===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 2)
Under the Securities Exchange Act of 1934
ARV Assisted Living, Inc.
(Name of Company)
Common Stock, No Par Value
(Title of Class of Securities)
00204C107
(CUSIP Number)
Lorenzo Lorenzotti
Prometheus Assisted Living LLC
Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
(212) 632-6000
with a copy to:
Kevin Grehan, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
(212) 474-1490
------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
October 29, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box o.
Note: six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
===========================================================================
Page 1 of 13
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107 Page 2 of 11 Pages
------------- ----- ----
- ---------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO OF ABOVE PERSON
Prometheus Assisted Living LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) x
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,670,273
BENEFICIALLY
OWNED BY EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON WITH
9 SOLE DISPOSITIVE POWER
4,670,273
10 SHARED DISPOSITIVE POWER
-0-
- ----------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,670,273
shares of Common Stock*
*Assuming full conversion of the Company Notes held by Prometheus.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN o
SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 31.0%, calculated
pursuant to Rule 13(d)(l)(i) by taking the sum of (a) the number of
shares of Common Stock currently owned by Prometheus (1,192,012) and
(b) the number of shares of Common Stock to be received by Prometheus
upon full conversion of Company Notes held by Prometheus (3,478,261),
divided by the sum of (c) the number of shares of Common Stock
outstanding on October 29, 1997 (11,584,272) and (d) the number of
shares required to fully convert the Company Notes to Common Stock
(3,478,261).
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 13
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107 Page 3 of 11 Pages
----------- ----- ----
- ---------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO OF ABOVE PERSON
Lazard Freres Real Estate Investors L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) x
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC, BK
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- ---------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,670,273
BENEFICIALLY
OWNED BY EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON WITH
9 SOLE DISPOSITIVE POWER
4,670,273
10 SHARED DISPOSITIVE POWER
-0-
- ---------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,670,273
shares of Common Stock*
*Assuming consummation of the purchase of all shares of Common Stock
to be purchased pursuant to the Stock Purchase Agreement attached as
an exhibit hereto.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [ ]
SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
31.0%, calculated pursuant to Rule 13(d)(l)(i) by taking the sum of
(a) the number of shares of Common Stock currently owned by Prometheus
(1,192,012) and (b) the number of shares of Common Stock to be
received by Prometheus upon full conversion of Company Notes held by
Prometheus (3,478,261), divided by the sum of (c) the number of shares
of Common Stock outstanding on October 29, 1997 (11,584,272) and (d)
the number of shares required to fully convert the Company Notes to
Common Stock (3,478,261).
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 13
<PAGE>
This Amendment No. 2 to Schedule 13D (this "Amendment") is filed
by Lazard Freres Real Estate Investors L.L.C., a New York limited liability
company ("LFREI"), and Prometheus Assisted Living LLC, a Delaware limited
liability company ("Prometheus", and collectively with LFREI, the
"Reporting Persons"). As previously reported in the Schedule 13D filed on
July 23, 1997 by the Reporting Persons (the "Initial Schedule 13D"),
pursuant to a Stock Purchase Agreement dated as of July 14, 1997, by and
between ARV Assisted Living Inc. (the "Company"), LFREI and Prometheus (as
amended, the "Stock Purchase Agreement"), Prometheus agreed to purchase
certain shares of the common stock, no par value, of the Company (the
"Common Stock"). On July 23, 1997, Prometheus purchased 1,921,012 shares of
Common Stock pursuant to the Stock Purchase Agreement at a purchase price
of $14 per share, representing an aggregate investment of $26,894,168.
The Company and the Reporting Persons amended the Stock Purchase
Agreement by entering into an Amended and Restated Stock and Note Purchase
Agreement dated as of October 29, 1997, by and between the Company, LFREI
and Prometheus (the "Stock and Note Purchase Agreement"), which provided
for the purchase by Prometheus of $60,000,000 aggregate principal amount of
the Company's 6.75% Convertible Subordinated Notes due 2007 (the "Company
Notes"). Concurrently with the execution of the Stock and Note Purchase
Agreement, several other agreements were also executed: (i) LFREI,
Prometheus and the Company entered into an amended and restated
stockholders agreement (the "Stockholders Agreement") and amended a letter
agreement regarding the acquisition of substantially all of the stock of
Kapson Senior Quarters Corp. ("Kapson") by an affiliate of LFREI (the
"Kapson Letter Agreement"), (ii) Prometheus and the Company entered into an
amended and restated registration rights agreement (the "Registration
Rights Agreement") and (iii) Prometheus, LFREI and certain individuals
entered into a stockholders' voting agreement (the "Stockholders' Voting
Agreement"). In connection with the issuance of the Company Notes, the
Company and The Chase Manhattan Bank, N.A. entered into an indenture dated
as of October 30, 1997 (the "Indenture"), and the Company executed a
$60,000,000 note in favor of Prometheus dated as of October 30, 1997 (the
"Note", and collectively with all agreements previously defined in this
paragraph, the "Definitive Documents"). This Amendment relates to the
Definitive Documents and the transactions contemplated thereby.
Page 4 of 13
<PAGE>
Item 1. Security and Company
The equity class of securities to which this Amendment relates is
the Common Stock. The principal executive offices of the Company are
located at: 245 Fischer Avenue, Suite D-1; Costa Mesa, California 92626.
Item 2. Identity and Background
(a), (b), (c) and (f). This Amendment is filed by the Reporting
Persons. The principal business offices of the Reporting Persons are at 30
Rockefeller Plaza, 63rd Floor, New York, New York, 10020.
LFREI is the sole member of Prometheus. LFREI's activities
consist principally of acting as general partner of several real estate
investment partnerships that are affiliated with Lazard Freres & Co. LLC
("Lazard"). Lazard disclaims beneficial ownership of any of the shares of
Common Stock reported in this Amendment. The name, business address and
principal occupation or employment of the executive officers of LFREI are
set forth on Schedule 1 hereto and incorporated by reference herein. Each
person listed on such Schedule 1 is a citizen of the United States.
(d) and (e). During the last five years, neither the Reporting
Persons nor, to the best knowledge of the Reporting Persons, any of the
persons listed in Schedule 1 (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) nor (ii)
has been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction, and is or was, as a result of such
proceeding, subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal
or state securities laws, or finding any violation with respect to such
laws.
Item 3. Source and Amount of Funds or Other Consideration
The funds for this transaction are to be made available to
Prometheus through LFREI. LFREI will obtain funds from capital
subscriptions from its partners and from bank financing.
Page 5 of 13
<PAGE>
Item 4. Purpose of Transaction
Proceeds from the sale of the Company Notes are to be used by the
Company to continue to implement its acquisition and development plans, to
strengthen its systems and operations and to expand its services in
assisted living facilities throughout the United States.
Subject to the terms and conditions of the Stock and Note
Purchase Agreement, at the closing the Company will sell, and Prometheus
will acquire, an aggregate of $60,000,000 principal amount of Company Notes
(the "Closing"). Pursuant to the provisions of the Indenture and the Note,
Prometheus has the right, exerciseable at any time after 90 days following
the date of issuance of the Company Notes, to convert such Company Notes
into shares of Common Stock at the conversion price of $17.25 per share,
subject to certain adjustments set forth in the Indenture and the Note. In
the event of a Change of Control or a Termination of Trading (as such terms
are defined in the Indenture), Prometheus (i) may elect to require the
Company to repurchase the Company Notes at a purchase price equal to 101%
of the principal amount of such Company Notes or (ii) in the case of a
Change of Control not approved by a majority of the continuing directors of
the Company, may require the Company to convert the Company Notes at a
price of $16.25 per share.
As of the Closing, the Company and Prometheus will take all
actions necessary to cause the Company's board (the "Board") to be
structured to consist of nine members, of which three members will be
designees of Prometheus. Thereafter until the occurrence of a Termination
Event (as such term is defined in the Stockholders Agreement), at each
annual or special meeting of stockholders of the Company Prometheus will
have the right pursuant to the Stockholders Agreement and pursuant to the
By-laws of the Company to designate three nominees to the Board if the
Board is a single class, and one designee per class if the Board is divided
into three classes. The Company will support the nomination and the
election of each designee of Prometheus to the Board, and the Company will
exercise all authority under applicable law to cause each designee of
Prometheus to be elected to the Board. With respect to each meeting of
stockholders of the Company at which directors are to be elected, the
Company is required to use its reasonable efforts to solicit from the
stockholders of the Company proxies in favor of each designee of
Prometheus. During the period that Prometheus has the right to designate
nominees
Page 6 of 13
<PAGE>
to the Board, the number of directors on the Board may not exceed nine.
