as ALC shall reasonably
request to evidence satisfaction of the conditions set forth in Sections 7.1 and
7.2 hereof.
Section 7.3 Conditions to Obligations of HCI. The obligation of HCI
to effect the Merger is also subject to the satisfaction or waiver by HCI at or
prior to the Effective Time of the following conditions:
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(a) Representations and Warranties. The representations and
warranties of ALC set forth in Article III hereof that are not qualified as to
materiality shall be true and correct in all material respects as of the date of
this Agreement (except to the extent such representations and warranties speak
as of an earlier date) and as of the Closing Date as though made on and as of
the Closing Date; the representations and warranties of set forth in Article III
hereof that are qualified as to materiality shall be true and correct in all
respects as if made on such date as of the date of this Agreement (except to the
extent such representations and warranties speak as of an earlier date) and as
of the Closing Date as though made on and as of the Closing Date.
(b) Performance of Obligations of ALC. ALC shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) Closing Certificates. ALC shall provide any closing
certificates, in a form reasonably acceptable to HCI, as HCI shall reasonably
request to evidence satisfaction of the conditions set forth in Sections 7.1 and
7.3 hereof.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time:
(a) by mutual consent of ALC and HCI in a written instrument,
if the Board of Directors of each so determines;
(b) by either the Board of Directors of ALC or the Board of
Directors of HCI if a Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement;
(c) by either the Board of Directors of ALC or the Board of
Directors of HCI if the Merger shall not have been consummated on or before
December 31, 1997 (or, if at such date the Merger shall not have been
consummated as a result of the failure of the condition set forth in Section
7.1(d) hereof to be satisfied, and such condition shall not have failed to have
been satisfied by reason of the enactment or promulgation of any statute, rule
or regulation which prohibits, restricts or makes illegal consummation of the
Merger, the earlier of (i) the date on which such condition is satisfied and
(ii) December 31, 1997) unless the failure of the Closing to occur by such date
shall be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth herein;
(d) by either the Board of Directors of ALC or the Board of
Directors of HCI (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained
herein) if the other party shall have breached (i) any of the covenants or
agreements made by such other party herein or (ii) any of the representations or
warranties made by such other party herein, and in either case, such breach (x)
is not cured within thirty days following written notice to the party committing
such breach, or which breach, by its nature, cannot be
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cured prior to the Closing and (y) would entitle the non-breaching party not to
consummate the transactions contemplated hereby under Article VII hereof; and
(e) by either the Board of Directors of ALC or the Board of
Directors of HCI if any approval of the stockholders of HCI contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or at any adjournment or
postponement thereof.
Section 8.2 Effect of Termination. In the event of termination of
this Agreement by either ALC or HCI as provided in Section 8.1 hereof, this
Agreement shall forthwith become void and have no effect, and none of ALC, HCI,
any of their respective Subsidiaries or any of the officers or directors of any
of them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except (i) Sections
6.2(b), 8.2, and 9.3 hereof shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement,
neither ALC nor HCI shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
Section 8.3 Amendment. Subject to compliance with applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before approval
of the matters presented in connection with the Merger by the stockholders of
HCI. Subject to compliance with applicable law, this Agreement may be amended
or compliance with the provisions hereof may be waived by the parties hereto at
any time after approval of the matters presented in connection with the Merger
by the stockholders of HCI, by action taken or authorized by their respective
Board of Directors, and by vote or written consent of holders of a majority of
the then outstanding shares of HCI Voting Common Stock (if such action is taken
prior to the Effective Time) or by vote or written consent of Former HCI
Stockholders that, immediately prior to the Effective Time, were holders of a
majority of the outstanding shares of HCI Common Stock (including HCI Voting
Common Stock and HCI Non-Voting Common Stock) (if such action is taken after the
Effective Time). This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 8.4 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 allowed, (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 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,
but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Closing. Upon the terms and subject to the conditions of
this Agreement, the closing of the Merger (the "Closing") shall take place at
-------
10:00 a.m. on a date to be specified by the parties, which unless otherwise
agreed by the parties shall be no later than two business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VII hereof (the "Closing Date").
------------
Section 9.2 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties, covenants and agreements
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for those covenants and agreements
contained herein and therein which by their terms apply in whole or in part
after the Effective Time.
Section 9.3 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense.
Section 9.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed driven if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to ALC, Newco or the Surviving Corporation to:
Assisted Living Concepts, Inc.
9955 Southeast Washington
Suite 201
Portland, Oregon 97216
Telecopy: (503) 252-6597
Attention: Chief Financial Officer
with a copy to:
Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 Southwest 5th Avenue
Portland, Oregon 97204
Telecopy: (503) 295-0915
Attention: Sandra Campbell, Esq.
(b) if to HCI, to:
Home and Community Care, Inc.
300 Esplanade Dive
Suite 1860
Oxnard, California 93030
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Telecopy: (805) 981-8655
Attention: Andre Dimitriadis
with a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Telecopy: (213) 891-8763
Attention: Gary Olson, Esq.
Section 9.5 Interpretation. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way 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." Whenever the word "material" is used in this Agreement
and the context in which it is used refers to any of the parties to this
Agreement or any of their respective Subsidiaries, it shall be deemed to be
followed by "to [HCI] [ALC] and its Subsidiaries, taken together as a whole," as
applicable. No provision of this Agreement shall be construed to require HCI,
ALC or any of their respective Subsidiaries or Affiliates to take any action
which would violate or conflict with any applicable law (whether statutory or
common), rule or regulation.
Section 9.6 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
Section 9.7 Entire Agreement. This Agreement (together with the
documents and the instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
an oral, among the parties with respect to the subject matter hereof, the HCI
Documents and ALC Documents.
Section 9.8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Nevada, without regard to
any applicable conflicts of law.
Section 9.9 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 9.10 Publicity. Except as otherwise required by applicable
law or the rules of the ASE, neither ALC nor HCI shall, or shall permit any of
its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the written consent of the other party, which consent shall not be unreasonably
withheld.
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Section 9.11 Assignment; Third Party Beneficiaries. Neither this
Agreement nor any of the rights, interests or obligations of any party 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 party provided that
ALC shall not be required to obtain any consent, after the Effective Time, in
the event this Agreement or the rights, interests or obligations hereunder are
assigned to, and the related obligations are assumed by, a wholly-owned
subsidiary of ALC, as long as ALC shall, contemporaneous with such assignment
and assumption, guarantee the payment of any obligations owed hereunder,
including the Earnout Payments. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as otherwise
specifically provided in Section 6.5 hereof, this Agreement (including the
documents and instruments referred to herein) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder. After
the Effective Time, a vote or the written consent of the holders of a majority
of the then outstanding shares of HCI Common Stock (including HCI Voting Common
Stock and HCI Non-Voting Common Stock) shall be required to permit the
assignment of this Agreement and any of the rights, interests or obligations of
the Former HCI Stockholders hereunder and such vote or written consent shall be
effective and binding upon all Former HCI Stockholders.
Section 9.12 Enforcement of the Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
27
<PAGE>
IN WITNESS WHEREOF, ALC and HCI have caused this Agreement to be
executed by their respective authorized signatories as of the date first above
written.
ASSISTED LIVING CONCEPTS, INC.
By: /s/ Stephen Gordon
---------------------------
Stephen Gordon
Chief Financial Officer
HOME AND COMMUNITY CARE, INC.
By: /s/ Andre Dimitriadis
---------------------------
Andre Dimitriadis
Chairman of the Board
S-1
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
HCI MERGER, INC.
A NEVADA CORPORATION
INTO
HOME AND COMMUNITY CARE, INC.,
A NEVADA CORPORATION
The undersigned, as the President and Secretary of Home and Community
Care, Inc., a Nevada corporation (the "Surviving Constituent Entity"), and of
HCI Merger, Inc., a Nevada corporation (the "Merged Constituent Entity" and,
together with the "Surviving Constituent Entity", the "Constituent Entities"),
as and for the purpose of complying with the provisions of Nevada Revised
Statutes ("NRS") 92A.005 et seq., and in order to effectuate the merger of the
Merged Constituent Entity into the Surviving Constituent Entity (the "Merger"),
hereby certify as follows:
1. The jurisdiction of organization of each Constituent Entity is the
State of Nevada.
2. A plan of merger (the "Plan of Merger") has been adopted by the
Board of Directors of each Constituent Entity. The Plan of Merger has been
approved by the sole stockholder of the Merged Constituent Entity. Pursuant to
NRS Chapter 92A and the Surviving Constituent Entity's Articles of Incorporation
and Bylaws, the Plan of Merger was submitted to the holders of the Surviving
Constituent Entity's issued and outstanding common stock entitled to vote
("Voting Stock"), a majority thereof (___ of ____ shares of Voting Stock) were
required to approve and did approve the Plan of Merger, and such majority vote
of the voting Stock was sufficient for approval of the Plan of Merger by the
stockholders of the Surviving Constituent Entity.
3. The Articles of Incorporation of the Surviving Constituent Entity
have not been and will not be amended in connection with the Merger.
4. A complete executed Plan of Merger is on file at the registered
office of the Surviving Constituent Entity, currently: 300 Esplanade Drive,
Suite 1880, Oxnard, California 93030.
5. A copy of the Plan of Merger will be furnished by the Surviving
Constituent Entity on request and without any cost to any stockholder of either
Constituent Entity.
6. The effective date of the Merger is the date upon which these
Articles of Merger are filed in the office of the Secretary of State of Nevada.
<PAGE>
IN WITNESS WHEREOF, we have set forth our hands as of the ___ day of
_____________, 1997.
Surviving Constituent Entity
HOME AND COMMUNITY CARE, INC., a
Nevada corporation
_____________________________________
William McBride III, President
_____________________________________
James J. Pieczynski, Secretary
Merged Constituent Entity
HCI MERGER, INC., a Nevada corporation
_____________________________________
Keren Brown Wilson, President
_____________________________________
Stephen Gordon, Secretary
<PAGE>
State of ___________________)
)
County of __________________)
This instrument was acknowledged before me on ____________, 1997 by
William McBride III, as President of Home and Community Care, Inc., a Nevada
corporation.
_____________________________________
Notary Public
State of ____________________)
) ss.
County of ___________________)
This instrument was acknowledged before me on _______________, 1997 by
Keren Brown Wilson, as President of HCI Merger, Inc., a Nevada corporation.
_____________________________________
Notary Public
<PAGE>
EXHIBIT "B"
EXCHANGE CERTIFICATE
FOR
COMMON STOCK OF HOME AND COMMUNITY CARE, INC.
I, (name of shareholder) , in accordance with that
--------------------------------------
Agreement and Plan of Merger and Reorganization By and Between Assisted Living
Concepts, Inc., a Nevada corporation, and Home and Community Care, Inc., a
Nevada corporation, dated October 4, 1997, ("the Merger Agreement"), hereby
certify that:
1. I am in receipt of a copy of the Merger Agreement.
2. I am the sole and absolute owner of (no. of shares) shares of
-------------------
common stock of Home and Community Care, Inc., ("HCI"), a Nevada corporation.
3. These shares of stock are represented by certificate no(s). ____
issued by HCI and such certificate(s) is/are attached hereto and hereby
surrendered in exchange for the Merger Consideration (as such term is defined at
section 1.4(a) of the Merger Agreement) as contemplated by Article II of the
Merger Agreement.
4. I have the sole and exclusive right to sell and transfer these
shares of stock.
5. The shares of stock are fully paid and nonassessable and are not
subject to any liens, mortgages or other encumbrances or claims of any kind or
nature and are surrendered free and clear of any liens, mortgages, or
encumbrances.
6. My current mailing address is :
-------------------------------------
-------------------------------------
-------------------------------------
7. All payments, notices, and correspondence from Assisted Living
Concepts, Inc. ("ALC"), in connection with the Merger Agreement, should be
delivered at the address noted above, unless I notify ALC in writing of a new
mailing address.
8. I acknowledge and agree that, in accordance with the terms of the
Merger Agreement, the vote or written consent of a majority of the Former HCI
Shareholders (as such term is defined at section 2.3(a) of the Merger Agreement)
shall be required before the terms of the Merger Agreement may be amended or
before the Merger Agreement or any of the
<PAGE>
rights, interests or obligations of ALC under the Merger Agreement may be
assigned, and, if such a majority of the Former HCI Shareholders so vote or
consent, such vote or consent shall be binding on me or my assignee.
9. I further acknowledge and agree that all notices and other
communication to ALC shall be delivered to ALC at the following address, unless
ALC notifies me in writing of a new mailing address, and that all such notices
or communications must specifically identify the Merger Agreement:
Chief Financial Officer
Assisted Living Concepts, Inc.
9955 S.E. Washington
Suite 201
Portland, Oregon 97216
Attn: Former HCI Shareholder Obligations
with a copy to:
Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 S.W. 5th Avenue
Portland, Oregon 97204
Attn: Sandra Campbell, Esq.
10. This certificate shall be binding upon any successor-in-interest,
including my heirs, personal representatives, agents and assignees.
DATED this _________ day of ____________________, 19___.
By: ________________________________
Name: (Print)
------------------------------
2
<PAGE>
EXHIBIT 10.9
October 3, 1997
Assisted Living Concepts, Inc.
9955 S. E. Washington, Suite 201
Portland, OR 97216
Attention: Ms. Keren Brown Wilson, Chief Executive Officer
RE: AGREEMENT TO PURCHASE AND LEASE ASSISTED LIVING RESIDENCES
Dear Ms. Wilson:
LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees,
either itself or through its subsidiary or affiliate, and subject to the
parameters outlined in this letter, to enter into sale/leaseback transactions
with Assisted Living Concepts, Inc. ("ALC") with respect to certain properties
(each individually a "Property" and collectively, the "Properties") improved
with assisted living facilities (each a "Facility" and collectively, the
"Facilities"), which Properties and Facilities are located in those cities and
states more particularly set forth in Exhibit "A" attached hereto and made a
part hereof.