Pursuant to the Stockholders Agreement, the Company is required
to use commercially reasonable efforts to identify, select and retain a new
President/CEO of the Company within 90 days of the Closing. In connection
with the retention of such President/CEO, the Company is required to obtain
the prior written consent of Prometheus. Upon the retention of a new
President/CEO of the Company, the Company is further required under the
Stockholders Agreement to use its best efforts to cause a director who is
not a designee of Prometheus to resign from the Board, and the Company and
Prometheus will use their best efforts to cause such new President/CEO to
be elected to the Board.
The foregoing discussion is qualified in its entirety by the full
text of the Definitive Agreements, copies of which are attached as Exhibits
hereto and incorporated by reference herein. See also Item 6.
Item 5. Interest in Securities of the Company
(a) As of the date of this Statement, Prometheus has beneficial
ownership of 4,670,273 shares of Common Stock, assuming full conversion of
the Company Notes by Prometheus. (While Prometheus has not obtained actual,
record ownership of any shares of Common Stock relating to the conversion
of Company Notes into Common Stock, Prometheus may be deemed to have
acquired beneficial ownership of such shares as a result of its right to
convert Company Notes into Common Stock in accordance with the terms and
conditions of the Indenture and the Note.) Such beneficial ownership
represents 31.0% of the issued and outstanding shares of the Company as of
October 29, 1997, assuming new shares of Common Stock are issued in
connection with any conversion of Company Notes into Common Stock. LFREI
has no ownership interest in the Company beyond its interest in Prometheus.
(b) Prometheus has the sole power to vote or to direct the vote
of all shares of Common Stock covered by this Amendment, subject to the
terms of the Stockholders Agreement.
(c) Neither the Reporting Persons nor, to the knowledge of the
Reporting Persons, any of the other parties listed on Schedule 1 have
acquired any shares of Common
Page 7 of 13
<PAGE>
Stock of the Company during the past sixty days, other than the purchases
reported herein.
(d) Prometheus has the sole right to receive or the power to
direct the receipt of dividends from, or the proceeds of sale of, the
shares of Common Stock covered by this Amendment.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Company.
During a standstill period of three years (which period is
subject to early termination in certain circumstances) (the "Standstill
Period"), Prometheus, LFREI and their controlled affiliates will be subject
to certain limitations and restrictions relating to, among other matters:
(a) acquisitions of additional shares of Common Stock (generally limiting
Prometheus to beneficially owning no more than 49.9% of the shares of
Common Stock on an adjusted fully diluted basis), (b) acting in concert
with others by becoming a member of a "group" for purposes of Section 13(d)
of the Securities and Exchange Act of 1934 and the rules promulgated
thereunder, (c) soliciting, encouraging or proposing certain significant
transactions involving the Company, (d) soliciting, initiating, encouraging
or participating in the solicitation of proxies in connection with any
election contest involving the Board or initiating or proposing or
participating in or encouraging the making of, or soliciting stockholder
approval of, any stockholder proposal, (e) seeking representation on the
Board other than as contemplated by the Stockholders Agreement, (f)
entering into or permitting Kapson to enter into sale/leaseback or other
financing arrangements of the type contemplated by the Kapson Letter
Agreement with any company (other than the Company) the principal business
of which is the ownership, management, operation and development of
assisted living facilities in the United States, (g) requesting any waiver
of the foregoing restrictions or (h) assisting, advising, encouraging or
acting in concert with any person with respect to any of the foregoing.
During the Standstill Period, Prometheus may not sell any shares
of Common Stock or Company Notes except (a) in transactions pursuant to
Rule 144 under the Securities Act of 1933, (b) in transfers to one or more
Page 8 of 13
<PAGE>
controlled affiliates who agree to be bound by the terms and conditions of
the Stockholders Agreement, (c) in negotiated transfers to third parties
other than certain companies engaged in the business of operating assisted
living facilities, (d) subject to certain conditions, to bona fide
financial institutions for the purpose of securing bona fide indebtedness
and (e) in transfers pursuant to or in accordance with the Registration
Rights Agreement.
Pursuant to the Stockholders Agreement, during the Standstill
Period Prometheus is required to vote all shares of Common Stock owned by
it representing aggregate ownership in excess of 35.8% of the outstanding
shares of Common Stock in one of the following two manners: (x) in
accordance with the recommendation of the Board or (y) proportionally in
accordance with the votes of the other holders of Common Stock. Prometheus
is also required to vote its shares of Common Stock in favor of the
election of all directors nominated by the nominating committee of the
Company, if any, or the Board, provided such nominations are in accordance
with certain provisions of the Stockholders Agreement.
In addition, a number of the Company's joint venture agreements
contain non-compete provisions that restrict, subject to certain exceptions
and limitations, joint venture partners from engaging in the production of
the joint venture's products in specific markets during the term of the
joint venture agreement and for a limited period following the termination
of such agreement, other than through the joint venture vehicle.
Under the terms of the Stockholders Agreement, Prometheus, LFREI
and certain of their affiliates are restricted, except as contemplated in
the Kapson Agreement, from owning any equity interest in any public or
private company engaged primarily in the assisted living business in the
United States without the consent of 75% of the directors of the Company,
excluding those directors nominated by Prometheus.
Pursuant to the Registration Rights Agreement, the Company has
granted Prometheus demand registration rights to facilitate the resale of
the Common Stock owned by it and has also granted Prometheus certain
piggyback rights to sell a portion of its shares in connection with
offerings of securities by the Company for its own account. Additional
registration rights in connection with the Common Stock issuable upon
conversion of Company Notes are provided for in the Indenture.
Page 9 of 13
<PAGE>
Pursuant to the Stockholders' Voting Agreement, the following
stockholders of the Company have agreed to vote for the election of
directors as provided for in the Stockholders Agreement: John A. Booty,
Booty-Jones Family Partnership, Booty Family Trust, Karen A. Booty
Charitable Remainder Trust, John A. Booty Charitable Remainder Unitrust,
David P. Collins, D&V Collins Family Limited Partnership, Collins Family
Community Property Trust, David P. Collins Annuity Trust and Graham P.
Espley-Jones.
Under the terms of the Kapson Letter Agreement, the Reporting
Persons have agreed that if LFREI consummates its acquisition of Kapson,
until a Termination Event or such time as LFREI or its affiliates own less
than 10% of the stock of Kapson:
(i) until the Closing, Kapson will be prohibited from developing or
acquiring any new facilities (other than those in its pipeline at the
time of the closing of the Kapson acquisition) without the written
consent of a majority of the independent non-LFREI affiliated or
appointed members of the Board;
(ii) the Company will have the first right to negotiate management,
lease and/or purchase arrangements on any new developments or
acquisitions by Kapson;
(iii) LFREI will seek in good faith to negotiate with the Company for
leasing or management agreements of all existing or currently-planned
facilities of Kapson;
(iv) LFREI will not enter into or permit Kapson to enter into any
leasing or management arrangements on Kapson's existing facilities
other than with the Company or a Kapson affiliate;
(v) LFREI will grant to the Company or the Company's shareholders, at
the Company's option, the right to acquire from LFREI shares
representing up to 19.9% of the stock of Kapson at the pro rata amount
of LFREI's investment in Kapson for a period of 30 days after the
completion of the Kapson acquisition;
(vi) LFREI will explore a joint venture arrangement between the
Company and Kapson which would combine the corporate management of the
Company and Kapson in a separate management company jointly owned by
the Company and Kapson to achieve economies of scale;
Page 10 of 13
<PAGE>
(vii) the Company and LFREI will have the right to review and comment
on all press releases regarding the foregoing arrangements through
October 29, 1998; and
(viii) the Company will have the right to review and comment on all
public disclosures of Kapson regarding the foregoing arrangements for
a period ending six months after the close of the Kapson acquisition.
LFREI represented to the Company in the Kapson Letter Agreement that, upon
completion of the Kapson acquisition, LFREI will have the necessary
authority to cause Kapson to enter into the arrangements described in this
paragraph.
All references herein to the Definitive Agreements are qualified
in their entirety by the full text of such agreements and amendments,
copies of which are attached as Exhibits hereto and are incorporated by
reference herein. See also Item 4.
Item 7. Material to be Filed as Exhibits
Exhibit 1: Amended and Restated Stock and Note
Purchase Agreement dated as of
October 29, 1997, by and between the
Company, LFREI and Prometheus
Exhibit 2: Amended and Restated Stockholders
Agreement dated as of October 29, 1997,
by and between the Company, LFREI and
Prometheus
Exhibit 3: Amended and Restated Registration Rights
Agreement dated as of October 29, 1997,
between the Company and Prometheus
Exhibit 4: Stockholders' Voting Agreement dated as
of October 29, 1997, by and between
Prometheus, LFREI and certain
stockholders listed therein
Exhibit 5: Indenture dated as of October 30,
1997, by and between the Company and
The Chase Manhattan Bank, N.A.
Exhibit 6: Note dated as of October 30, 1997, by
the Company in favor of Prometheus
Page 11 of 13
<PAGE>
Exhibit 7: Kapson Letter Agreement dated as of
October 29, 1997, by and between LFREI,
Prometheus and the Company
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
PROMETHEUS ASSISTED LIVING LLC
by Lazard Freres Real Estate
Investors L.L.C., as sole member,
by /s/ Robert P. Freeman
--------------------------------
Name: Robert P. Freeman
Title: President
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
by /s/ Robert P. Freeman
--------------------------------------
Name: Robert P. Freeman
Title: President
Page 12 of 13
<PAGE>
SCHEDULE 1
Officers of Lazard Freres Real Estate Investors L.L.C. The
business address for each of the following persons is 30 Rockefeller Plaza,
63rd Floor, New York, NY 10020.
Name Present and Principal Occupation
Arthur P. Solomon Chairman and Managing Director of
LFREI; Director of American
Apartment Communities II, Inc.
and Atlantic American Properties
Trust
Anthony E. Meyer Senior Vice President and
Managing Director of LFREI;
Member of partnership committee
of DP Operating Partnership LP
Robert P. Freeman President and Managing Director
of LFREI; Director of American
Apartment Communities II, Inc.,
Commonwealth Atlantic Properties
Inc. and Atlantic American
Properties Trust
Klaus P. Kretschmann Senior Vice President of LFREI;
Director American Apartment
Communities II, Inc.
Murry N. Gunty Vice President of LFREI; Director
of Atlantic American Properties
Trust and Member of partnership
committee of DP Operating
Partnership LP
Thomas M. Mulroy Vice President of LFREI
Lorenzo L. Lorenzotti Secretary of LFREI
Henry C. Herms Comptroller of LFREI
Page 13 of 13
Exhibit 1
EXECUTION COPY
AMENDED AND RESTATED STOCK AND NOTE PURCHASE AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions...............................................1
ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale.........................................8
Section 2.2 Consideration.............................................8
Section 2.3 Initial Closing...........................................8
Section 2.4 Subsequent Purchases and Sales............................8
Section 2.5 Additional Agreements and Closing Deliveries..............9
ARTICLE 3
Representations and Warranties of the Company
Section 3.1 Organization and Qualification; Subsidiaries..............9
Section 3.2 Authority Relative to Agreements; Board Approval.........10
Section 3.3 Capital Stock............................................10
Section 3.4 No Conflicts; No Defaults; Required Filings and Consents.11
Section 3.5 SEC and Other Documents; Financial Statements;
Undisclosed Liabilities................................11
Section 3.6 Litigation; Compliance With Law..........................12
Section 3.7 Absence of Certain Changes or Events.....................13
Section 3.8 Tax Matters and Partnership Status.......................13
Section 3.9 Compliance with Agreements; Material Agreements..........14
Section 3.10 Company Charter and Company By-laws; Corporate Records...16
Section 3.11 Properties...............................................17
Section 3.12 Environmental Matters....................................19
Section 3.13 Employees and Employee Benefit Plans.....................21
Section 3.14 Labor Matters............................................23
Section 3.15 Affiliate Transactions...................................23
Section 3.16 Insurance................................................24
Section 3.17 Proxy Statement..........................................24
Section 3.18 Regulatory Compliance....................................24
Section 3.19 Vote Required............................................26
Section 3.20 Brokers or Finders.......................................27
Section 3.21 Knowledge Defined........................................27
Section 3.22 Certain Information......................................27
<PAGE>
Page
ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Section 4.1 Organization.............................................28
Section 4.2 Due Authorization........................................28
Section 4.3 Conflicting Agreements and Other Matters.................28
Section 4.4 Acquisition for Investment; Sophistication;
Source of Funds........................................28
Section 4.5 Proxy Statement..........................................29
Section 4.6 Brokers or Finders.......................................29
Section 4.7 Investment Company Matters...............................29
ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action...............................29
Section 5.2 Registration Rights Agreement............................30
Section 5.3 Stockholders Agreement...................................30
Section 5.4 Public Announcements; Confidentiality....................30
Section 5.5 No Solicitation of Transactions..........................31
Section 5.6 Information and Access...................................32
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale...................................................32
Section 6.2 Guarantee................................................33
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing................33
Section 7.2 Conditions of Sale.......................................34
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival.................................................34
Section 8.2 Indemnification by Buyer or the Company..................35
Section 8.3 Third-Party Claims.......................................35
ARTICLE 9
Termination
Section 9.1 Termination..............................................36
Section 9.2 Procedure and Effect of Termination......................36
<PAGE>
Section 9.3 Expenses.................................................37
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts.............................................37
Section 10.2 Governing Law............................................37
Section 10.3 Entire Agreement.........................................37
Section 10.4 Notices..................................................37
Section 10.5 Successors and Assigns...................................38
Section 10.6 Headings.................................................38
Section 10.7 Amendments and Waivers...................................38
Section 10.8 Interpretation; Absence of Presumption...................38
Section 10.9 Severability.............................................39
Section 10.10 Further Assurances.......................................39
Section 10.11 Specific Performance.....................................39
Section 10.12 Joint and Several Liability..............................39
Section 10.13 Interpretation of Schedules..............................39
Section 10.14 Acknowledgment of Company's Right to Take
Certain Actions........................................39
SCHEDULES
Schedule 1.5 Affiliated Limited Partnerships
Schedule 1.75 Permitted Liens
Schedule 3.1(d) Subsidiaries
Schedule 3.3(a) Capital Stock Commitments
Schedule 3.3(b) Other Equity Interests
Schedule 3.4(d)-A Consents for Initial Closing
Schedule 3.4(d)-B Consents for Second Closing
Schedule 3.5(a) Company Registration Statements and Company Reports
Schedule 3.6(a) Pending Litigation
Schedule 3.8(a) Tax Matters
Schedule 3.8(b) Tax Assets
Schedule 3.8(f) Tax Agreements
Schedule 3.9(c) Contracts
Schedule 3.10(a) Organizational Documents
Schedule 3.11(a) Real Property
Schedule 3.11(b) Letters of Intent or Similar Understandings
Schedule 3.11(c) Rights of First Refusal
Schedule 3.11(d) Non-Compliance and Capital Expenditure Budget and
Schedule
Schedule 3.11(e) Development Properties
Schedule 3.11(g) Structural and Engineering Matters
Schedule 3.12(e) Environmental Concerns
Schedule 3.12(e) Environmental Concerns
Schedule 3.12(d) Environmental Matters
Schedule 3.12(f) Environmental Reports
Schedule 3.13(a) Employment Agreements
Schedule 3.13(b) Company Plans
Schedule 3.13(c) Company Plan Liabilities
<PAGE>
Schedule 3.13(d) New Employee Benefit Plans
Schedule 3.13(g) Termination and Retirement Benefits
Schedule 3.13(k) Employee Benefits Triggered or Accelerated
Schedule 3.14 Collective Bargaining; Labor Union Agreements
Schedule 3.15 Affiliate Transactions
Schedule 3.16 Insurance Policies
Schedule 3.18(a) Regulatory Compliance
Schedule 3.18(b) Billing Practices
Schedule 3.18(e) Third Party Payors
Schedule 3.22 Certain Matters
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Stockholders Agreement
Exhibit C Indenture
<PAGE>
THIS AMENDED AND RESTATED STOCK AND NOTE PURCHASE
AGREEMENT (this "Agreement"), dated as of October 29,
1997, is made by and between ARV Assisted Living, Inc.,
a California corporation (the "Company"), Lazard Freres
Real Estate Investors L.L.C., a New York limited
liability company or an Affiliate thereof (the
"Advancing Party") and Prometheus Assisted Living LLC,
a Delaware limited liability company and an affiliate
of the Advancing Party ("Buyer").