As we have previously discussed, ALC will sell and assign all of its right,
title and interest in and to all real and personal property and fixtures
comprising the Properties to LTC, and LTC or its designee will purchase the
Properties from ALC and will lease the Properties back to ALC, all upon the
following terms and conditions:
1. PURCHASE PRICE. With respect to the purchase of each individual
--------------
Property, LTC shall pay ALC a purchase price (the "Specific Property Purchase
Price") equal to the lesser of (i) ALC's total hard and soft construction costs
in connection with the construction of the Facility on the Property, but in no
event exceeding Seventy Thousand Dollars ($70,000.00) (except for any Property
located in the State of New Jersey, in which case the figure shall be Seventy-
Five Thousand Dollars ($75,000.00)) per assisted living unit in the Facility
constructed on the Property, or (ii) the amount set forth as the purchase price
on Exhibit "A" attached hereto corresponding to the applicable Property which
amount in each case is EXCLUSIVE of the Specific Property Purchase Price
(defined above); provided, however, that in no event shall the total, cumulative
purchase price for all of the Properties be greater than Twenty Million Four
Hundred Forty Thousand Dollars ($20,440,000.00) EXCLUSIVE of the Specific
Property Purchase Price (definedabove) (the "Total Purchase Price"). The
Specific Property Purchase Price shall be paid in all cash at Closing with
respect to each Property.
<PAGE>
Ms. Keren Brown Wilson
Assited Living Concepts, Inc.
October 3, 1997
Page 2
In addition to the Specific Property Purchase Price with respect to a
Property, at ALC's option, LTC shall be obligated to pay to ALC, or its
designee, for each Facility on a Property, up to One Hundred Fifty Thousand
Dollars ($150,000.00) of losses incurred by ALC in the stabilization period of
the Facility incurred either (i) by ALC, or (ii) by a third party pursuant to a
participation or other agreement with ALC (the "Stabilization Period Losses").
LTC shall be obligated to pay to ALC, or its designee, the Stabilization Period
Losses at Closing with respect to each Property if the amount of the
Stabilization Period Losses is ascertainable at such time. To the extent that
the amount of the Stabilization Period Losses is not ascertainable at the time
of LTC's purchase of a Property, LTC shall remain obligated to pay to ALC, or
its designee, the Stabilization Period Losses at such time as the amount of the
Stabilization Period Losses becomes ascertainable; provided, further, that as a
pre-condition to LTC's obligation to disburse any such amount to ALC, or its
designee, LTC shall cause to be prepared at ALC's expense, and ALC shall
execute, an amendment to its lease (a) increasing the initial annual minimum
rental amount thereunder by an amount equal to of the sum of the Stabilization
Period Losses multiplied by the then applicable lease rate, and (b) to the
extent payment of the Stabilization Period Losses is made to ALC's designee,
acknowledging the benefit ALC has received in consideration of such rental
increase.
2. CONTINGENCIES.
-------------
(a) LTC's obligation to purchase the Properties and to consummate the
transactions contemplated in this commitment letter shall be expressly
contingent upon each of the following:
(i) LTC shall have approved the marketing study and feasibility
report prepared by Concepts in Community Living, Inc. ("CCL"), or
another consultant entirely acceptable to LTC, on behalf of ALC
with respect to each of the Properties;
(ii) the state of title to each of the Properties must be
acceptable to LTC in LTC's reasonable discretion, and LTC shall
have received an ALTA Owner's Policy of Title Insurance -
Extended Coverage - for each Property issued by Chicago Title
Insurance Company showing the fee interest in each Property
vested in LTC subject only to those exceptions specifically
agreed to in writing by LTC, and containing those endorsements
reasonably required by LTC;
(iii) LTC shall have received an ALTA/ACSM Land Title Survey of
the applicable Property and the improvements located thereon
prepared by a registered professional land surveyor satisfactory
to LTC in the reasonable exercise of LTC's discretion and
certified, as of date not earlier
<PAGE>
Ms. Keren Brown Wilson
Assited Living Concepts, Inc.
October 3, 1997
Page 3
than 120 days prior to the closing date, to LTC, Chicago Title
Insurance Company and any other party reasonable designated by
LTC with the signature and seal of the surveyor and the following
language:
"This is to certify that this map or plat and the survey on which
it is based were made (i) in accordance with "Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys," jointly
established and adopted by ALTA and ACSM in 1992, and includes
Item Nos. 1-3, 6 (setback only) and 8-11 in Table A thereof; and
(ii) pursuant to the Accuracy Standards (as adopted by ALTA and
ACSM and in effect on the date of this certification) of an Urban
Survey."
The survey shall show all easements, encroachments, building
restriction lines, set backs and other similar matters affecting
and/or apparent on the Property and the relation of the Property
to public thoroughfares for access purposes. The survey shall
also certify that the Property is or is not in a flood hazard
area for purposes of the national Flood Insurance Program, and if
so, shall specify the flood zone designation assigned to the
Property; provided, however, that if ALC's surveyor for any
reason cannot or will not provide such flood zone information,
ALC shall be entitled to, and shall, provide such information to
LTC from another source acceptable to LTC in the reasonable
exercise of LTC's discretion . The survey shall be dated on or
after substantial completion of the construction of the Facility
on each Property. In addition, the record legal description of
each Property must appear on the survey of that Property, and any
record easements or servitudes and covenants affecting each
Property which are capable of being plotted must be plotted
thereon;
(iv) LTC shall have received a Phase I environmental assessment
of each of the Properties in form and content, and performed by
an environmental consultant, entirely acceptable to LTC in LTC's
reasonable discretion;
(v) LTC shall have received UCC lien, tax lien and judgment lien
searches dated after the date of substantial completion of the
Facility on each Property evidencing that no liens exist as to
the personal property located on each Property other than those
liens previously approved in writing by LTC;
<PAGE>
Ms. Keren Brown Wilson
Assited Living Concepts, Inc.
October 3, 1997
Page 4
(vi) LTC shall be satisfied with the physical condition of the
Facilities located on the Properties based on a physical
inspection of each Property by LTC;
(vii) LTC shall have received evidence acceptable to LTC that
each of the Properties is properly zoned for use as an assisted
living facility;
(viii) LTC shall have received a corporate resolution of ALC's
board of directors authorizing ALC to enter into, deliver and
perform all of the documents and instruments necessary to effect
the sale/leaseback transactions contemplated in this commitment
letter;
(ix) LTC shall have received a copy of the certificate of
occupancy with respect to each Property and a copy of ALC's
license to operate the Facility located on each Property as a
fully-licensed assisted living facility in the state in which the
Facility is located, and having not less than the number of units
in each Facility specified for each Property on Exhibit "A"
hereof;
(x) ALC shall have obtained all approvals and consents
required to enable ALC to consummate the sale/leaseback
transaction with respect to each Property without breaching or
defaulting under any contracts, agreements or other documents or
instruments by which ALC is bound; and
(xi) LTC, at its option, shall have conducted with respect to
each Property, and be satisfied with the results of, such other
standard due diligence as is customarily performed by LTC in
connection with the acquisition of a fee interest in a property
improved with an assisted living facility.
3. TERM; CROSS-DEFAULTING. Each lease shall have an initial
----- -----------------
term of twelve (12) years. ALC and LTC contemplate that LTC will acquire the
Properties, and lease them back to ALC, its subsidiary or affiliate, at such
time as the construction of the Facility on each Property is completed, the
certificate of occupancy and operator's license with respect thereto issued and
all other pre-conditions to Closing have been met with respect to each Property.
As a result, the parties anticipate that the Properties will not all be acquired
by LTC at one time, and ALC's obligation to pay Minimum Rent and other charges
under each lease will commence concurrently with LTC's acquisition of the
Property to which the lease relates. The lease with respect to each Property
shall group the Property with three (3) other properties owned (or to be owned)
by LTC
<PAGE>
Ms. Keren Brown Wilson
Assited Living Concepts, Inc.
October 3, 1997
Page 5
and leased (or to be leased) to ALC, its subsidiary or affiliate, each such
group of four (4) or more Properties hereinafter being referred to as a
"Package," and all of the Properties to be included in a Package shall be
identified to LTC by not later than the date of the closing of the first
Property in the Package to be acquired by LTC; provided, however, that if ALC
has not identified the Properties in each Package to LTC by such time, LTC shall
have the right, but not the obligation, then or at any time thereafter, to
determine which Properties shall be included within the Package selecting only
from Properties set forth on Exhibit "A" hereof.
ALC shall have two consecutive five-year options to extend the term of
all of the leases within each Package; that is, ALC shall only have the option
- ---
to extend the term of any of the leases in a Package so long as ALC exercises
its option to extend the term of all of the leases in a Package. In addition,
the leases for all of the Properties in each Package shall be co-terminus with
all of the other leases in that Package, but will not be co-terminus with the
leases in the other Packages. Notwithstanding the foregoing, the leases for
each of the Properties shall be cross-defaulted with (i) each lease for each of
the other Properties (irrespective of which Package the Properties are in), and
(ii) every other lease between LTC and ALC (including without limitation any
leases between LTC, on the one hand, and Home and Community Care, Inc. and/or
Carriage House Assisted Living, Inc., on the other hand, if and when either of
said entities (or the assets thereof) is acquired by ALC) with respect to any
Facility, except for those five (5) leases relating to those certain five (5)
assisted living properties in the State of Washington commonly known as:
Chenoweth House, Kennewick, WA; Pioneer House, Walla Walla, WA; Orchard House,
Grandview, WA; Lexington House, Vancouver, WA: and Mountain View House, Camas,
WA. In addition to the foregoing, if a default is declared and not cured within
thirty (30) days on any of ALC's major (that is, $5,000,000 or more) loans or
lines of credit, or if such loan or line of credit is accelerated or the lender
thereunder takes any action to enforce the same, then LTC shall have the right,
but not the obligation, also to declare a default under each of the leases
entered into hereunder.
4. MINIMUM RENT. The initial annual Minimum Rent for the first
------------
year of each lease shall be an amount equal to the sum of the Specific Property
Purchase Price and the Stabilization Period Losses (to the extent then
ascertainable) paid by LTC (or its designee) for each Property multiplied by
nine and ninety-five hundredths percent (9.95%). ALC shall pay an amount equal
to one-twelfth (1/12) of the annual Minimum Rent applicable to each Property on
the first day of each and every month during the term of the leases without
demand, abatement (except as specifically set forth in the leases with respect
to a partial condemnation of a Property), set-off or notice. Commencing on the
first anniversary of the rent commencement date for each lease (the "Anniversary
Date"), and continuing thereafter on each subsequent Anniversary Date during the
initial term and each option term of each lease, the Minimum Rent applicable to
each lease shall be increased in accordance with the terms and provisions
attached hereto as Exhibit "B."
<PAGE>
Ms. Keren Brown Wilson
Assited Living Concepts, Inc.
October 3, 1997
Page 6
5. RENT DURING OPTION PERIODS. The initial Minimum Rent for the first
--------------------------
of the option terms for each lease shall be the higher of: (i) the previous
year's Minimum Rent amount increased in accordance with the terms and provisions
attached hereto as Exhibit "B"; or (ii) an amount equal to the initial Minimum
Rent payable in the first twelve (12) months of the initial term of the lease
adjusted by the cumulative increase in the Consumer Price Index, U.S. Cities
Average, All Items (1982-84=100) published by the United States Department of
Labor, Bureau of Labor Statistics in accordance with the manner presently
calculated (the "CPI") from the commencement date of the applicable lease to the
date on which the new Minimum Rent is being determined. The initial Minimum Rent
for the second of the option terms for each lease shall be the higher of: (i)
the previous year's Minimum Rent amount increased in accordance with the terms
and provisions attached hereto as Exhibit "B"; (ii) an amount equal to the
initial Minimum Rent payable in the first twelve (12) months of the first option
term of the lease adjusted by the cumulative increase in the CPI from the
commencement date of the applicable lease to the date on which the new Minimum
Rent is being determined; or (iii) the fair market value rent as determined by
an independent appraisal process.
6. TRIPLE NET LEASE. ALC shall be responsible for all costs
----------------
associated with the operation of the Facilities located on the Properties,
including, but not limited to, property and other taxes, utilities, insurance
premiums and costs to maintain the Facilities in good condition and repair,
reasonable wear and tear excepted (collectively "Additional Charges"). Taxes
shall include any and all taxes of any kind associated with the real or personal
property constituting the Facilities, including, but not limited to, taxes
attributable to any period prior to acquisition of the Properties by LTC (or its
designee) with the exception of any transfer taxes owing in connection with any
subsequent transfer of any of the Properties by LTC to a third party.
7. REPAIR AND MAINTENANCE. ALC shall be responsible for completing
----------------------
any and all work necessary to maintain each Facility located on the Properties
as an assisted living residence in good condition and repair, reasonable wear
and tear excepted. In addition, at ALC's sole cost and expense, ALC shall
complete all applications, give all notices and obtain and maintain all
licenses, permits and approvals necessary or desirable to allow ALC to operate
the Facilities located on the Properties in accordance with all legal and
regulatory requirements.
8. CLOSING. Closing with respect to both Packages of the Properties
-------
shall occur not later than December 31, 1997. The Closing with respect to each
Property shall be deemed to have occurred upon recordation of the Warranty Deed
conveying the Property to LTC, payment of the Specific Property Purchase Price
and the Stabilization Period Losses (to the extent then ascertainable) with
respect thereto, and full execution and delivery of the lease between LTC and
ALC with respect thereto.