RECITALS:
WHEREAS, Buyer, the Advancing Party and the Company have entered
into a Stock Purchase Agreement dated as of July 14, 1997 (as amended to
date, the "Stock Purchase Agreement"), pursuant to which Buyer has
purchased from the Company 1,921,012 shares of the Company's common stock
(the "Company Common Stock") at a price equal to the Per Share Purchase
Price;
WHEREAS, Buyer, the Advancing Party, and the Company desire to
amend and restate the Stock Purchase Agreement to provide for the purchase
by Buyer from the Company of $60,000,000 aggregate principal amount of the
Company's 6.75% Convertible Subordinated Notes due 2007 (the "Company
Notes"), to be issued pursuant to the Indenture attached as Exhibit C (the
"Indenture"), and to make certain other changes thereto; and
WHEREAS, the Company and Buyer believe that the combination in a
strategic alliance of the Company's leadership, expertise and experience in
development, management and operation of assisted living communities and
the proven investment and capital markets expertise and access to capital
of Buyer and its affiliates will significantly enhance the Company's
ability to pursue its growth and operating strategies;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby,
the parties hereto hereby agree to amend and restate the Stock Purchase
Agreement as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Government Authority.
"ADA" shall mean the Americans with Disabilities Act.
<PAGE>
"Advancing Party" shall have the meaning set forth in the
first paragraph hereof.
"Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 promulgated under the Exchange Act, and as in effect on the date
hereof.
"Affiliated Limited Partnerships" shall mean those limited
partnerships set forth in Schedule 1.5, which schedule lists those limited
partnerships which the Company is the general partner of but which are not
Subsidiaries.
"Agreement" shall have the meaning set forth in the first
paragraph hereof.
"Benefit Arrangements" shall have the meaning set forth in
Section 3.13(h).
"Beneficially Owned" has the meaning assigned to that term in
the Stockholders Agreement.
"Blue Sky Laws" shall have the meaning set forth in Section
3.4(e).
"Board" shall mean the Board of Directors of the Company.
"Broker" shall have the meaning set forth in Section 3.20.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a bank holiday in New York, N.Y.
"Buyer" shall have the meaning set forth in the first
paragraph hereof.
"Capital Expenditure Budget and Schedule" shall have the
meaning set forth in Section 3.11(d).
"CERCLA" shall have the meaning set forth in Section 3.12(e).
"CHAMPUS" means the United States Department of Defense
Civilian Health and Medical Program of the Uniformed Services.
"Claim" shall have the meaning set forth in Section
3.12(g)(i).
"Closing" shall mean the consummation of the Note Purchase.
"Closing Date" shall mean October 30, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and
regulations promulgated thereunder.
"Commitment" shall have the meaning set forth in Section 3.7.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Company By-laws" shall mean the by-laws of the Company and
any amendment or supplement thereto, as in effect on the date hereof.
"Company Charter" shall mean the Restated Articles of
Incorporation of the Company and any amendment or supplement thereto, as in
effect on the date hereof.
<PAGE>
"Company Common Stock" and "Company Notes" shall have the
meaning set forth in the Recitals hereof.
"Company Environmental Reports" shall have the meaning set
forth in Section 3.12(f).
"Company Plans" shall have the meaning set forth in Section
3.13(b).
"Company Preferred Stock" shall have the meaning set forth in
Section 3.3(a).
"Company Properties" shall have the meaning set forth in
Section 3.1l(a).
"Company Registration Statement" shall have the meaning set
forth in Section 3.5(a).
"Company Reports" shall have the meaning set forth in Section
3.5(a).
"Company Stock" shall mean, collectively, the Company Common
Stock and any other shares of capital stock of the Company.
"Competing Transaction" shall mean (i) any acquisition in any
manner, directly or indirectly (including through any option, right to
acquire or other beneficial ownership), of more than 15% of the equity
securities, on a Fully Diluted Basis, of the Company, or assets
representing a material portion of the assets of the Company, other than
any of the transactions contemplated by this Agreement or (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other
business combination, liquidation, or other action out of the ordinary
course of business of the Company, other than any of the transactions
contemplated by this Agreement.
"Contracts" shall have the meaning set forth in Section
3.9(c).
"Controlled Group Liability" shall have the meaning set forth
in Section 3.13(h).
"Convertible Debt" shall mean the Company's 6-3/4%
Convertible Subordinated Notes due 2006.
"Debt Instruments" shall mean all notes, loan agreements,
mortgages, deeds of trust or similar instruments which evidence or secure
any indebtedness owing by the Company or any of its Subsidiaries.
Section 1.1. "Development Budget and Schedule" shall have the
meaning set forth in Section 3.11(e).
Section 1.2. "Employee Benefit Plans" shall have the meaning
set forth in Section 3.13(h).
"Employees" shall have the meaning set forth in Section
3.13(h).
"Environmental Claim" shall have the meaning set forth in
Section 3.12(g)(ii).
<PAGE>
"Environmental Laws" shall have the meaning set forth in
Section 3.12(g)(iii).
"Environmental Permits" shall have the meaning set forth in
Section 3.12(a).
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, including all of the rule and regulations
promulgated thereunder and any successor thereto.
"ERISA Affiliates" shall mean any entity which is under
"common control" with the Company, within the meaning of Section 4001(b)(1)
of ERISA.
"Exchange Act" shall have the meaning set forth in Section
3.4(e).
"Fully Diluted Basis" shall mean then outstanding Company
Stock plus any shares of stock or other equity or debt exchangeable for
Company Stock and any shares of stock or other equity or debt the holders
of which, after such exchanges would have the right to vote with the
stockholders of the Company on any matter, and shall include Company Common
Stock issuable pursuant to the Company Notes, the Convertible Debt, the
instruments listed in Schedule 3.3(a) and under option or other
equity-incentive plans listed on Schedule 3.13(b) and awards issued
pursuant thereto.
"GAAP" shall have the meaning set forth in Section 3.5(b).
"Government Authority" shall mean any government or state (or
any subdivision thereof) of or in the United States, or any agency,
authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
"Governmental Entity" means any governmental or any agency,
bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government or any
quasi-governmental authority or self-regulatory organization, whether
federal, state or local, domestic or foreign.
"Indemnified Party" shall mean Buyer or the Company, as the
context may require.
"Indenture" shall have the meaning set forth in the Recitals
hereof.
"Insurance Policies" shall have the meaning set forth in
Section 3.16.
"IRS" shall mean the Internal Revenue Service.
"Laws" means any federal or state constitutional provision,
statute, other rule, law, regulation or interpretation of any Governmental
Entity and any Order, each as interpreted by the appropriate Governmental
Entities prior to the Closing Date.
"Leased Property" shall have the meaning set forth in Section
3.11(a).
"Liabilities" shall mean, as to any person, all debts,
adverse claims, liabilities and obligations, direct, indirect, absolute or
contingent of such person, whether known or unknown, accrued, vested or
otherwise, whether in contract, tort, strict liability or otherwise and
whether or not actually reflected, or required by GAAP to be reflected, in
<PAGE>
such person's or entity's balance sheets or other books and records,
including without limitation (i) obligations arising from non-compliance
with any law, rule or regulation of any Government Authority or imposed by
any court or any arbitrator of any kind, (ii) all indebtedness or liability
of such person for borrowed money, or for the purchase price of property or
services (including trade obligations), (iii) all obligations of such
person as lessee under leases, capital or other, (iv) liabilities of such
person in respect of plans covered by Title IV of ERISA, or otherwise
arising in respect of plans for Employees or former Employees or their
respective families or beneficiaries, (v) reimbursement obligations of such
person in respect of letters of credit, (vi) all obligations of such person
arising under acceptance facilities, (vii) all liabilities of other persons
or entities, directly, or indirectly, guaranteed, endorsed (other than for
collection or deposit in the ordinary course of business) or discounted
with recourse by such person or with respect to which the person in
question is otherwise directly or indirectly liable, (viii) all obligations
secured by any lien on property of such person, whether or not the
obligations have been assumed, and (ix) all other items which have been, or
in accordance with GAAP would be, included in determining total liabilities
on the liability side of the balance sheet.
"Liens" shall mean all liens, mortgages, deeds of trust,
deeds to secure debt, security interests, pledges, claims, charges,
easements and other encumbrances of any nature whatsoever.
"Loss and Expenses" shall have the meaning set forth in
Section 8.2(a).