9. INDEMNITY. The lease with respect to each Property shall provide
---------
that ALC shall fully indemnify, defend, protect and hold LTC harmless from and
against any and all costs,
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 7
losses, expenses, judgments, claims, fees (including reasonable attorneys' fees
and costs) or damages of any kind or nature whatsoever arising from or relating
to the Facilities located on the Properties and the operation thereof,
including, but not limited to, all matters relating to (i) the presence of
hazardous substances located on the Properties, (ii) compliance with or failure
to comply with the provisions of the federal Americans with Disabilities Act,
(iii) compliance with or failure to comply with the provisions of the Fair
Housing Amendments Act of 1988; (iv) compliance with or failure to comply with
the provisions of Section 8 of the United States Housing Act of 1937, as
amended, and any and all other matters whatsoever relating to the Properties,
the Facilities located thereon and the operation thereof.
10. ASSIGNMENT AND SUBLETTING. ALC shall not be entitled to sublet any
-------------------------
portion of any of the Properties, or assign any one or more of the leases,
without the prior written consent of LTC, which consent shall not be given by
LTC unless in connection with the subletting and/or assignment, ALC will remain
primarily liable for all obligations under the applicable lease or leases.
Notwithstanding the foregoing provisions of this Paragraph 10, ALC shall be
entitled, at any time without first obtaining the consent of LTC, to (i) assign
any one or more of the leases to a wholly-owned subsidiary of ALC so long as
ALC, concurrently with such assignment, delivers to LTC a first-loss full
guaranty of such subsidiary's obligations under the assigned lease(s) in form
and substance acceptable to LTC in LTC's reasonable discretion, and (ii)
sublease up to the greater of (A) 2,000 square feet, or (B) ten percent (10%) of
the total square footage of the applicable Facility in any one or more of the
Facilities located on the Properties to, any person or entity providing any
services related or ancillary to the operation of the Facilities, or in
connection with the provision of home health services both within and outside
the Facilities.
11. CLOSING COSTS. Concurrently with the Closing of LTC's purchase of
-------------
each of the Properties, ALC shall pay out of the proceeds of the Closing any
and all Closing costs in connection with the Closing, including but not limited
to all of LTC's attorneys' fees (which shall be Four Thousand Seven Hundred
Fifty Dollars ($4,750.00) for each of the Properties) plus attorneys' expenses,
recording fees, title fees, state and local transfer, mortgage or excise taxes
in connection with the transfer of title, LTC's out-of-pocket costs in
connection with the transaction and any and all other fees and costs in any way
associated with LTC's purchase of the fee interest in each Property and the
leases between LTC and ALC with respect to the Properties. Upon ALC's request,
LTC shall instruct its attorneys to prepare closing binders for ALC and its
counsel with respect to each sale/leaseback transaction, and ALC shall be
responsible for paying the actual cost of producing and shipping said closing
binders.
12. PHYSICAL INSPECTION. As a precondition to LTC's obligations under
-------------------
this commitment letter to acquire the Properties, LTC shall have the right to
conduct a physical inspection of each Facility on each Property, and LTC must be
satisfied with the physical condition of each of the Properties after completion
of the construction of the Facilities thereon, in LTC's reasonable discretion.
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 8
13. GOVERNING LAW. This commitment letter shall be governed by and
-------------
interpreted under the internal laws of the State of California without resort to
choice of law principles.
14. COMMITMENT FEE. Upon acceptance of this commitment, ALC shall pay to
--------------
LTC a commitment fee relating to the transactions contemplated herein in an
amount equal to one percent (1.0%) of the Total Purchase Price, that is, the sum
of Two Hundred Four Thousand Four Hundred Dollars ($204,400.00) (the "Commitment
Fee"). The Commitment Fee shall be paid to LTC as follows: concurrently with the
full execution of this commitment letter, ALC shall deliver to LTC a promissory
note in the original principal amount of Two Hundred Four Thousand Four Hundred
Dollars ($204,400.00) made by, and with full recourse to, ALC and payable to LTC
(the "Commitment Fee Note"). The Commitment Fee Note shall bear no interest
(except in the event of a default thereunder beyond applicable cure periods) and
shall have a maturity date of January 1,, 1998. A portion of the Commitment Fee
equal to one percent (1%) of the Specific Property Purchase Price for each
Property approved by LTC shall be refundable to ALC on the date on which the
applicable sale/leaseback transaction closes. Accordingly, on the date of each
such closing, the amount owing by ALC under the Commitment Fee Note shall be
reduced by an amount equal to one percent (1%) of the applicable Specific
Property Purchase Price. So long as on or before December 31, 1997 LTC and ALC
have closed sale/leaseback transactions hereunder such that the combined
Specific Property Purchase Prices of all such Properties is equal or greater
than Twenty Million Four Hundred Forty Thousand Dollars ($20,440,000.00), then
the Commitment Fee will be fully refunded to ALC, and LTC shall return the
original Commitment Fee Note to ALC marked "canceled."
SINCE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL
DAMAGES WHICH WOULD BE SUFFERED BY LTC IN THE EVENT ALC DEFAULTS UNDER THE TERMS
OF THIS COMMITMENT LETTER AND AS A RESULT OF SAID DEFAULT FAILS TO CLOSE THE
OVERALL TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER BY DECEMBER 31,
1997, AND SO LONG AS LTC IS NOT ALSO IN DEFAULT OF THIS COMMITMENT LETTER AS A
RESULT OF WHICH DEFAULT LTC HAS FAILED TO CLOSE ALL OR ANY PORTION OF THE
TRANSACTIONS CONTEMPLATED HEREIN, THEN IN SUCH EVENT, LTC SHALL BE ENTITLED TO
ENFORCE THE COMMITMENT FEE NOTE IN SUCH AMOUNTS AS HAVE NOT PREVIOUSLY BEEN
REFUNDED, AND TO RETAIN THE AMOUNT COLLECTED AS LIQUIDATED DAMAGES FOR THE TIME,
EFFORT AND EXPENSES INCURRED BY LTC IN CONNECTION WITH THE OVERALL TRANSACTIONS
CONTEMPLATED HEREIN, AND ALC SHALL ALSO BE OBLIGATED TO PAY LTC'S LEGAL FEES AND
EXPENSES, TO THE EXTENT NOT PREVIOUSLY PAID, IN CONNECTION WITH THE TRANSACTIONS
OF UP TO FOUR THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($4,750.00) FOR EACH OVERALL
TRANSACTION WITH
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 9
RESPECT TO EACH PROPERTY ON WHICH LTC HAS COMMENCED ANY LEGAL WORK. ONCE LTC HAS
RECEIVED PAYMENT IN FULL OF ALL AMOUNTS REQUIRED TO BE PAID PURSUANT TO THIS
PARAGRAPH 14 AND UNDER THE COMMITMENT FEE NOTE, THEN THE PARTIES TO THIS
COMMITMENT THEREAFTER SHALL HAVE NO FURTHER RIGHTS OR OBLIGATIONS TO ONE ANOTHER
HEREUNDER OF ANY KIND OR NATURE WHATSOEVER.
IN THE EVENT THAT LTC FAILS TO CLOSE THE TRANSACTIONS CONTEMPLATED IN THIS
COMMITMENT LETTER UPON TERMS CONSISTENT WITH THOSE PROVIDED HEREIN, AS A SOLE
RESULT OF LTC'S BREACH OF ITS OBLIGATIONS HEREUNDER, THE SOLE OBLIGATION OF LTC
SHALL BE TO RETURN THE ORIGINAL COMMITMENT FEE NOTE TO ALC, AND THE PARTIES
HERETO SHALL THEREAFTER HAVE NO FURTHER OBLIGATIONS OR LIABILITIES TO ONE
ANOTHER OF ANY KIND OR NATURE WHATSOEVER.
Initials: LTC Properties, Inc. ______ Assisted Living Concepts,
Inc. ______
15. ALC'S ACCEPTANCE. ALC must indicate its acceptance of the terms and
----------------
conditions of this commitment by affixing its signature below. Unless LTC
receives this accepted commitment in its Oxnard, California office on or prior
to the fifth (5th) business day following the date of this letter, the terms
hereof shall be null and void, and LTC shall not have any obligations or
liabilities to ALC of any kind or nature whatsoever. This commitment shall
become effective only upon acceptance by LTC evidenced by the affixation of
LTC's signature hereto.
16. FACSIMILE EXECUTION BINDING. The parties hereto specifically agree
---------------------------
that this commitment letter may be executed by facsimile, and that facsimile
signatures hereon shall be binding on the parties hereto as though they were
original signatures.
17. FINAL AND ENTIRE AGREEMENT. This commitment letter and the exhibits
--------------------------
attached hereto represent the final and entire agreement between the parties in
connection with the transaction contemplated hereby and the subject matter
hereof. This commitment letter and the exhibits attached hereto supersede and
replace all prior and contemporaneous agreements, understandings and
communications between the parties, whether oral or written, with regard to the
subject matter hereof. There are no oral or written agreements, representations
or inducements of any kind existing between the parties relating to the
transactions contemplated in this commitment letter which are not expressly set
forth herein. This commitment letter may not be modified except by a written
agreement signed by LTC's Chief Executive Officer and ALC.
18. BINDING EFFECT. This commitment letter shall be binding upon and
--------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however,
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 10
that ALC shall not have the right to assign this commitment letter to any other
person or entity without the prior written consent of LTC, which consent may be
given or withheld by LTC in its sole discretion; further provided, however, that
notwithstanding the foregoing, in the event that ALC wishes to assign this
commitment letter to a wholly-owned subsidiary of ALC having a tangible net
worth in excess of $10,000,000 and a debt to equity ratio of no greater than
2.00 to 1.00 and so long as ALC concurrently guaranties payment of the
Commitment Fee Note to LTC, then ALC shall have the right to do so without
having first obtained LTC's consent thereto.
19. WAIVER. No waiver by any party at any time of any breach of any
------
provision of this commitment letter shall be deemed a waiver of a breach of any
other provision herein or a consent to any subsequent breach of the same or
another provision. If any action by any party shall require the consent or
approval of the other party, such consent or approval of such action on any one
occasion shall not be deemed a consent to or approval of such action on any
subsequent occasion or a consent to or approval of any other action.
20. CAPTIONS AND HEADINGS. The captions and paragraph numbers appearing
---------------------
in this commitment letter are for convenience and ease of reference only, and do
not define, limit, construe or describe the scope or intent of this commitment
letter.
21. COUNTERPART EXECUTION. This commitment letter may be executed in
---------------------
counterparts, each of which shall be considered an original and all of which
taken together shall constitute one and the same instrument.
22. ATTORNEYS' FEES. If either party to this commitment letter brings an
---------------
action or proceeding to enforce the terms hereof or declare rights hereunder,
the prevailing party in any such action or proceeding, on trial or appeal, shall
be entitled to its reasonable attorneys' fees to be paid by the losing party as
fixed by the court of jurisdiction.
23. TIME OF ESSENCE. Time is of the essence with respect to all matters
---------------
contained in this commitment letter.
24. DRAFTING OF AGREEMENT. The parties to this commitment letter
---------------------
acknowledge that this commitment letter has been negotiated at arms length, that
each party has been represented by independent counsel and that this commitment
letter has been drafted by both parties and no one party shall be construed as
the draftsperson.
25. SURVIVAL. This commitment letter shall survive, and the covenants,
--------
conditions and terms set forth herein shall continue, until the earlier of (i)
December 31, 1997, at which time this commitment letter shall immediately and
automatically expire, or (ii) the date on which the sale of all of the
Properties from ALC to LTC and the leases of all of the Properties from LTC to
ALC have been consummated.
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 11
Please understand that, subject to the contingencies set forth above, this
letter constitutes the commitment of ALC and LTC to enter into the
sale/leaseback transactions described herein on the terms set forth above.
Very truly yours,
LTC PROPERTIES, INC.,
a Maryland corporation
/s/Andre C. Dimitriadis
------------------------------------
ANDRE C. DIMITRIADIS,
Chairman and Chief Executive Officer
READ AND AGREED:
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By: /s/Stephen Gordon
-------------------------
Its: Chief Financial Officer
------------------------
<PAGE>
EXHIBIT 10.10
October 3, 1997
Assisted Living Concepts, Inc.
9955 S. E. Washington, Suite 201
Portland, OR 97216
Attention: Ms. Keren Brown Wilson, Chief Executive Officer
RE: AGREEMENT TO PURCHASE AND LEASE ASSISTED LIVING RESIDENCES
Dear Ms. Wilson:
LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees,
either itself or through its subsidiary or affiliate, and subject to the
parameters outlined in this letter, to enter into sale/leaseback transactions
with Assisted Living Concepts, Inc. ("ALC") with respect to certain properties
the precise identity of which shall be determined as set forth herein (each
individually a "Property" and collectively, the "Properties"), and each of which
Properties shall be improved with an assisted living facility (each a "Facility"
and collectively, the "Facilities"). The total cumulative purchase price to be
paid by LTC to ALC for the Properties and the Facilities shall be not less than
Fifty Million Dollars ($50,000,000.00) (the "Total Purchase Price").
As we have previously discussed, ALC will sell and assign all of its right,
title and interest in and to all real and personal property and fixtures
comprising the Properties to LTC, and LTC or its designee will purchase the
Properties from ALC and will lease the Properties back to ALC, all upon the
following terms and conditions:
1. PURCHASE PRICE. LTC shall pay ALC the Total Purchase Price in
--------------
connection with the purchase of all of the Properties. Once LTC has purchased
such a number of the Properties that LTC has spent an amount equal to the Total
Purchase Price (or an amount such that LTC cannot purchase another one of the
Properties without exceeding the Total Purchase Price), then LTC thereafter
shall not be obligated to purchase any more of the Properties. With respect to
the purchase of each individual Property, LTC shall pay ALC a purchase price
equal to ALC's total hard and soft construction costs (that is, soft costs
related directly to acquisition of the Properties and construction of the
Facilities thereon, but not soft costs in connection with any other properties
or facilities developed, constructed, owned and/or operated by ALC) in
connection with construction of the Facility on the Property, but in no event
exceeding Seventy Thousand Dollars ($70,000.00) (except for any Property located
in the State of New Jersey, in which case the figure shall be Seventy-Five
Thousand Dollars ($75,000.00)) per assisted living unit in the
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 2
Facility constructed on the Property (the "Specific Property Purchase Price").