"Material Adverse Effect" shall mean, with respect to the
Company and each of its Subsidiaries, a material adverse effect on the
financial condition, results of operations or business of the Company and
such Subsidiaries (to the extent of the Company's interests therein) taken
as a whole.
"Materials of Environmental Concern" shall have the meaning
set forth in Section 3.12(g)(iv).
"Medical Reimbursement Programs" means the Medicare, Medicaid
and CHAMPUS programs and any other health care program operated by or
financed in whole or in part by any foreign or domestic federal, state or
local government.
"Medicaid" means that means-tested entitlement program under
Title XIX of the Social Security Act that provides federal grants to states
for medical assistance based on specific eligibility criteria. (Social
Security Act of 1965, Title XIX, P.L. 89-97, as amended; 42 U.S.C. 1396 et
seq.).
"Medicare" means that government-sponsored entitlement
program under Title XVIII of the Social Security Act that provides for a
health insurance system for eligible elderly and disabled individuals.
(Social Security Act of 1965, Title XVIII, P.L. 89-87, as amended, 42
U.S.C. 1395 et seq.).
"Note Purchase" shall have the meaning set forth in Section
2.1.
"OIG" means the Office of the Inspector General of the United
States Department of Health and Human Services.
"Order" means any decree, injunction, judgment, order,
ruling, assessment or writ.
"Other Filings" shall have the meaning set forth in Section
5.1(b).
<PAGE>
"Owned Property" shall have the meaning set forth in Section
3.11(a).
"Pension Plans" shall have the meaning set forth in Section
3.13(h).
"Per Share Purchase Price" shall mean the price of $14.00 per
share for the Company Common Stock, adjusted for any stock split or
reclassification of Company Common Stock.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued
by any Governmental Entity.
"Permitted Liens" shall mean (i) Liens (other than Liens
imposed under ERISA or any Environmental Law, or in connection with any
Environmental Claim) for taxes or other assessments or charges of
Governmental Authorities that are not yet delinquent or that are being
contested in good faith by appropriate proceedings, in each case, with
respect to which adequate reserves are being maintained by the Company or
its Subsidiaries to the extent required by GAAP, (ii) statutory Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other Liens
(other than Liens imposed under ERISA or any Environmental Law or in
connection with any Environmental Claim) imposed by law and created in the
ordinary course of business for amounts not yet overdue or which are being
contested in good faith by appropriate proceedings, in each case, with
respect to which adequate reserves or other appropriate provisions are
being maintained by the Company or its Subsidiaries to the extent required
by GAAP and which, to the extent same do not relate to work or materials
provided for in the Capital Expenditure Budget and Schedule, the 1998 and
1999 Preliminary Capital Expenditure Budgets and Schedules or the
Development Budget and Schedule, do not exceed $100,000 in the aggregate
(excluding from such calculation, any amounts disclosed in writing by the
Company to Buyer which (a) are fully covered by insurance held by the
Company under which the Company reasonably expects full recovery of such
amounts, or (b) for which an adequate escrow has been established and is,
at the relevant time, maintained), (iii) any leases entered into after
March 31, 1997 in the ordinary course of business on commercially
reasonable terms and that are described in Schedule 1.75, (iv) easements,
rights-of-way, covenants and restrictions which are customary and typical
for properties similar to the Company Properties and which do not (x)
interfere materially with the ordinary conduct of any Company Property or
the business of the Company and its Subsidiaries as a whole or (y) detract
materially from the value or usefulness of the Company Properties to which
they apply and (v) the other Liens, if any, described in Schedule 1.75.
"person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated
organization, other form of business or legal entity or Government
Authority.
"Projects" shall have the meaning set forth in Section
3.11(e).
"Proxy Statement" shall have the meaning set forth in Section
5.1(b).
"Purchase Price" shall mean the aggregate principal amount of
the Company Notes issued to Buyer at the Closing plus accrued interest
thereon from October 29, 1997, through (but excluding) the Settlement Date.
"Registration Rights Agreement" shall have the meaning set
forth in Section 2.5(a).
"Regulatory Filings" shall have the meaning set forth in
Section 3.4(e).
<PAGE>
"Release" shall have the meaning set forth in Section
3.12(g)(v).
"SEC" shall have the meaning set forth in Section 3.5(a).
"Securities Act" shall have the meaning set forth in Section
3.4(e).
"Securities Laws" shall have the meaning set forth in Section
3.5(a).
"Settlement Date" shall have the meaning set forth in Section
2.2.
"Stockholders Agreement" shall have the meaning set forth in
Section 2.3(a).
"Structural Defect" means a condition of the structure of any
Company Property resulting from faulty engineering, construction, labor or
materials, or from fire or other casualty and in any event includes any
condition that could pose a hazard to life or safety.
"Subsidiaries" shall mean with respect to any person, any
corporation, partnership, limited liability company, joint venture,
business trust or other entity of which such person, directly or
indirectly, (i) owns or controls 50% or more of the securities or other
interests entitled to vote in the election of directors or others
performing similar functions with respect to such corporation or other
organization or (ii) otherwise controls such corporation, partnership,
limited liability company, joint venture, business trust or other entity.
Without limiting the generality of the foregoing, the Company's
Subsidiaries include each of the entities set forth on Schedule 3.1(d) as
Subsidiaries, but shall not include Affiliated Limited Partnerships.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not. The term "Tax" also includes any amounts payable pursuant
to any tax sharing agreement to which any relevant entity is liable as a
successor or pursuant to contract.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof, or any
return or declaration of an informational nature required to be filed with
the IRS or any other Government Authority.
"Termination Event" shall mean the date on which either (i)
the Buyer no longer Beneficially Owns a number of shares of Company Common
Stock equal to at least 5% of the outstanding Company Common Stock, on a
Fully Diluted Basis, or (ii) the Buyer no longer Beneficially Owns Company
Common Stock having an aggregate market value of at least $25,000,000.
"Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any
other credit or tax attribute of the Company and any of its Subsidiaries or
Affiliated Limited Partnerships that could reduce Taxes (including, but not
limited to, deductions or credits relating to alternative minimum Taxes).
<PAGE>
"Title Policies" shall have the meaning set forth in Section
3.11(a).
"Transaction Documents" shall mean the Stockholders
Agreement, the Registration Rights Agreement, the Company Notes and the
Indenture.
"Voting Agreements" shall have the meaning set forth in
Section 2.3(a).
"Welfare Plans" shall have the meaning set forth in Section
3.13(h).
ARTICLE 2
Purchase and Sale of Company Notes; Closing
Section 2.1 Purchase and Sale. Subject to the terms and conditions
hereof, at the Closing, the Company will sell, convey, assign, transfer,
and deliver, and Buyer will purchase and acquire from the Company, an
aggregate of $60,000,000 principal amount of the Company Notes (the "Note
Purchase").
Section 2.2 Consideration. Subject to the terms and conditions
hereof, on or before December 1, 1997 (the "Settlement Date"), Buyer shall
deliver to the Company the Purchase Price by wire transfer of immediately
available funds in U.S. dollars to the account or accounts specified by the
Company.
Section 2.3 Additional Agreements and Closing Deliveries.
(a) Concurrently with the execution of this Agreement, (i)
the Company, Buyer and the Advancing Party shall enter into an amended and
restated registration rights agreement substantially in the form attached
as Exhibit A (the "Registration Rights Agreement"), (ii) the Company, Buyer
and the Advancing Party shall enter into an amended and restated
stockholders agreement substantially in the form attached as Exhibit B (the
"Stockholders Agreement") and (iii) Buyer shall have entered into amended
and restated voting agreements with John A. Booty, David P. Collins and
Graham P. Espley-Jones among other persons (the "Voting Agreements").
(b) In addition to the other things required to be done
hereby, at the Closing the Company shall deliver or cause to be delivered
to Buyer the following: (i) the Company Notes pursuant to the Indenture,
(ii) all certificates and other instruments and documents required by this
Agreement to be delivered by the Company to Buyer at or prior to the
Closing and (iii) such other instruments reasonably requested by Buyer as
may be necessary or appropriate to confirm or carry out the provisions of
this Agreement.
(c) In addition to the other things required to be done
hereby, at the Closing, Buyer shall deliver, or cause to be delivered, to
the Company the following: (i) if not previously delivered to the Company,
all other certificates, documents, instruments and writings required
pursuant hereto to be delivered by or on behalf of Buyer at or before the
Closing and (ii) such other instruments reasonably requested by the Company
as may be necessary or appropriate to confirm or carry out the provisions
of this Agreement.
Section 2.4 Time and Place of Closing. The Closing shall take
place on the Closing Date at such place and time as the Company and Buyer
shall mutually agree.
<PAGE>
Section 2.5 Right to Assign. Buyer and the Advancing Party may
assign their rights and delegate their obligations created hereby to
purchase Company Notes in accordance with the provisions of Section 10.5.
ARTICLE 3
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyer as follows in
Section 3.1 through 3.20:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California.
The Company has all requisite corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as now
conducted, and to enter into this Agreement and the Transaction Documents
and to perform its obligations hereunder and thereunder.
(b) Each of the Subsidiaries of the Company is a
corporation, partnership or limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, and has the corporate, partnership or
limited liability company power and authority to own its properties and to
carry on its business as it is now being conducted.
(c) Each of the Company and its Subsidiaries is duly
qualified to do business and in good standing in each jurisdiction in which
the ownership of its property or the conduct of its business requires such
qualification, except for any failures to be so qualified or to be in good
standing as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(d) Schedule 3.1(d) sets forth the name of each Subsidiary
of the Company (whether owned, directly or indirectly, through one or more
intermediaries) and each Affiliated Limited Partnership. All of the
outstanding shares of capital stock of, or other equity interest in, each
of the Subsidiaries owned by the Company are duly authorized, validly
issued, fully paid and nonassessable, and are owned, directly or
indirectly, by the Company free and clear of all Liens, except as set forth
in Schedule 3.1(d). The following information for each Subsidiary and
Affiliated Limited Partnership is set forth in Schedule 3.1(d), if
applicable: (i) its name and jurisdiction of incorporation or organization,
(ii) the type of and percentage interest held by the Company in the
Subsidiary or Affiliated Limited Partnership and the names of and
percentage interest held by the other interest holders, if any, in the
Subsidiaries, and (iii) any loans from the Company to, or priority payments
due to the Company from, the Subsidiary or Affiliated Limited Partnerships,
and the rate of return thereon. Except as contemplated hereby and as set
forth on Schedule 3.1(d), there are no existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or
commitments which obligate the Company or any of the Subsidiaries or
Affiliated Limited Partnerships to issue, transfer or sell any shares of
capital stock or equity interests in any of the Subsidiaries or Affiliated
Limited Partnerships except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
<PAGE>
Section 3.2 Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this
Agreement and the Transaction Documents have been duly and validly
authorized by all necessary action on the part of the Company. This
Agreement and the Transaction Documents have been duly executed and
delivered by the Company for itself and constitute the valid and legally
binding obligation of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights or general
principles of equity.
(b) The Board has, as of the date hereof, approved this
Agreement and the Transaction Documents and the transactions contemplated
hereby and thereby.
(c) It is not necessary in connection with the offer, sale
and delivery of the Company Notes in the manner contemplated by this
Agreement to register the Company Notes under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), except as contemplated by the Company Note
Registration Agreement.
(d) The Company Notes are in the forms contemplated by the
Indenture and have been duly authorized by the Company, and when executed
and authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms hereof,
will be the legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled
to the benefits of the Indenture.
(e) The Indenture has been duly authorized by the Company
and at the Closing Date will have been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery thereof
by the Trustee, will be the legally valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Indenture is in a form that would qualify under the Trust Indenture Act.
(f) The shares of Company Common Stock initially issuable
upon conversion of the Company Notes have been duly and validly authorized
and reserved for issuance, and such shares, when issued upon such
conversion, will be validly issued, fully paid and nonassessable and the
issuance of such shares upon such conversion will not be subject to
preemptive or other rights to subscribe for any shares of Company Common
Stock or any other equity securities of the Company.
Section 3.3 Capital Stock.
(a) The authorized capital stock of the Company as of the
date hereof consists of 100,000,000 shares of Company Common Stock, no par
value per share, and 10,000 shares of Series A Convertible Redeemable
Preferred Stock, no par value per share ("Company Preferred Stock"). As of
the date hereof, there were 11,584,272 shares of Company Common Stock
issued and outstanding and no shares of Company Preferred Stock issued and
outstanding. All issued and outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Except for the Company Notes and as set forth on
Schedule 3.3(a), the Company has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities the holders of which have
the right to vote) with the stockholders of the Company on any matter. As
of the date hereof, except for the Company Notes and as set forth in
Schedule 3.3(a) to this
<PAGE>
Agreement, there are no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company to issue, transfer or sell any shares of capital stock
or other equity interests of the Company.
(b) Except for interests in the Subsidiaries and the
Affiliated Limited Partnerships of the Company and except as set forth in
Schedule 3.3(b), none of the Company or any of its Subsidiaries own
directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, limited liability company, joint venture,
business, trust or entity (other than investments in short-term investment
securities).
Section 3.4 No Conflicts; No Defaults; Required Filings and
Consents. Neither the execution and delivery by the Company hereof nor the
consummation by the Company of the transactions contemplated hereby in
accordance with the terms hereof, will:
(a) conflict with or result in a breach of any provisions of
the Company Charter or Company By-laws;
(b) result in a breach or violation of, a default under, or
the triggering of any payment or other obligations pursuant to any
Contract;
(c) violate or conflict with any statute, regulation,
judgment, order, writ, decree or injunction applicable to the Company or
its Subsidiaries, except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect;
(d) subject to the Company obtaining the third party
consents set forth in Schedule 3.4(d), violate or conflict with or result
in a breach of any provision of, or constitute a default (or any event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or
cancelation of, or accelerate the performance required by, or result in the
creation of any Lien upon any of the properties of the Company or its
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, or change the conversion rate of any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, convertible debenture, or any license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which
the Company or its Subsidiaries is a party, or by which the Company or its
Subsidiaries or any of their properties is bound or affected, except for
any of the foregoing matters which would not reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Effect; or
(e) require any consent, approval or authorization of, or
declaration, filing or registration with, any Government Authority, other
than any filings required under the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or state securities laws ("Blue Sky Laws") (collectively,
the "Regulatory Filings"), and any filings required to be made with the
Secretary of State of California or any national securities exchange on
which the Company Common Stock is listed, except as would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
Section 3.5 SEC and Other Documents; Financial Statements;
Undisclosed Liabilities.
(a) The Company has delivered or made available to Buyer the
registration statement of the Company filed with the Securities and
Exchange Commission
<PAGE>
("SEC") in connection with the Company's initial public offering of Company
Common Stock, and all exhibits, amendments and supplements thereto
(collectively, the "Company Registration Statement"), and each registration
statement, report, proxy statement or information statement and all
exhibits thereto prepared by it or relating to its properties since the
effective date of the Company Registration Statement, which are set forth
in Schedule 3.5(a), each in the form (including exhibits and any amendments
thereto) filed with the SEC (collectively, the "Company Reports"). Except
as set forth in Schedule 3.5(a), the Company Reports were filed with the
SEC in a timely manner and constitute all forms, reports and documents
required to be filed by the Company under the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder (the "Securities
Laws"). As of their respective dates, the Company Reports (i) complied as
to form in all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. There is no
unresolved violation asserted or comments issued by any Government
Authority with respect to any of the Company Reports.
(b) Each of the balance sheets included in or incorporated
by reference into the Company Reports (including the related notes and
schedules) fairly presented the financial position of the entity or
entities to which it relates as of its date and each of the statements of
operations, stockholders' equity (deficit) and cash flows included in or
incorporated by reference into the Company Reports (including any related
notes and schedules) fairly presented the results of operations, retained
earnings or cash flows, as the case may be, of the entity or entities to
which it relates for the periods set forth therein, in each case in
accordance with United States generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, normal
recurring year-end adjustments which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) Except as and to the extent set forth in the Company
Reports and the Company's financial statements filed with the SEC or in any
Schedule hereto, to the Company's knowledge, none of the Company or any of
its Subsidiaries has any Liabilities (nor do there exist any circumstances)
that would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(d) The books of account and other financial records of the
Company and each of its Subsidiaries are in all respects true and complete,
have been maintained in accordance with good business practices, and are
accurately reflected in all respects in the financial statements included
in the Company Reports, except, in each case, as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
Section 3.6 Litigation; Compliance With Law.