The Specific Property Purchase Price shall be paid in all cash at Closing with
respect to each Property.
In addition to the Specific Property Purchase Price with respect to a
Property, at ALC's option, LTC shall be obligated to pay to ALC, or its
designee, for each Facility on a Property, up to One Hundred Fifty Thousand
Dollars ($150,000.00) of losses incurred by ALC in the stabilization period of
the Facility incurred either (i) by ALC, or (ii) by a third party pursuant to a
participation or other agreement with ALC (the "Stabilization Period Losses").
LTC shall be obligated to pay to ALC, or its designee, the Stabilization Period
Losses at Closing with respect to each Property if the amount of the
Stabilization Period Losses is ascertainable at such time. To the extent that
the amount of the Stabilization Period Losses is not ascertainable at the time
of LTC's purchase of any Property, LTC shall remain obligated to pay to ALC, or
its designee, the Stabilization Period Losses at such time as the amount of the
Stabilization Period Losses becomes ascertainable; provided, further, that as a
pre-condition to LTC's obligation to disburse any such amount to ALC, or its
designee, LTC shall cause to be prepared at ALC's expense, and ALC shall
execute, an amendment to its lease (a) increasing the initial annual minimum
rental amount thereunder by a percentage of the amount of the Stabilization
Period Losses, which percentage shall equal the then existing lease rate
determined in accordance with the provisions of Paragraph 6 hereof, and (b) to
the extent payment of the Stabilization Period Losses is made to ALC's designee,
acknowledging the benefit ALC has received in consideration of such rental
increase.
2. EFFECTIVE DATE. Notwithstanding the present execution and delivery of
--------------
this commitment letter and the intention of the parties that this commitment
letter shall be immediately binding upon the parties hereto, no transactions
under the terms of this commitment letter shall be commenced until on or after
January 1, 1998.
3. DETERMINATION OF PROPERTIES; PROPERTY APPLICATION MATERIALS. The
-----------------------------------------------------------
determination of which assisted living properties shall become Properties
subject to this commitment letter shall be made by LTC in its sole discretion
based upon materials supplied by ALC. LTC shall commence its evaluation of each
Property submitted by ALC for approval at such time as LTC has received all of
the following (collectively, the "Property Application Materials") from ALC:
(i) a copy of the market and feasibility study for the applicable Property
prepared by a consultant entirely acceptable to LTC; (ii) ALC's proposed
Specific Property Purchase Price and Stabilization Period Losses (to the extent
then ascertainable) for the applicable property, including a detailed breakdown
of the hard and soft construction costs comprising the Specific Property
Purchase Price and of the Stabilization Period Losses (to the extent then
ascertainable); (iii) a copy of the geotechnical report with respect to the
Property; (iv) a copy of a Phase I environmental site inspection report with
respect to the Property dated no more than four (4) months prior to the date of
submission to LTC and prepared by an
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 3
environmental consultant entirely acceptable to LTC; (v) a budget for operation
of the assisted living facility on the Property for the first twenty-four (24)
full months of operation; (vi) a copy of ALC's final, unconditional certificate
of occupancy (or other similar license or permit) with respect to the assisted
living facility located on the Property; and (vii) a copy of ALC's unconditional
license to operate the assisted living facility located on the Property. Once
all Property Application Materials have been received by LTC, LTC shall
determine within five (5) business days whether LTC will accept the applicable
property as one of the Properties subject to this commitment letter.
4. CONTINGENCIES.
-------------
(a) LTC's obligation to purchase the Properties and to consummate the
transactions contemplated in this commitment letter shall be expressly
contingent upon each of the following:
(i) LTC shall have approved the marketing study and feasibility
report prepared by Concepts In Community Living, Inc.
("CCL"), or another consultant entirely acceptable to LTC,
on or on behalf of ALC with respect to each of the
Properties;
(ii) the state of title to each of the Properties must be
acceptable to LTC in LTC's reasonable discretion, and LTC
shall have received an ALTA Owner's Policy of Title
Insurance - Extended Coverage - for each Property issued by
Chicago Title Insurance Company showing the fee interest in
each Property vested in LTC subject only to those exceptions
specifically agreed to in writing by LTC, and containing
those endorsements reasonably required by LTC;
(iii) LTC shall have received an ALTA/ACSM Land Title Survey of
the applicable Property and the improvements located thereon
prepared by a registered professional land surveyor
reasonably satisfactory to LTC certified as of a date not
earlier than 120 days prior to the closing date to LTC,
Chicago Title and any other party reasonably designated by
LTC with the signature and seal of the surveyor and the
following language:
"This is to certify that this map or plat and the survey on
which it is based were made (i) in accordance with "Minimum
Standard Detail Requirements for ALTA/ACSM Land Title
Surveys, " jointly established and adopted by ALTA and ACSM
in 1992, and includes
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 4
Item Nos. 1-3, 6 (setback only), and 8-11 in Table A
thereof; and (ii) pursuant to the Accuracy Standards (as
adopted by ALTA and ACSM and in effect on the date of this
certification) of an Urban Survey."
The Survey shall show all easements, encroachments, building
restriction lines, set backs and other similar matters
affecting and/or apparent on the Property and the relation
of the Property to public thoroughfares for access purposes.
The survey shall also certify that the Property is or is not
in a flood hazard area for purposes of the national Flood
Insurance Program, and if so, shall specify the flood zone
designation assigned to the Property; provided, however,
that if ALC's surveyor for any reason cannot or will not
provide such flood zone information, ALC shall be entitled
to, and shall, provide such information to LTC from another
source acceptable to LTC in the reasonable exercise of LTC's
discretion.
The survey shall be dated on or after substantial completion
of the construction of the Facility on each Property. In
addition, the record legal description of each Property must
appear on the survey of that Property, and any record
easements or servitudes and covenants affecting each
Property which are capable of being plotted must be plotted
thereon;
(iv) LTC shall have received a Phase I environmental assessment
of each of the Properties in form and content, and performed
by an environmental consultant, entirely acceptable to LTC
in LTC's reasonable discretion;
(v) LTC shall have received UCC lien, tax lien and judgment lien
searches dated after the date of substantial completion of
the assisted living facility on each Property evidencing
that no liens exist as to the personal property located on
each Property other than those liens previously approved in
writing by LTC;
(vi) LTC shall be satisfied with the physical condition of the
assisted living facilities located on the Properties based
on a physical inspection of each Property by LTC;
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 5
(vi) LTC shall have received evidence acceptable to LTC that
each of the Properties is properly zoned for use as an
assisted living facility;
(viii) LTC shall have received a corporate resolution of ALC's
board of directors authorizing ALC to enter into, deliver
and perform all of the documents and instruments necessary
to effect the sale/leaseback transactions contemplated in
this commitment letter;
(ix) LTC shall have received a copy of the certificate of
occupancy with respect to each Property and a copy of ALC's
license to operate the assisted living facility located on
each Property as a fully-licensed assisted living facility
in the state in which the facility is located, and having
not less than the numbers of units specified for each
Property in the Property Application Materials (defined
above) submitted to LTC in connection with the Property;
(x) ALC shall have obtained all approvals and consents required
to enable ALC to consummate the sale/leaseback transaction
with respect to each Property without breaching or
defaulting under any contracts, agreements or other
documents or instruments by which ALC is bound; and
(xi) LTC, at its option, shall have conducted with respect to
each Property, and be satisfied with the results of, such
other standard due diligence as is customarily performed by
LTC in connection with the acquisition of a fee interest in
a property improved with an assisted living facility.
5. TERM; CROSS-DEFAULTING. Each lease shall have an initial
-----------------------
term of twelve (12) years. ALC and LTC contemplate that LTC will
acquire the Properties, and lease them back to ALC, its subsidiary or affiliate,
at such time as the construction of the assisted living facility on each
Property is completed, the certificate of occupancy and operator's license with
respect thereto issued and all other pre-conditions to Closing have been met
with respect to each Property. As a result, the parties anticipate that the
Properties will not all be acquired by LTC at one time, and ALC's obligation to
pay Minimum Rent and other charges under each lease will commence concurrently
with LTC's acquisition of the Property to which the lease relates. The lease
with respect to each Property shall group the Property with three or four other
properties owned (or to be owned) by LTC and leased (or to be leased) to ALC,
its subsidiary or affiliate, each such group of four (4) or more Properties
hereinafter being referred to as a "Package," and all of the Properties to be
included in a Package shall be identified to, and approved by, LTC (on
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 6
the basis of the Property Application Materials) by not later than the date of
the closing of the first Property in the Package to be acquired by LTC;
provided, however, that if ALC has not identified the Properties in each Package
to LTC by such time or if such Properties have not yet been approved by LTC
pursuant to Paragraph 3, hereof, LTC shall have the right, but not the
obligation, then or at any time thereafter, to determine which Properties shall
be included within the Package selecting only from Properties approved by LTC in
accordance with Paragraph 3, hereof.
ALC shall have two consecutive five-year options to extend the term of
all of the leases within each Package; that is, ALC shall only have the option
- ---
to extend the term of any of the leases in a Package so long as ALC exercises
its option to extend the term of all of the leases in a Package. In addition,
the leases for all of the Properties in each Package shall be co-terminus with
all of the other leases in that Package, but will not be co-terminus with the
leases in the other Packages. Notwithstanding the foregoing, the leases for
each of the Properties shall be cross-defaulted with (i) each lease for each of
the other Properties (irrespective of which Package the Properties are in), and
(ii) every other lease between LTC and ALC (including without limitation any
leases between LTC, on the one hand, and Home and Community Care, Inc. and/or
Carriage House Assisted Living, Inc., on the other hand, if an when either of
said entities (or the assets thereof) is acquired by ALC) with respect to any
assisted living facility, except for those five (5) leases relating to those
certain five (5) assisted living properties in the State of Washington commonly
known as: Chenoweth House, Kennewick, WA; Pioneer House, Walla Walla, WA;
Orchard House, Grandview, WA; Lexington House, Vancouver, WA: and Mountain View
House, Camas, WA. In addition to the foregoing, if a default is declared and
not cured within thirty (30) days on any of ALC's major (that is, $5,000,000 or
more) loans or lines of credit, or if such loan or line of credit is accelerated
or the lender thereunder takes any action to enforce the same, then LTC shall
have the right, but not the obligation, also to declare a default under each of
the leases entered into hereunder.
6. MINIMUM RENT. The initial annual Minimum Rent for the first
------------
year of each lease shall be an amount equal to the sum of the Specific Property
Purchase Price and the Stabilization Period Losses (to the extent then
ascertainable) paid by LTC (or its designee) for each Property multiplied by the
average rate on the ten-year Treasury Security for the five (5) business days
prior to the third (3/rd/) business day prior to the closing plus three hundred
----
fifty (350) basis points. ALC shall pay an amount equal to one-twelfth (1/12)
of the annual Minimum Rent applicable to each Property on the first day of each
and every month during the term of the leases without demand, abatement (except
as specifically set forth in the leases with respect to a partial condemnation
of a Property), set-off or notice. Commencing on the first anniversary of the
rent commencement date for each lease (the "Anniversary Date"), and continuing
thereafter on each subsequent Anniversary Date during the initial term and each
option term of each lease, the
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 7
Minimum Rent applicable to each lease shall be increased in accordance with the
terms and provisions attached hereto as Exhibit "A."
7. RENT DURING OPTION PERIODS. The initial Minimum Rent for the
--------------------------
first of the option terms for each lease shall be the higher of: (i) the
previous year's Minimum Rent amount increased in accordance with the terms and
provisions attached hereto as Exhibit "A"; or (ii) an amount equal to the
initial Minimum Rent payable in the first twelve (12) months of the initial term
of the lease adjusted by the cumulative increase in the Consumer Price Index,
U.S. Cities Average, All Items (1982-84=100) published by the United States
Department of Labor, Bureau of Labor Statistics in accordance with the manner
presently calculated (the "CPI") from the commencement date of the applicable
lease to the date on which the new Minimum Rent is being determined. The
initial Minimum Rent for the second of the option terms for each lease shall be
the higher of: (i) the previous year's Minimum Rent amount increased in
accordance with the terms and provisions attached hereto as Exhibit "A"; (ii) an
amount equal to the initial Minimum Rent payable in the first twelve (12) months
of the first option term of the lease adjusted by the cumulative increase in the
CPI from the commencement date of the applicable lease to the date on which the
new Minimum Rent is being determined; or (iii) the fair market value rent as
determined by an independent appraisal process.
8. TRIPLE NET LEASE. ALC shall be responsible for all costs
----------------
associated with the operation of the Facilities located on the Properties,
including, but not limited to, property and other taxes, utilities, insurance
premiums and costs to maintain the Facilities in good condition and repair,
reasonable wear and tear excepted (collectively "Additional Charges"). Taxes
shall include any and all taxes of any kind associated with the real or personal
property constituting the assisted living facilities, including, but not limited
to, taxes attributable to any period prior to acquisition of the Properties by
LTC (or its designee) with the exception of any transfer taxes owing in
connection with any subsequent transfer of any of the Properties by LTC to a
third party.
9. REPAIR AND MAINTENANCE. ALC shall be responsible for completing
----------------------
any and all work necessary to maintain each Facility located on the Properties
as an assisted living residence in good condition and repair, reasonable wear
and tear excepted. In addition, at ALC's sole cost and expense, ALC shall
complete all applications, give all notices and obtain and maintain all
licenses, permits and approvals necessary or desirable to allow ALC to operate
the assisted living facilities located on the Properties in accordance with all
legal and regulatory requirements.
10. CLOSING. Closing with respect to all Packages of the Properties
-------
shall occur not later than December 31, 2000. The Closing with respect to each
Property shall be deemed to have occurred upon recordation of the Warranty Deed
conveying the Property to LTC, payment of the Specific Property Purchase Price
and the Stabilization Period Losses (to the extent then
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 8
ascertainable) with respect thereto, and full execution and delivery of the
lease between LTC and ALC with respect thereto.
11. INDEMNITY. The lease with respect to each Property shall provide
---------
that ALC shall fully indemnify, defend, protect and hold LTC harmless from and
against any and all costs, losses, expenses, judgments, claims, fees (including
reasonable attorneys' fees and costs) or damages of any kind or nature
whatsoever arising from or relating to the Facilities located on the Properties
and the operation thereof, including, but not limited to, all matters relating
to (i) the presence of hazardous substances located on the Properties, (ii)
compliance with or failure to comply with the provisions of the federal
Americans with Disabilities Act, (iii) compliance with or failure to comply with
the provisions of the Fair Housing Amendments Act of 1988; (iv) compliance with
or failure to comply with the provisions of Section 8 of the United States
Housing Act of 1937, as amended, and any and all other matters whatsoever
relating to the Properties, the Facilities located thereon and the operation
thereof. ALC's indemnification obligations set forth in this Paragraph shall
survive the expiration or termination for any reason of this commitment letter.
12. ASSIGNMENT AND SUBLETTING. ALC shall not be entitled to sublet any
-------------------------
portion of any of the Properties, or assign any one or more of the leases,
without the prior written consent of LTC, which consent shall not be given by
LTC unless in connection with the subletting and/or assignment, ALC will remain
primarily liable for all obligations under the applicable lease or leases.
Notwithstanding the foregoing provisions of this Paragraph 12, ALC shall be
entitled, at any time without first obtaining the consent of LTC, to (i) assign
any one or more of the leases to a wholly-owned subsidiary of ALC so long as
ALC, concurrently with such assignment, delivers to LTC a first-loss full
guaranty of such subsidiary's obligations under the assigned lease(s) in form
and substance acceptable to LTC in LTC's reasonable discretion, and (ii)
sublease up to the greater of (A) 2,000 square feet, or (B) ten percent (10%) of
the total square footage of the applicable Facility in any one or more of the
Facilities located on the Properties to, any person or entity providing any
services related or ancillary to the operation of the Facilities, or in
connection with the provision of home health services both within and outside
the Facilities.
13. CLOSING COSTS. Concurrently with the Closing of LTC's purchase of
-------------
each of the Properties, ALC shall pay out of the proceeds of the Closing any
and all Closing costs in connection with the Closing, including but not limited
to all of LTC's attorneys' fees (which shall be Four Thousand Seven Hundred
Fifty Dollars ($4,750.00) for each of the Properties) plus attorneys' expenses,
recording fees, title fees, state and local transfer, mortgage or excise taxes
in connection with the transfer of title, LTC's out-of-pocket costs in
connection with the transaction and any and all other fees and costs in any way
associated with LTC's purchase of the fee interest in each Property and the
leases between LTC and ALC with respect to the Properties. Upon ALC's request,
LTC shall instruct its attorneys to prepare closing binders for ALC and its
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 9
counsel with respect to each sale/leaseback transaction, and ALC shall be
responsible for paying the actual cost of producing and shipping said closing
binders.
14. PHYSICAL INSPECTION. As a precondition to LTC's obligations under
-------------------
this commitment letter to acquire the Properties, LTC shall have the right to
conduct a physical inspection of each assisted living facility on each Property,
and LTC must be satisfied with the physical condition of each of the Properties
after completion of the construction of the assisted living facilities thereon,
in LTC's reasonable discretion.
15. GOVERNING LAW. This commitment letter shall be governed by and
-------------
interpreted under the internal laws of the State of California without resort to
choice of law principles.
16. COMMITMENT FEE. Upon acceptance of this commitment, ALC shall pay to
--------------
LTC a commitment fee relating to the transactions contemplated herein in an
amount equal to two percent (2.0%) of the Total Purchase Price, that is, the sum
of One Million Dollars ($1,000,000.00) (the "Commitment Fee"). The Commitment
Fee shall be paid to LTC as follows: concurrently with the full execution of
this commitment letter, ALC shall deliver to LTC a promissory note in the
original principal amount of One Million Dollars ($1,000,000.00) made by, and
with full recourse to, ALC and payable to LTC (the "Commitment Fee Note"). The
Commitment Fee Note shall bear no interest (except in the event of a default
thereunder beyond applicable cure periods) and shall have a maturity date
ofJanuary 1, 2001. A portion of the Commitment Fee equal to two percent (2%) of
the Specific Property Purchase Price for each Property approved by LTC shall be
refundable to ALC on the date on which the applicable sale/leaseback transaction
closes. Accordingly, on the date of each such closing, the amount owing by ALC
under the Commitment Fee Note shall be reduced by an amount equal to two percent
(2%) of the applicable Specific Property Purchase Price. So long as on or
beforeDecember 31, 2000 LTC and ALC have closed sale/leaseback transactions
hereunder such that the combined Specific Property Purchase Prices of all such
Properties is equal or greater than Fifty Million Dollars ($50,000,000.00), then
the Commitment Fee will be fully refunded to ALC, and LTC shall return the
original Commitment Fee Note to ALC marked "canceled."
SINCE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL
DAMAGES WHICH WOULD BE SUFFERED BY LTC IN THE EVENT ALC DEFAULTS UNDER THE TERMS
OF THIS COMMITMENT LETTER AND AS A RESULT OF SAID DEFAULT FAILS TO CLOSE THE
OVERALL TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER BY DECEMBER 31,
2000, AND SO LONG AS LTC IS NOT ALSO IN DEFAULT OF THIS COMMITMENT LETTER AS A
RESULT OF WHICH DEFAULT LTC HAS FAILED TO CLOSE ALL OR ANY PORTION OF THE
TRANSACTIONS CONTEMPLATED HEREIN, THEN IN SUCH EVENT, LTC SHALL BE ENTITLED TO
ENFORCE THE
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 10
COMMITMENT FEE NOTE IN SUCH AMOUNTS AS HAVE NOT PREVIOUSLY BEEN REFUNDED, AND TO
RETAIN THE AMOUNT COLLECTED AS LIQUIDATED DAMAGES FOR THE TIME, EFFORT AND
EXPENSES INCURRED BY LTC IN CONNECTION WITH THE OVERALL TRANSACTIONS
CONTEMPLATED HEREIN, AND ALC SHALL ALSO BE OBLIGATED TO PAY LTC'S LEGAL FEES AND
EXPENSES, TO THE EXTENT NOT PREVIOUSLY PAID, IN CONNECTION WITH THE TRANSACTIONS
OF UP TO FOUR THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($4,750.00) FOR EACH OVERALL
TRANSACTION WITH RESPECT TO EACH PROPERTY ON WHICH LTC HAS COMMENCED ANY LEGAL
WORK. ONCE LTC HAS RECEIVED PAYMENT IN FULL OF ALL AMOUNTS REQUIRED TO BE PAID
PURSUANT TO THIS PARAGRAPH 16 AND UNDER THE COMMITMENT FEE NOTE, THEN THE
PARTIES TO THIS COMMITMENT THEREAFTER SHALL HAVE NO FURTHER RIGHTS OR
OBLIGATIONS TO ONE ANOTHER HEREUNDER OF ANY KIND OR NATURE WHATSOEVER.
IN THE EVENT THAT LTC FAILS TO CLOSE THE TRANSACTIONS CONTEMPLATED IN THIS
COMMITMENT LETTER UPON TERMS CONSISTENT WITH THOSE PROVIDED HEREIN, AS A SOLE
RESULT OF LTC'S BREACH OF ITS OBLIGATIONS HEREUNDER, THE SOLE OBLIGATION OF LTC
SHALL BE TO RETURN THE ORIGINAL COMMITMENT FEE NOTE TO ALC, AND THE PARTIES
HERETO SHALL THEREAFTER HAVE NO FURTHER OBLIGATIONS OR LIABILITIES TO ONE
ANOTHER OF ANY KIND OR NATURE WHATSOEVER.
Initials: LTC Properties, Inc. ______ Assisted Living Concepts, Inc. ______
17. ALC'S ACCEPTANCE. ALC must indicate its acceptance of the terms and
----------------
conditions of this commitment by affixing its signature below. Unless LTC
receives this accepted commitment in its Oxnard, California office on or prior
to the fifth (5th) business day following the date of this letter, the terms
hereof shall be null and void, and LTC shall not have any obligations or
liabilities to ALC of any kind or nature whatsoever. This commitment shall
become effective only upon acceptance by LTC evidenced by the affixation of
LTC's signature hereto.
18. FACSIMILE EXECUTION BINDING. The parties hereto specifically agree
---------------------------
that this commitment letter may be executed by facsimile, and that facsimile
signatures hereon shall be binding on the parties hereto as though they were
original signatures.
19. FINAL AND ENTIRE AGREEMENT. This commitment letter and the exhibits
--------------------------
attached hereto represent the final and entire agreement between the parties in
connection with the transaction contemplated hereby and the subject matter
hereof. This commitment letter and the
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 11
exhibits attached hereto supersede and replace all prior and contemporaneous
agreements, understandings and communications between the parties, whether oral
or written, with regard to the subject matter hereof. There are no oral or
written agreements, representations or inducements of any kind existing between
the parties relating to the transactions contemplated in this commitment letter
which are not expressly set forth herein. This commitment letter may not be
modified except by a written agreement signed by LTC's Chief Executive Officer
and ALC.
20. BINDING EFFECT. This commitment letter shall be binding upon and
--------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that ALC shall not have the right to assign this
commitment letter to any other person or entity without the prior written
consent of LTC, which consent may be given or withheld by LTC in its sole
discretion; further provided, however, that notwithstanding the foregoing, in
the event that ALC wishes to assign this commitment letter, together with the
Commitment Fee Note, to a wholly-owned subsidiary of ALC having a tangible net
worth in excess of $10,000,000 and a debt to equity ratio of no greater than
2.00 to 1.00, and so long as ALC concurrently guaranties payment of the
Commitment Fee Note to LTC and agrees to guaranty all leases thereafter entered
into hereunder, then ALC shall have the right to do so without having first
obtained LTC's consent thereto.
21. WAIVER. No waiver by any party at any time of any breach of any
------
provision of this commitment letter shall be deemed a waiver of a breach of any
other provision herein or a consent to any subsequent breach of the same or
another provision. If any action by any party shall require the consent or
approval of the other party, such consent or approval of such action on any one
occasion shall not be deemed a consent to or approval of such action on any
subsequent occasion or a consent to or approval of any other action.
22. CAPTIONS AND HEADINGS. The captions and paragraph numbers appearing
---------------------
in this commitment letter are for convenience and ease of reference only, and do
not define, limit, construe or describe the scope or intent of this commitment
letter.
23. COUNTERPART EXECUTION. This commitment letter may be executed in
---------------------
counterparts, each of which shall be considered an original and all of which
taken together shall constitute one and the same instrument.
24. ATTORNEYS' FEES. If either party to this commitment letter brings an
---------------
action or proceeding to enforce the terms hereof or declare rights hereunder,
the prevailing party in any such action or proceeding, on trial or appeal, shall
be entitled to its reasonable attorneys' fees to be paid by the losing party as
fixed by the court of jurisdiction.
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 12
25. TIME OF ESSENCE. Time is of the essence with respect to all matters
---------------
contained in this commitment letter.
26. DRAFTING OF AGREEMENT. The parties to this commitment letter
---------------------
acknowledge that this commitment letter has been negotiated at arms length, that
each party has been represented by independent counsel and that this commitment
letter has been drafted by both parties and no one party shall be construed as
the draftsperson.
27. SURVIVAL. This commitment letter shall survive, and the covenants,
--------
conditions and terms set forth herein shall continue, until the earlier of (i)
December 31, 2000, at which time this commitment letter shall immediately and
automatically expire, or (ii) the date on which LTC has purchased such a number
of the Properties that LTC has spent an amount equal to or greater than the
Total Purchase Price (or an amount such that LTC cannot purchase another one of
the Properties without exceeding the Total Purchase Price).
28. CHANGE OF CONTROL.
-----------------
(a) In the event that there occurs a change in control with respect to the
ownership of LTC, whether by merger, sale, transfer of substantially all of
LTC's assets (other than in the ordinary course of LTC's business) or otherwise,
including, without limitation, the acquisition by any one person or entity of
thirty-five percent (35%) or more of the issued and outstanding common stock of
LTC, then ALC shall have the option, but not the obligation, to terminate this
commitment letter by providing LTC with thirty (30) days' prior written notice
of its election to terminate this commitment letter, and upon any such
termination, the Commitment Fee Note shall be returned to ALC marked "canceled"
once ALC has paid any of LTC's incurred but unpaid reasonable legal fees and
expenses in connection with any transactions hereunder.