(a) Except as set forth on Schedule 3.6(a), there are no
Actions pending or, to the Company's knowledge, threatened against the
Company or any of its Subsidiaries that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect,
or which question the validity of this Agreement or any Transaction
Document or any action taken or to be taken in connection herewith or
therewith. Except as set forth on Schedule 3.6(a), the maximum liability of
the Company with respect to each Action set forth on Schedule 3.6(a) is
fully covered by policies of insurance described in Section 3.16. Except as
disclosed in Schedule 3.6(a), there are no continuing orders,
<PAGE>
injunctions or decrees of any Government Authority to which the Company or
any of its Subsidiaries is a party or by which any of its properties or
assets are bound.
(b) None of the Company or its Subsidiaries is in violation
of any statute, rule, regulation, order, writ, decree or injunction of any
Government Authority or any body having jurisdiction over them or any of
their respective properties which, if enforced, would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
Section 3.7 Absence of Certain Changes or Events. Except as
disclosed in the Company Reports filed with the SEC prior to the date
hereof and except as disclosed in Schedule 3.7 since March 31, 1997, the
Company and each of its Subsidiaries has conducted its business only in the
ordinary course and has operated, constructed, developed, acquired and
entered into management contracts and leases in respect of assisted living
facilities only in the ordinary course of such business, and there has not
been (a) any change, circumstance or event that would reasonably be
expected to result in a Material Adverse Effect, (b) any declaration,
setting aside or payment of any dividend or other distribution with respect
to the Company Common Stock, except in accordance with Section 5.5, (c) any
commitment, contractual obligation, borrowing, capital expenditure or
transaction (each, a "Commitment") entered into by the Company or any of
its Subsidiaries, other than Commitments which would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect or (d) any change in the Company's accounting principles, practices
or methods which would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
Section 3.8 Tax Matters and Partnership Status.
(a) The Company, each of its Subsidiaries and each of its
Affiliated Limited Partnerships has timely filed with the appropriate
taxing authority all Tax Returns required to be filed by it or has timely
requested extensions and any such request has been granted and has not
expired. Each such Tax Return, as amended (if applicable), is, or will be,
as the case may be, complete and accurate in all respects. All Taxes
(including Taxes for which no Tax Returns are required to be filed and
including payroll and wage withholding Taxes) of the Company and any of its
Subsidiaries and Affiliated Limited Partnerships, or for which the Company
or any of its Subsidiaries or Affiliated Limited Partnerships is or could
otherwise be held liable, have been duly and timely paid or accrued, except
for Taxes being contested in good faith and for which adequate reserves
have been taken. The Company, each of its Subsidiaries and each of its
Affiliated Limited Partnerships has properly accrued all Taxes for such
periods subsequent to the periods covered by such Tax Returns as required
by GAAP. None of the Company or any of its Subsidiaries or Affiliated
Limited Partnerships has executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the period for assessment
or collection of any Tax. Except as set forth in Schedule 3.8(a), none of
the Company or any of its Subsidiaries or Affiliated Limited Partnerships
or any of its Employee Benefit Plans or Benefit Arrangements is being
audited or examined by any taxing authority with respect to any Tax or is a
party to any pending action or proceedings by any taxing authority or other
Government Authority for assessment or collection of any Tax, and no claim
for assessment or collection of any Tax has been asserted against it. True
and complete copies of all federal, state and local income or franchise Tax
Returns filed by the Company, each of its Subsidiaries and each of its
Affiliated Limited Partnerships for 1994 and 1995 and all communications
relating thereto have been delivered to Buyer or made available to
representatives of Buyer prior to the date hereof. No claim has been made
in writing or, to the Company's knowledge, otherwise by an authority in a
jurisdiction where the Company or any of its Subsidiaries or Affiliated
Limited Partnerships does not file Tax
<PAGE>
Returns that it is or may be subject to taxation by that jurisdiction.
Except as set forth in Schedule 3.8(a) and except for any Tax appeal filed
by the Company or its Subsidiaries in the ordinary course of business,
there is no dispute or claim concerning any Tax liability of the Company or
any of its Subsidiaries or Affiliated Limited Partnerships, (i) claimed or
raised by any taxing authority, either orally or in writing or (ii) as to
which the Company or any of its Subsidiaries or Affiliated Limited
Partnerships has knowledge.
(b) Except as set forth in Schedule 3.8(b), all Tax Assets,
deductions and credits (including, but not limited to, the low-income
housing credit under Section 42 of the Internal Revenue Code of 1986, as
amended) claimed or, in the case a Tax Return for which an extension has
been granted, to be claimed, on a Tax Return of the Company or any of its
Subsidiaries or Affiliated Limited Partnerships have been or will be, as
the case may be, timely and properly claimed.
(c) Any amount or other entitlement that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated hereby by any Employee, officer, or
director of the Company or any of its Affiliates or independent contractor
who is a "disqualified individual" (as such term is defined in proposed
Treasury Regulation Section 1.28OG-1) under any employment, severance or
termination agreement, other compensation arrangement or plan currently in
effect would not be characterized as an "excess parachute payment" (as such
term is defined in Section 28OG(b)(1) of the Code).
(d) The disallowance of a deduction under Section 162(m) of
the Code for employee remuneration will not apply to any amount paid or
payable by the Company or any of its Subsidiaries under any contract, stock
plan, program, arrangement or understanding currently in effect.
(e) The Affiliated Limited Partnerships are and will
continue to be classified as partnerships for United States federal income
and all other relevant tax law purposes.
(f) Except as set forth in Schedule 3.8(f), none of the
Company or any of its Subsidiaries or Affiliated Limited Partnerships is a
party to or is bound by any agreement, arrangement or practice with respect
to Taxes. The Company has delivered to Buyer complete and accurate copies
of any such written agreement, arrangement or practice, and complete and
accurate descriptions of any such oral agreement, arrangement or practice.
Section 3.9 Compliance with Agreements; Material Agreements.
(a) Neither the Company nor any of its Subsidiaries is in
default under or in violation of any provision of the Company Charter or
the Company By-laws or any Contract, except for such defaults or violations
which would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(b) The Company and each of its Subsidiaries have filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file with any Government Authority and all other material
reports and statements required to be filed by them, including any report
or statement required to be filed pursuant to the laws, rules or
regulations of the United States, and have paid all fees or assessments due
and payable in connection therewith, except for such failures to file or
pay which would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. There is no unresolved
violation asserted
<PAGE>
by any regulatory agency of which the Company has received written notice
with respect to any report or statement relating to an examination of the
Company or any of its Subsidiaries which, if resolved in a manner
unfavorable to the Company or such Subsidiary, would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(c) Except as set forth in Schedule 3.9(c), neither the
Company nor any Subsidiary is a party to or bound by any:
(i) employment agreement or employment contract that has an
aggregate future liability in excess of $50,000 and is not
terminable by the Company or a Subsidiary by notice of not more
than 60 days for a cost of less than $50,000;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant of the Company or a Subsidiary not to
compete;
(iv) agreement, contract or other arrangement with any
current or former officer, director, employee, or Affiliate or
relative thereof, of the Company or any Subsidiary (other than
employment agreements covered by clause (i) above);
(v) lease, sublease or similar agreement involving annual
payments in excess of $50,000 with any person (other than the
Company or a Subsidiary) under which the Company or a Subsidiary
is a lessor or sublessor of, or makes available for use to any
person (other than the Company or a Subsidiary), (A) any Company
Property or (B) any portion of any premises otherwise occupied by
the Company or a Subsidiary;
(vi) lease or similar agreement with any person (other than
the Company or a Subsidiary) under which (A) the Company or a
Subsidiary is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by
any person or (B) the Company or a Subsidiary is a lessor or
sublessor of, or makes available for use by any person, any
tangible personal property owned or leased by the Company or a
Subsidiary, in any such case which has an aggregate annual future
liability or receivable, as the case may be, in excess of $50,000
and is not terminable by the Company or a Subsidiary by notice of
not more than 60 days for a cost of less than $50,000;
(vii) (A) continuing contract for the future purchase of
materials, supplies or equipment (other than purchase contracts
and orders for inventory in the ordinary course of business
consistent with past practice) in excess of $50,000 annually, (B)
management, service, consulting or other similar type of contract
or (C) advertising agreement or arrangement, in any such case
which has an aggregate future liability to any person (other than
the Company or a Subsidiary) in excess of $50,000 and is not
terminable by the Company or a Subsidiary by notice of not more
than 60 days for a cost of less than $50,000;
(viii) material license, option or other agreement relating
in whole or in part to intellectual property (including any
license or other agreement under which the Company or a
Subsidiary is license or licensor of any such intellectual
property);
<PAGE>
(ix) agreement, contract or other instrument under which the
Company or a Subsidiary has borrowed any money from, or issued
any note, bond, debenture or other evidence of indebtedness to,
any person (other than the Company or a Subsidiary) or any other
note, bond, debenture or other evidence of indebtedness issued to
any person (other than the Company or a Subsidiary);
(x) agreement, contract or other instrument (including
so-called take-or-pay or keepwell agreements) under which (A) any
person (including the Company or a Subsidiary) has directly or
indirectly guaranteed indebtedness, liabilities or obligations of
the Company or a Subsidiary or (B) the Company or a Subsidiary
has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than
endorsements for the purpose of collection in the ordinary course
of business);
(xi) agreement, contract or other instrument under which the
Company or a Subsidiary has, directly or indirectly, made any
advance, loan, extension of credit or capital contribution in
excess of $50,000 to, or other investment in, any person (other
than the Company or a Subsidiary);
(xii) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any
Company Property;
(xiii) agreement or instrument providing for indemnification
of any person with respect to liabilities relating to any current
or former business of the Company, a Subsidiary or any
predecessor person exclusive of indemnifications included in
other documents on Schedule 3.9(c) or granted to sellers of real
property owned or leased by the Company or its Affiliates; or
(xiv) other agreement, contract, management contract, lease,
license, commitment or instrument to which the Company or any
Subsidiary is a party or by or to which it or any of its assets
or business is bound or subject, none of which are, on an
individual basis, material to the Company (as opposed to the
Company and its Subsidiaries taken as a whole).