(b) In the event that there occurs a change in control with respect to the
ownership of ALC, whether by merger, sale, transfer of substantially all of
ALC's assets (other than in the ordinary course of ALC's business) or otherwise,
including, without limitation, the acquisition by any one person or entity of
thirty-five percent (35%) or more of the issued and outstanding common stock of
ALC, then LTC shall have the option, but not the obligation, to terminate this
commitment letter by providing ALC with thirty (30) days' prior written notice
of its election to terminate this commitment letter stating with specificity the
reason(s) for such termination, and upon any such termination, the Commitment
Fee Note shall be returned to ALC marked "canceled" once ALC has paid any of
LTC's incurred but unpaid reasonable legal fees and expenses in connection with
any transactions hereunder.
<PAGE>
Ms. Keren Brown Wilson
Assisted Living Concepts, Inc.
October 3, 1997
Page 13
Please understand that, subject to the contingencies set forth above, this
letter constitutes the commitment of ALC and LTC to enter into the
sale/leaseback transactions described herein on the terms set forth above.
Very truly yours,
LTC PROPERTIES, INC.,
a Maryland corporation
/s/Andre C. Dimitriadis
---------------------------------------
ANDRE C. DIMITRIADIS,
Chairman and Chief Executive Officer
READ AND AGREED:
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By: /s/Stephen Gordon
-------------------------------------
Its: Chief Financial Officer
-------------------------------------
<PAGE>
EXHIBIT 10.11
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is dated for reference purposes as
of April 1, 1997, by and between Assisted Living Concepts, Inc., a Nevada
corporation ("Manager") and that certain Joint Venture, between Manager and
Health Equity Investors, LLC, a California limited liability company ("HEI")
(referred to herein as "Venture").
This Agreement is made in reliance on the following facts:
A. On or about April 1, 1997, Manager and HEI formed a Joint Venture
pursuant to a certain Joint Venture Agreement, dated as of April 1, 1997 ("Joint
Venture Agreement") in connection with the five assisted living facilities, as
set forth in Exhibit "A" hereto (collectively referred to herein as "Properties"
and each property is individually referred to herein as "Property").
B. Venture requires a management team to take complete responsibility for
the management of the Properties pursuant to the terms and conditions set forth
herein, including without limitation, provisions regarding Manager's operation,
management and maintenance of the Properties, including taking applications for
and filling vacancies in the residential units by qualified applicants
("Tenants") pursuant to agreements ("Rental Agreements") on behalf of Venture
and Manager desires to render management services to Venture pursuant to the
terms and conditions of this Agreement.
NOW, THEREFORE, for valuable consideration given and received, Manager and
Venture agree as follows:
1. Incorporation of Recitals. The above recitals are not mere recitals
-------------------------
but are intended to be contractual in nature and, therefore, are incorporated
herein by this reference.
2. Engagement of Manager. Venture engages Manager as an independent
---------------------
contractor to operate, manage and maintain the Properties in accordance with the
terms and conditions set forth in this Agreement, and Manager hereby agrees that
it will operate, manage and maintain the Properties pursuant to the terms and
conditions herein.
3. Duties of Manager.
-----------------
3.1 Personnel.
----------
3.1.1 In conformity with the Budget, as such term is defined
herein, Manager shall hire, pay and supervise, as employees of Manager,
qualified personnel necessary and appropriate to perform Manager's duties under
this Agreement and maintain and operate the Properties according to applicable
law and the standards
1
<PAGE>
which are customary for Manager in connection with the
management of its other facilities in Ohio, if any. Such personnel shall
include both persons in Manager's general employ and located in Manager's
principal place of business, as well as persons employed by Manager for the
purpose of operating and maintaining each of the Properties and located in any
office established by Manager at each of the Properties.
3.1.2 Manager shall have such employees which Ohio law requires at
each of the Properties. In any event, at least one responsible staff employee
of Manager shall be physically present at each Property at all times. Manager
shall hire an on-site Program Director for each Property who shall have
supervisory responsibility for performance of all management duties.
3.1.3 Manager shall use due care in the selection and supervision
of personnel to operate and maintain the Properties and of persons in the
general employ of Manager to whom said duties are delegated. Manager shall
develop a staffing plan that is sensitive and responsive to Tenants, their needs
and the level of service to be provided. Such personnel shall in every instance
be deemed employees of Manager and not of Venture, and Venture shall have no
right to establish qualifications or criteria for such employees, to supervise
or to direct such employees.
3.1.4 All salaries, wages and other compensation of personnel
employed by Manager hereunder, including so-called fringe benefits, health
insurance, social security, taxes, worker compensation and the like, shall be
deemed to be expenses of Manager, and Venture shall not be liable for them;
provided, however, Manager may draw sufficient amounts from the Operating
Account, as that term in defined herein, to fund its payroll obligations for
such personnel in accordance with the Budget.
3.2 Books and Records and Reports.
-----------------------------
3.2.1. Manager shall maintain separate and complete books and
records in connection with its management and operation of the Properties, which
Manager shall keep safe, available and separate from any other records.
Manager shall prepare statements and reports as requested by Venture, including
monthly operating reports for each Property.
3.2.2 Manager shall make the books of account and all other
records relating to or reflecting the operation of each Property available to
Venture and its representatives, including, without limitation, Venture's
auditors, accountants and attorneys, at all reasonable times for copying,
examination, audit, inspection and transcription at Manager's office or at such
other place designated by Manager.
3.2.3 Upon expiration of the term of this Agreement or earlier
termination as provided herein, Manager shall deliver all such books and
records to Venture within three (3) business days after the date of such
expiration or termination.
2
<PAGE>
3.3 Tenant Relations and Collections.
--------------------------------
3.3.1 Manager shall at all times during the term of this
Agreement operate and maintain the Properties in compliance with all applicable
laws and according to the standards which are customary for Manager in
connection with the management of its other facilities, if any in Ohio.
3.3.2 Manager shall secure full compliance by the Tenants with
the terms and conditions of their respective Rental Agreements and applicable
rules and regulations. Voluntary compliance shall be emphasized.
3.3.3 Manager shall not tolerate willful evasion of Tenant's
obligations to pay monthly rent or other charges required under the Rental
Agreement. Manager may terminate any tenancy when, in Manager's judgment,
sufficient cause exists under the terms of the Tenant's Rental Agreement.
3.4 Service to Residents. Manager shall be responsible for the
--------------------
effective and efficient delivery of services to Tenants. Such services shall
include: the maintenance of safe and clean common areas and grounds; trash
removal; weekly housekeeping and laundry service; periodic window washing,
carpet cleaning; the option to purchase three meals per day, seven days per
week; maintenance of twenty-four-hour-per-day emergency call system;
coordination of scheduled transportation; recreational facilities and
activities; centrally-located mail distribution; and other services as Ohio law
requires and such services as specified in the Rental Agreements. Accordingly,
Manager shall diligently provide services of consistently high quality,
comparable to that which manager otherwise provides and in accordance with
applicable laws.
3.5 Service Contracts. In conformity with the approved Budget, for
-----------------
each of the Properties, Manager shall negotiate and enter into or renew, in
Manager's name, service contracts for services which are required in the
ordinary course of the economic, efficient and profitable operation of each of
the Properties in a manner satisfactory to Venture, including, without
limitation, contracts for electricity, gas, fuel, water, telephone, window
cleaning, interior and exterior cleaning, painting, plumbing, security, pest
control, landscaping, equipment maintenance, trash removal and other services.
3.6 Repairs and Maintenance. Manager shall maintain or cause to be
-----------------------
maintained each of the Properties in such condition and repair as Manager's
other facilities in Ohio are maintained. All repairs, maintenance,
replacements, substitutions, improvements and additions to a Property shall be
undertaken by Manager only after securing Venture's prior approval, except that
any repair, maintenance, replacement, substitution, improvement or addition
which has been provided for in the Budget or any emergency repair may be
undertaken without Venture's approval.
3
<PAGE>
3.7 Operating Procedures. Manager shall operate each of the
--------------------
Properties in the same manner as is customary and usual in the operation of
Manager's other facilities in Ohio, so as to maximize the earnings of each of
the Properties and to provide such services at each Property as are ordinarily
provided by Manager in its facilities in Ohio.
4. Payment of Expenses. From the funds collected from Tenants and
--------------------
commercial lease tenants, if any, and working capital contributed by Venture, as
necessary, Manager shall disburse the following as and when due and owing as
part of the operating expenses of each of the Properties: (I) all real property
taxes on each Property; (ii) all insurance premium payments attributable or
allocable to each Property; (iii) all operating expenses, including, without
limitation, payroll, fringe benefits, workers compensation, costs of utilities,
maintenance and repair expenses; and (v) Manager's compensation as set forth
herein. Venture shall reimburse Manager all funds advanced by Manager on
Venture's behalf pursuant to the terms of this Agreement.
5. Annual Budget. Annually, at a date to be determined by Venture,
-------------
Manager shall prepare an annual operating budget for each Property ("Budget"),
in the form approved by Venture, and shall submit such budget to Venture for
approval. If a Budget has not been approved by Venture with respect to any
calendar year, the most recent Budget approved by Venture shall be effective
until Venture approves another Budget.
6. Bank Accounts and Disbursement of Funds.
----------------------------------------
6.1 Operating Account.
------------------
6.1.1 Manager shall deposit all monies received or collected in
the operation of each Property in accounts and in financial institutions as
designated by Venture ("Operating Account"). From the Operating Account,
Manager shall pay all expenses of each Property in accordance with the
provisions of this Agreement. All funds in such account shall at all times be
the exclusive property of Venture. Manager shall make draws upon the Operating
Account in accordance with the terms of this Agreement and shall not commingle
monies in the Operating Account with other funds of Manager if requested by
Venture or applicable laws or regulations of Ohio require segregation of income
accounts. Manager may establish such additional accounts on behalf of Venture
according to the above requirements as may be reasonably necessary.
6.2 Security Deposit Account. Manager shall deposit all security
------------------------
deposits received by it from Tenants or commercial lease tenants in financial
institutions approved by Venture in special accounts and shall not commingle
such monies with other funds of Manager; provided, however, that if applicable
laws or regulations require a different method for handling security deposits or
income, Manager shall comply therewith.
4
<PAGE>
6.3 Working Capital. Venture shall furnish funds sufficient in
----------------
amount to constitute normal working capital for the operation of each Property,
and thereafter Venture shall maintain sufficient working capital for each
Property. Manager shall not be obligated to advance any of its own funds to or
for the account of Venture, nor to incur any liability unless Venture shall have
furnished Manager with funds necessary for the discharge thereof.
7. Compliance.
-----------
7.1 Compliance with Environmental Laws. Manager shall use its
--- -----------------------------------
best efforts to cause each Property and operation thereof to be in compliance
with all federal and Ohio environmental laws.
7.2 Compliance with Other Laws and Agreements.
-----------------------------------------
7.2.1 Manager shall use its best efforts to cause each Property
and operation thereof to be in compliance will all other laws as well. Manager
shall use its best efforts promptly to remedy any violation of any such laws.
7.2.2 Manager shall use its best efforts to cause compliance of
each Property and operation thereof with all terms and conditions contained in
any Rental Agreement and in any commercial lease of any portion of a Property.
7.2.3 Manager shall use its best efforts to keep in force all
licenses and permits required for operation of each Property.
7.2.4 Manager shall comply with all laws applicable to Manager's
activities in managing each Property, including, without limitation, all labor,
tax unemployment insurance and workers' compensation laws.
8. Casualty, Public Liability and Other Insurance. Manager shall
-------------------------------------------------
provide and maintain such insurance coverage as may be reasonably required by
Venture and provide evidence of such insurance, as requested by Venture.
9. Term of Agreement; Removal of Manager. This Agreement shall become
--------------------------------------
effective as of the date hereof and shall expire concurrently upon the
termination of the Joint Venture Agreement. Venture shall have no right to
remove Manager during the Term.
10. Compensation. As full compensation for all of Manager's
-------------
services hereunder, Venture shall pay Manager for each Property, the greater of
(I) Eight percent (8%) of the monthly gross receipts generated by the Property
or (ii) $2,000. The monthly compensation shall be payable to Manager on or
before the 15/th/ day of the subsequent month. As used herein, "gross receipts"
are all of the following amount
5
<PAGE>
received from the operation of a Property: rentals or other charges for use and
occupancy of any space within the Property, or for services or equipment
provided in connection with such occupancy, including without limitation, any
proceeds arising from: (I) rental interruption insurance, (ii) furniture rental,
(iii) parking, (iv) forfeited security deposits applied by Venture to cure the
non-payment of rent (but not applied by Venture to other damages suffered by
Venture), (v) income from coin-operated machines, and (vi) other miscellaneous
income collected at the Property. Excluded from gross receipts are all other
receipts, including, but not limited to, security deposits, income derived from
interest on investments, proceeds of claims on account of insurance policies
(other than rental interruption insurance), abatement of taxes and awards
arising out of takings by eminent domain, and discounts and dividends on
insurance policies.
11. Indemnification by Manager of Venture. Manager agrees to indemnify
-------------------------------------
Venture and hold Venture harmless from any and all claims, demands, liabilities,
damages, lawsuits, judgments and costs and expenses, including, without
limitation, costs of defense and reasonable attorney's fees incurred by Venture
arising directly or indirectly, in whole or in part, out of any intentional act,
gross negligence, willful misconduct or wrongful act or omission by Manager,
their employees or agents, with respect to the management of any of the
Properties.
12. Miscellaneous Provisions.
-------------------------
12.1 Notices. All notices to be given pursuant to this Agreement
-------
shall be either (i) personally delivered; (ii) sent via certified or registered
mail, postage prepaid; (iii) overnight courier (such as Federal Express, DHL,
etc.); or (iv) by telecopy transmittal. If sent via certified or registered
mail, receipt shall be deemed effective forty-eight (48) hours after being
deposited in the United States mail. If sent via overnight courier, receipt
shall be deemed effective twenty-four (24) hours after the sending thereof. If
sent via telecopy transmission, a confirming copy shall be sent to the sender,
and receipt of the telecopy transmitted shall be deemed made twenty-four (24)
hours after the sending thereof. All notices to be given pursuant to this
Agreement shall be given to the parties at the following respective address.
to Manager: Assisted Living Concepts, Inc..
9955 S.E. Washington, Suite 201
Portland, Oregon 97216
Attention: Chief Financial Officer
Telecopier No.: (503) 257-0828
with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204-2089
Attention: Sandra Campbell, Esq.
Telecopier No.: (503) 295-0915
6
<PAGE>
to Venture: C/O Health Equity Investors, LLC.
3401 West 87/th/ Street
Leawood, Kansas 66206
Attention: Zachary H. Shafran
Telecopier No.: (913) 236-1890
with copy to: C. Michelle Marlo, Esq.
2049 Century Park East, Suite 2200
Los Angeles, California 90067
Telecopier No.: (310) 785-0254
12.2 Entire Agreement. This Agreement, and the Exhibits attached
----------------
hereto, represent the final and entire agreement between the parties in
connection with the terms and conditions of this Agreement and supersedes and
replaces any and all prior and contemporaneous agreements, understandings and
communications between the parties, whether oral or written, with regard to the
subject matter hereof. There are no oral or written agreements, representations
or inducements of any kind existing between the parties relating to this
transaction which are not expressly set forth herein. This Agreement may not be
modified except by a written agreement signed by all signatories to this
Agreement .
12.3 Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto, their respective heirs, legal
representatives, administrators, successors in interest and permitted assigns.
12.4 Waiver. No waiver by any party at any time of any breach of any
-------
provision of this Agreement shall be deemed a waiver or a breach of any other
provision herein or a consent to any subsequent breach of the same or another
provision. If any action by any party shall require the consent or approval of
another party, such consent or approval of such action on any one occasion shall
not be deemed a consent to or approval of such action on any subsequent occasion
or a consent to or approval of any other action.
12.5 Captions and Headings. The captions and paragraphs numbers
---------------------
appearing in this Agreement are inserted only as a matter of convenience and do
not define, limit, construe, or describe the scope or intent of this Agreement.
12.6 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be considered an original and all of which taken together
shall constitute one and the same instrument.
7
<PAGE>
12.7 Governing Law. This Agreement has been prepared, negotiated
-------------
and executed in, and shall be construed in accordance with, the laws of the
State of California.
12.8 Attorneys Fees and Costs. If either party named herein brings
------------------------
an action or proceeding to enforce the terms hereof or declare rights hereunder,
the prevailing party in any such action (or proceeding), on trial or appeal or
otherwise, shall be entitled to its reasonable attorneys' fees to be paid by the
losing party as fixed by the Court (or if applicable, the arbitrator).
12.9 Time Of Essence. Time is of the essence with respect to all
---------------
matters contained in this Agreement.
12.10 Invalidity of Any Provision. If any provision (or any
---------------------------
portion of any provision) of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Agreement, the legality, validity, and enforceability of the remaining
provisions (or the balance of such provision) shall not be affected thereby.
12.11 No Third Party Beneficiary Rights. This Agreement is entered
---------------------------------
into for the sole benefit of Manager and Venture and no other parties are
intended to be direct or incidental beneficiaries of this Agreement and no third
party shall have any right in, under or to this Agreement.
12.12 Incorporation of Exhibits. Each and all of the exhibits
-------------------------
attached to this Agreement are incorporated herein as if set forth in full in
this Agreement.
12.13 Assignment. Neither Manager nor Venture may assign this
-----------
Agreement without the prior written consent of the other party hereto.
12.14 Manager's Authority. Manager has no authority to act for or
-------------------
represent Venture except as herein specified.
12.15 Relationship. Nothing contained in this Agreement shall be
-------------
construed to create a relationship of employer and employee between Manager and
Venture, it being the intent of the parties hereto that the relationship created
hereby is, in fact and intent, that of an independent contractor. Nothing
contained in this Agreement shall be deemed to constitute Venture and Manager as
partners or joint venturers.
12.16 Status Reports. Recognizing that each party might find it
--------------
necessary, from time to time, to establish to third parties, such as
accountants, banks, mortgagees, or the like, the then current status of
performance under this Agreement,
8
<PAGE>
each party agrees, upon the written request of the other party from time to
time, promptly to furnish a written statement from its officer most
knowledgeable concerning this Agreement on the status of any matter pertaining
to this Agreement.
IN WITNESS WHEREOF, MANAGER AND VENTURE have executed this Agreement
as of the date first written above.
"MANAGER" ASSISTED LIVING CONCEPTS, INC.,
A NEVADA CORPORATION
By: /s/
----------------------------------
Its:__________________________________
"VENTURE"
HEALTH EQUITY INVESTORS, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
By: /s/
-----------------------------
Its:_____________________________
AND
ASSISTED LIVING CONCEPTS, INC.,
A NEVADA CORPORATION
By: /s/
----------------------------------
Its:_______________________________
9
<PAGE>
EXHIBIT "A"
PROPERTIES
Taylor House
Findlay, Ohio
Campbell House
Bel Fontaine, Ohio
Oakley House
Greenville, Ohio
Kingsbury House
Defiance, Ohio
Blanchard House
Kenton, Ohio
10
<PAGE>
EXHIBIT 10.12
JOINT VENTURE AGREEMENT
This Joint Venture Agreement ("Agreement") is deemed entered into as of the
Agreement Date, by and between ALC and the Joint Venture which is comprised of
ALC and HEI.
ARTICLE 1
CERTAIN DEFINITIONS
1.1 AFFILIATE. "Affiliate" means, when used with reference to ALC, any
Person directly or indirectly controlling, controlled by or under common control
with ALC.
1.2 AGREEMENT. "Agreement" means this Joint Venture Agreement, as
originally executed and as amended from time to time. Words such as "herein",
"hereinafter", "hereto", "hereby" and "hereunder", when used with reference to
this Agreement, refer to this Agreement as a whole, unless the context otherwise
requires.
1.3 AGREEMENT DATE. "Agreement Date" shall be defined as of April 1,
1997.
1.4 ALC. "ALC" means, Assisted Living Concepts, Inc., a Nevada
corporation.
1.5 ALC INTEREST. "ALC Interest" shall refer to the ten percent (10%)
equity interest of ALC in the Joint Venture.
1.6 CESSATION OF OPERATIONS. "Cessation of Operations" means voluntary
or involuntary cessation of the operation of the Property.
1.7 DISPOSITION. "Disposition" or "Dispose" means a sale,
assignment, transfer, or exchange.
1.8 GAAP. "GAAP" means Generally Accepted Accounting Principles
consistently applied on an accrual basis.
1.9 HEI. "HEI" refers to Health Equity Investors, LLC, a California
limited liability company
1.10 HEI INTEREST. "HEI Interest" shall refer to the ninety
percent (90%) equity interest of HEI in the Joint Venture.
1.11 JOINT VENTURE. "Joint Venture" is the entity comprised of the
ALC and HEI, subject to the terms and conditions of the Agreement.
1.12 MANAGEMENT AGREEMENT. "Management Agreement" shall refer to that
certain Management Agreement, dated as of the Agreement Date, by and between ALC
and HEI wherein ALC shall be the exclusive Operator of the Properties.
1
<PAGE>
1.13 NET LOSS. "Net Loss" shall be defined as the GAAP monthly net loss
generated by a Property.
1.14 NET LOSS PAYMENTS. "Net Loss Payments" shall refer to the
reimbursement of Net Loss for the Properties by the Joint Venture to ALC and the
obligation of HEI and ALC to the Joint Venture in accordance with their
respective equity interests in the Joint Venture
1.15 NET INCOME. "Net Income" shall be defined as the GAAP monthly net
income generated by a Property.
1.16 NET INCOME PAYMENTS. "Net Income Payments" refers to the payments by
ALC of Net Income for the Properties to the Joint Venture and the distribution
to HEI and ALC in accordance with their respective equity interests in the Joint
Venture.
1.17 NET SALES PROCEEDS. "Net Sales Proceeds" shall mean the gross
Disposition proceeds, whether cash, non-cash, or other property, received by ALC
from the Disposition of a Property, less Disposition expenses and the amount of
obligations secured by the Disposition Property.
1.18 OPERATOR. "Operator" shall be defined as the Person legally
responsible for the management of the operations of the assisted living
facility. The Operator of the Properties, if other than ALC, shall be a party
to this Agreement and the Management Agreement.
1.19 PROPERTY OPERATING STATMENT. "Property Operating Statement" refers
to the GAAP monthly and quarterly statement of net income and loss for a
Property prepared by ALC.
1.20 PROPERTIES. "Properties" refers to the list of five (5)
properties set forth on Exhibit "A" hereto and "Property" refers to each
individual property listed on Exhibit "A" hereto.
1.21 PERSON. "Person" means an individual, partnership, limited
partnership, corporation, trust, estate, association, limited liability company,
or other entity, whether domestic or foreign.
1.22 TERM. "Term" shall have the meaning set forth in Section 2.4.
ARTICLE 2
BASIS OF AGREEMENT; PROPERTIES; TERM
2.1 BASIS OF AGREEMENT WITH ALC. The Joint Venture agrees to reimburse ALC
for the monthly Net Loss generated from each Property during the Term and ALC
agrees to remit to the Joint Venture the Net Income generated from each Property
during the Term, all subject to the terms and conditions set forth herein.
2.2 BASIS OF AGREEMENT BETWEEN ALC AND HEI. ALC has an equity interest in
the Joint Venture of ten percent (10%) and HEI has an equity interest in the
Joint Venture of ninety percent (90%). HEI and ALC are obligated to reimburse
the Joint Venture for the Net Loss Payments to ALC and receive distributions
from the Joint Venture of Net Income Payments from ALC on a pro rata basis in
accordance with their respective equity interests in the Joint Venture.
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2.3 PROPERTIES. The Properties subject to the terms of this Agreement
are set forth on Exhibit "A" hereto.
2.4 TERM. The Term of this Agreement shall commence as of the
Agreement Date and terminate the earlier of (I) a Disposition of all of the
Properties, or (ii) the expiration of the useful life of all of the Properties.
ARTICLE 3
COVENANTS OF ALC
3.1 COVENANTS AND REPRESENTATIONS OF ALC. As an integral
part of this Agreement and as an inducement to HEI, ALC and any Affiliate
Operator, agree to the following during the Term:
3.1.1 to remain the Operator of the Properties;
3.1.2 not cause nor permit a Cessation of Operations of any of
the Properties;
3.1.3 to operate each Property in compliance with local, state,
and federal laws, regulations, and ordinances required to operate an
assisted living facility in the jurisdiction in which the Property is
located;
3.1.4 to operate each Property consistent with the standards for
assisted living facilities in the jurisdiction in which the Property
is located; and
3.1.5 to Dispose of a Property at not less than fair market
value.
3.2 REPRESENTATIONS AND WARRANTIES OF ALC. ALC represents and
warrants as of the Agreement Date that:
3.2.1 ALC or an Affiliate owns fee simple or a leasehold
interest to the Properties;
3.2.2 ALC or an Affiliate is the Operator of the Properties;
3.2.3 ALC and any Affiliate signator has full authority to
execute this Agreement and, this Agreement is a legally binding
agreement enforceable in accordance with its terms; and
3.2.4 the execution and delivery of this Agreement by ALC and
any Affiliate signator does not violate, conflict with or constitute a
default under any terms of any agreements or contracts to which ALC,
any Affiliate signator, and the Properties are subject to or bound.
ARTICLE 4
NET LOSS PAYMENTS; NET INCOME PAYMENTS
4.1 PROCEDURES FOR NET LOSS PAYMENTS AND NET INCOME PAYMENTS. ALC shall
deliver to the Joint Venture a monthly invoice no later than fifteen (15)
days after the end of each calendar month during the Term ("Invoice") providing
the Net Loss or Net Income, as the case may be, for each Property. The Invoice
shall be accompanied by and based upon a Property Operating Statement
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for each Property. ALC agrees to provide to the Joint Venture other documents,
as reasonably requested by the Joint Venture, to substantiate the Net Loss or
Net Income for the Properties as stated in the Invoice.
4.2 NET LOSS PAYMENTS TO JOINT VENTURE BY HEI AND ALC. HEI and ALC shall
each pay to the Joint Venture on a pro rata basis in accordance with their
equity interests in the Joint Venture, the Net Loss Payments, if any, for each
Property within fifteen (15) business days after submission to the Joint Venture
by ALC of the Invoice.
4.3 NET LOSS PAYMENTS FROM JOINT VENTURE TO ALC. Within twenty (20)
business days after receipt by the Joint Venture of the Invoice for each
Property indicating a Net Loss, the Joint Venture shall remit to ALC the
aggregate Net Loss Payments for the Properties.
4.4 NET INCOME PAYMENTS TO JOINT VENTURE BY ALC. Concurrent with the
submission by ALC of the Invoice for each Property to the Joint Venture
pursuant to Section 4.1 hereof, ALC shall remit to the Joint Venture the
Net Income Payments, if any, for each Property.
4.5 DISTRIBUTIONS OF NET INCOME PAYMENTS TO HEI AND ALC. Within five (5)
business days after the receipt by the Joint Venture of the Net Income Payments
for the Properties from ALC pursuant to Section 4.4 hereof, the Joint Venture
shall distribute such Net Income Payments to HEI and ALC, on a pro rata basis in
accordance with their equity interests in the Joint Venture.
4.6 JOINT VENTURE RIGHT OF AUDIT. The Joint Venture shall have the
right to review and audit the books and records of the Properties, at any time,
but no more often than quarterly, at the expense of the Joint Venture, which
expense shall be borne by HEI and ALC pro rata in accordance with their
respective equity interests in the Joint Venture. ALC agrees to make its books
and records available to the Joint Venture in the event of such audit.
ARTICLE 5
DEFAULT
5.1 DEFAULT BY ALC. The occurrence of any one of the following beyond
applicable grace periods, if any, shall constitute a default by ALC under this
Agreement as either or both a party to this Agreement or as an equity
participant of the Joint Venture ("Event of Default"):
(i) Failure to pay when due all monetary obligations under this
Agreement, including but not limited to the Net Income Payments and such failure
continues for a period of thirty (30) calendar days after written notification
by HEI to ALC;
(ii) Breach of any representations and warranties of ALC under this
Agreement;
(III) ALC commences any proceedings relating to any substantial
portion of any Property under any reorganization arrangement, readjustment of
debt, dissolution, winding up, adjustment, composition or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, or ALC
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files a petition under any provision of the bankruptcy laws of the United States
or under any similar or successor Federal statute relating to bankruptcy,
insolvency arrangements or reorganizations, or under any state bankruptcy or
insolvency act ("Proceeding"); there is commenced against ALC any Proceeding and
such Proceeding remains undismissed for a period of forty-five (45) days (or
such longer period as HEI may agree); or ALC files an answer in an involuntary
Proceeding admitting insolvency or inability to pay debts, or ALC fails to
obtain a vacation or stay or dismissal of involuntary Proceedings brought for
the reorganization, dissolution or liquidation of ALC within sixty (60) days
after the institution of such Proceedings, or ALC is adjudged a bankrupt or any
receiver, trustee, liquidator or sequestor of, or for, ALC, or any Property, is
appointed and is not discharged within a period of forty-five (45) days; or ALC
consents to any Proceeding or the appointment of any receiver, trustee,
liquidator or sequestrator of, or for, ALC or any substantial portion of any
Property; or any Property becomes subject to the jurisdiction of a Federal
bankruptcy court or similar state court, or ALC makes an assignment for the
benefit of creditors, or there is an attachment, execution or other judicial
seizure of any Property or any portion thereof or of any material portion of the
assets of ALC and such seizure is not discharged within ten (10) calendar days.
(iv) ALC fails to provide the financial information to HEI as required
by and within the time periods set forth in the Agreement, and such failure
shall continue for more than ten (10) days after HEI has give written notice of
said failure to ALC.
(v) ALC commits a non-monetary default under this Agreement in the
performance or compliance with any of the terms, covenants or conditions of this
Agreement and said non-monetary default is not cured within thirty (30) calendar
days after HEI has give written notice thereof to ALC, or, if said monetary
default is of type which is not capable of being cured within the thirty (30)
calendar day period, if ALC has not commenced with due diligence and dispatch
the cure of said non-monetary default within said thirty (30) calendar day
period after HEI's notice to ALC, and thereafter promptly prosecuted the same to
completion within ten (10) calendar days after said initial thirty (30) day
period.
5.2 REMEDIES OF JOINT VENTURE. Upon the occurrence of an Event of
Default under the Agreement with respect to ALC in its role as a party to this
Agreement, the Joint Venture, shall at its option, have the right to
terminate the Agreement in addition to all of its legal and equitable remedies.
5.3 REMEDIES OF HEI. Upon the occurrence of an Event of Default under
the Agreement with respect to ALC's obligations as a equity participant of the
Joint Venture, HEI, shall at its option, have the right to terminate the
Agreement in addition to all of its legal and equitable remedies.
ARTICLE 6
DISPOSITION PROCEEDS
6.1 DISPOSITION PROCEEDS. In the event of a Disposition of a Property
("Disposition Property") during the Term of this Agreement, ALC and HEI agree to
the following distribution priority of Net Sales Proceeds:
6.1.1 First, to HEI, in the amount that the HEI contributions of
Net Loss Payments exceed distributions of Net Income Payments to HEI for the
Disposition Property; and
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6.1.2 Second, the balance, if any, ten percent (10%) to ALC and
ninety percent (90%) to HEI.
6.2 NON-CASH DISPOSITION PROCEEDS. To the extent the Net Sales Proceeds
include non-cash proceeds or other property, HEI will receive an assignment of
the non-cash proceeds and other property to the extent of the HEI Interest and
consistent with the distribution priority set forth in Section 6.1 hereof.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 NOTICES. All notices to be given pursuant to this Agreement shall
be either (i) personally delivered; (ii) sent via certified or registered mail,
postage prepaid; (iii) overnight courier (such as Federal Express, DHL, etc.);
or (iv) by telecopy transmittal. If sent via certified or registered mail,
receipt shall be deemed effective forty-eight (48) hours after being deposited
in the United States mail. If sent via overnight courier, receipt shall be
deemed effective twenty-four (24) hours after the sending thereof. If sent via
telecopy transmission, a confirming copy shall be sent to the sender, and
receipt of the telecopy transmitted shall be deemed made twenty-four (24) hours
after the sending thereof. All notices to be given pursuant to this Agreement
shall be given to the parties at the following respective address.
to ALC: Assisted Living Concepts, Inc..
9955 S.E. Washington, Suite 201
Portland, Oregon 97216
Attention: Chief Financial Officer
Telecopier No.: (503) 257-0828
with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 S.W. Fifth Avenue
Portland, Oregon 97204-2089
Attention: Sandra Campbell, Esq.
Telecopier No.: (503) 295-0915
to HEI: Health Equity Investors, LLC.
3401 West 87th Street
Leawood, Kansas 66206
Attention: Zachary H. Shafran
Telecopier No.: (913) 236-1890
with copy to: C. Michelle Marlo, Esq.
2049 Century Park East, Suite 2200
Los Angeles, California 90067
Telecopier No.: (310) 785-0254
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7.2 ENTIRE AGREEMENT. This Agreement, and the Exhibits attached hereto,
represent the final and entire agreement between the parties in connection with
the terms and conditions of this Agreement and supersedes and replaces any and
all prior and contemporaneous agreements, understandings and communications
between the parties, whether oral or written, with regard to the subject matter
hereof. There are no oral or written agreements, representations or inducements
of any kind existing between the parties relating to this transaction which are
not expressly set forth herein. This Agreement may not be modified except by a
written agreement signed by all signatories to this Agreement.
7.3 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective heirs, legal
representatives, administrators, successors in interest and assigns.
7.4 WAIVER. No waiver by any party at any time of any breach of any
provision of this Agreement shall be deemed a waiver or a breach of any other
provision herein or a consent to any subsequent breach of the same or another
provision. If any action by any party shall require the consent or approval of
another party, such consent or approval of such action on any one occasion shall
not be deemed a consent to or approval of such action on any subsequent occasion
or a consent to or approval of any other action.
7.5 CAPTIONS AND HEADINGS. The captions and paragraphs numbers
appearing in this Agreement are inserted only as a matter of convenience and do
not define, limit, construe, or describe the scope or intent of this Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be considered an original and all of which taken together
shall constitute one and the same instrument.
7.7 GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in, and shall be construed in accordance with, the laws of the State of
California.
7.8 ATTORNEYS FEES If either party named herein brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action (or proceeding), on trial or appeal or
otherwise, shall be entitled to its reasonable attorneys' fees to be paid by the
losing party as fixed by the Court (or if applicable, the arbitrator).
7.9 TIME OF ESSENCE. Time is of the essence with respect to all matters
contained in this Agreement.
7.10 INVALIDITY OF ANY PROVISION. If any provision (or any portion of
any provision) of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Agreement, the legality, validity, and enforceability of the remaining
provisions (or the balance of such provision) shall not be affected thereby.
7.11 DRAFTING OF AGREEMENT. ALC and HEI acknowledge that this Agreement
has been negotiated at arm's length, that each party has been represented by
independent counsel and that this Agreement has been drafted by both parties and
no one party shall be construed as the draftsperson.
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7.12 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is entered into
for the sole benefit of ALC and HEI and no other parties are intended to be
direct or incidental beneficiaries of this Agreement and no third party shall
have any right in, under or to this Agreement.
7.13 INCORPORATION OF EXHIBITS. Each and all of the exhibits attached to
this Agreement are incorporated herein as if set forth in full in this
Agreement.
7.14 INDEMNIFICATION OF HEI BY ALC. ALC and Affiliate Operators agree
to defend and indemnify HEI from any and all liabilities, obligations, expenses,
losses, and costs (including reasonable attorneys' fees) resulting to HEI in
connection with the ownership and/or operation of the Properties by ALC or any
Affiliate Operator; but expressly excluding from such indemnification, any and
all losses, liabilities, obligations, expenses, and costs arising from the
normal operations of the Properties and/or relating to or from the obligations
of HEI under this Agreement. This indemnification by ALC and Affiliate
Operators shall survive the Term of this Agreement.
7.15 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or
relating to this Agreement, or the actual or alleged breach of this Agreement,
or arising out of or relating to the rights or duties or obligations of the
parties inter se in any capacity respecting any matter that could be asserted in
--------
a dispute by way of complaint, cross-complaint or counterclaim, other than an
unlawful detainer proceeding to determine possession of the property, shall be
settled by binding arbitration conducted in the City of Santa Monica, California
at the offices of Judicial Arbitration & Mediation Services, Inc. ("JAMS") in
accordance with the following rules and procedures: (I) the parties may agree
on a retired judge from the JAMS panel; if they are unable to agree within five
(5) days of the initiation of arbitration, JAMS shall provide each party a list
of three available judges and each party may strike one, the remaining judge or
if more than one judge is remaining, then the judge selected by JAMS of the
remaining judges will serve as the arbitrator; (ii) arbitration may be initiated
by sending written notice of an intention to arbitrate to all parties and to
JAMS, the notice must contain a description of the dispute, the amount involved,
and the remedy sought; (iii) the arbitrator will schedule a prehearing
conference within ten (10) days to reach agreement on procedural matters,
arrange for exchange of information, permissible discovery as the arbitrator
shall order, obtain stipulations, and attempt to narrow the issues and set a
hearing date within twenty (20) days after the prehearing conference; (iv) it is
the parties' objective to expedite the arbitration proceedings by reducing and
expediting discovery as provided by the Discovery Act pursuant to Sections 1985,
et seq. of the Code of Civil Procedure. Either party, prior to the prehearing
conference, can make written demand for lists of the witnesses to be called and
the documents to be introduced at the hearing, such lists to be served by both
parties within fifteen (15) days of the demand. Depositions or other discovery
procedures may be taken for discovery only as ordered by the arbitrator at the
prehearing conference or thereafter; (v) judicial rules of evidence and
procedure relating to the conduct at the hearing, examination of witnesses, and
presentation of evidence do not apply, any relevant evidence shall be admitted
by the arbitrator if it is the sort of evidence on which responsible persons are
accustomed to rely on in the conduct of serious affairs regardless of the
admissibility of such evidence in a court of law; (vi) the arbitrator may grant
any remedy or relief which is just and equitable, the award must be in writing
and signed by the arbitrator and contain a concise statement of the reasons in
support of the decision and be mailed promptly to the parties within ten (10)
days from the closing of the hearing; (vii) the award can be judicially
enforced pursuant to Section 1285 et seq. of the Code of Civil Procedure, is
final and binding and there is no direct appeal from the award on the grounds of
error in the application of law; (viii) all rights or remedies of the parties,
or any of them, to the contrary are hereby expressly waived except the right to
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obtain preliminary relief, pending the commencement of arbitration of the
disputed matters; (ix) except for such preliminary relief, prior arbitration
pursuant to the provisions hereof shall be a condition precedent to the bringing
of any action, suit, or proceeding by any party subject to this Agreement, for
any form of relief against a party subject to this Agreement; (x)
notwithstanding any provision of the aforesaid rules or Statutes to the
contrary, the refusal or failure of any party to appear at or participate in any
hearing or other portion of any arbitration proceeding pursuant to this
paragraph shall not prevent any such hearing or proceeding _from going forward,
and the arbitrator is empowered to make a decision or render an award, or both,
ex parte, which shall be binding on such party as fully as though such party had
fully participated in such hearing or proceeding; and (xi) the prevailing party
in any arbitration proceeding pursuant to this
paragraph shall be entitled to an award for such party's expenses and attorneys'
fees in connection therewith, and the cost of conducting the arbitration
proceeding shall be borne by the losing party. It is agreed that the rights
granted to the parties hereunder are of a special and unique kind and character
and that, if there is a breach by any party of any material provision of these
instructions, the other party or parties would not have any adequate remedy at
law. It is, therefore, expressly agreed that the rights of the parties
hereunder may be specifically enforced by the arbitrator making an order for
specific performance and such other equitable relief as is provided under the
laws of the State of California. Arbitration shall be the exclusive dispute
resolution process in the State of California.
IN WITNESS WHEREOF, ALC AND JOINT VENTURE have executed this Agreement
as of the Agreement Date.
"ALC"
ASSISTED LIVING CONCEPTS, INC.,
A NEVADA CORPORATION
By: /s/
-----------------------------
Its:_____________________________
"JOINT VENTURE"
"HEI"
HEALTH EQUITY INVESTORS, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
By: /s/
-----------------------------
Its:_____________________________
AND
"ALC"
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ASSISTED LIVING CONCEPTS, INC.,
A NEVADA CORPORATION
By: /s/
-----------------------------
Its:_____________________________
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EXHIBIT "A"
PROPERTIES
<TABLE>
<CAPTION>
PROPERTY FIRST REVENUE MONTH
- -------------------------------------------
<S> <C>
Taylor House
Findlay, Ohio May, 1997
Campbell House
Bel Fontaine, Ohio May, 1997
Oakley House
Greenville, Ohio April, 1997
Kingsbury House
Defiance, Ohio April, 1997
Blanchard House
Kenton, Ohio April, 1997
</TABLE>
11