Except as set forth in Schedule 3.9(c), all agreements, contracts, leases,
licenses, commitments or instruments of the Company or any Subsidiary
listed in the Schedules hereto (collectively, the "Contracts") are valid,
binding and in full force and effect and are enforceable by the Company or
the relevant Subsidiary in accordance with its terms. Except as set forth
in Schedule 3.9(c), the Company and the Subsidiaries have performed all
material obligations required to be performed by them to date under the
Contracts and they are not (with or without the lapse of time or the giving
of notice, or both) in breach or default in any material respect thereunder
and, to the knowledge of the Company, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Except as
set forth in Schedule 3.9(c), there are no change of control or similar
provisions or any obligations arising under any Contract which are created,
accelerated or triggered by the execution, delivery or performance of this
Agreement or the Transaction Documents or the consummation of the
transactions contemplated hereby or thereby.
Section 3.10 Company Charter and Company By-laws; Corporate
Records.
(a) The Company has delivered to Buyer true and complete
copies of the Company Charter and the Company By-laws, as amended to date,
and the charter, by-
<PAGE>
laws, organization documents, partnership agreements of its Subsidiaries,
and all amendments thereto. All such documents are listed in Schedule
3.10(a).
(b) The minute books and other records of corporate
proceedings of the Company and each of its Subsidiaries contain in all
material respects accurate records of all meetings and accurately reflect
in all material respects all other corporate action of the stockholders and
directors and any committees of the Board of Directors of the Company and
their Subsidiaries which are corporations, except for documentation of
discussions relating to or in connection with the transactions contemplated
hereby or matters related hereto, and except as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect. True and complete copies of the foregoing have been delivered to
Buyer prior to the date hereof. The Company does not keep written records
of the partnership proceedings of the Company's Subsidiaries that are
partnerships.
Section 3.11 Properties.
(a) Schedule 3.11(a) sets forth a complete and accurate list
and the address of all real property and interests in real property owned
in fee by the Company and the Subsidiaries (individually, an "Owned
Property"). Schedule 3.11(a) sets forth a complete list of all real
property and interests in real property leased by the Company and the
Subsidiaries (individually, a "Leased Property"). The Company or a
Subsidiary has (i) good and insurable fee title to all Owned Property and
(ii) good and valid title to the leasehold estates in all Leased Property
(an Owned Property or Leased Property being sometimes referred to herein,
individually, as a "Company Property" and, collectively, as "Company
Properties"), in each case free and clear of all mortgages, liens, security
interests, encumbrances, leases, assignments, subleases, easements,
covenants, rights-of-way and other similar restrictions of any nature
whatsoever, except (A) such as are set forth in Schedule 3.11(a) or on
Schedule 3.9(c), (B) Permitted Liens, (C) financing statements, easements,
covenants, rights-of-way and other similar restrictions of record and (D)
(I) zoning, building and other similar restrictions, (II) mortgages, liens,
security interests, encumbrances, easements, covenants, rights-of-way and
other similar restrictions that have been placed by any developer, landlord
or other third party on property over which the Company or any Subsidiary
has easement rights or on any Leased Property and subordination or similar
agreements relating thereto, and (III) unrecorded easements, covenants,
rights-of-way and other similar restrictions, none of which items set forth
in clauses (I), (II) and (III), individually or in the aggregate,
materially impair the continued use and operation of the property to which
they relate in the business of the Company and the Subsidiaries, taken as a
whole, as presently conducted. Except as set forth on Schedule 3.11(a), to
the knowledge of the Company, the current use by the Company and the
Subsidiaries of the offices and other facilities located on Company
Property does not violate any local zoning or similar land use or
government regulations in any material respect. Except as set forth on
Schedule 3.11(a), American Land Title Association policies of title
insurance (or marked title insurance commitments having the same force and
effect as title insurance policies) have been issued by national title
insurance companies insuring the fee simple title of the Company or its
Subsidiaries, as applicable, to each of the Owned Properties in sufficient
amounts to avoid co-insurance statutes, subject only to the matters set
forth therein (the "Title Policies"), and, to the Company's knowledge, the
Title Policies are valid and in full force and effect and no claim has been
made under any such policy. The Company has delivered to Buyer true and
complete copies of all such policies and of the most recent surveys of the
Owned Properties, and true and complete copies of all material exceptions
referenced in such policies and the most recent title reports for and
surveys of each of the Owned Properties.
<PAGE>
(b) Schedule 3.11(b) sets forth a complete and accurate list
of all material commitments, letters of intent or similar written
understandings made or entered into by the Company or any of its
Subsidiaries as of the date hereof (x) to sell, mortgage, pledge or
hypothecate any Owned Properties, which, individually or in the aggregate,
are material, or to otherwise enter into a material transaction in respect
of the ownership or financing of any Company Property or (y) to purchase or
to acquire an option, right of first refusal or similar right in respect of
any real property, which, individually or in the aggregate, are material,
which, in any such case, has not yet been reduced to a written lease or
contract, and sets forth with respect to each such commitment, letter of
intent or other understanding the principal terms thereof. The Company has
delivered to Buyer a true and complete copy of each such commitment, letter
of intent or other understanding. Schedule 3.11(b) also sets forth a
complete and accurate list of all agreements to purchase real property to
which the Company or any Subsidiary is a party.
(c) Except as set forth in Schedule 3.11(c), none of the
Company Properties is subject to any outstanding purchase options nor has
the Company or any of its Subsidiaries entered into any outstanding
contracts with others for the sale, mortgage, pledge, hypothecation,
assignment, sublease, lease or other transfer of all or any part of any
Company Property, and no person has any right or option to acquire, or
right of first refusal with respect to, the Company's or any of its
Subsidiaries' interest in any Company Property or any part thereof. None of
the Company or any of its Subsidiaries has any outstanding options or
rights of first refusal or has entered into any outstanding contracts with
others for the purchase of any real property.
(d) Schedule 3.11(d) contains a complete and accurate
description of any noncompliance by any Company Property, to the Company's
knowledge, with any law, ordinance, code, health and safety regulation or
insurance requirement other than such noncompliance as would not,
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect. Schedule 3.11(d) also sets forth the Company's or any
Subsidiary's capital expenditure budget and schedule for each Company
Property, which describes the capital expenditures which the Company or any
Subsidiary has budgeted for such Company Property for the period ending
March 31, 1997 (the "Capital Expenditure Budget and Schedule"). The Capital
Expenditure Budget and Schedule also describes other capital expenditures
as are necessary in order to bring such Company Property into compliance
with applicable laws, ordinances, codes, health and safety regulations and
insurance requirements (including in respect of fire sprinklers, compliance
with the ADA or which the Company otherwise plans or expects to make in
order to cure or remedy any construction, electrical, mechanical or other
defects, to renovate, rehabilitate or modernize such Company Property, or
otherwise, excluding, however, any tenant improvements required to be made
under any Company Lease). Except as set forth in the Capital Expenditure
Budget and Schedule there are no capital expenditure budgets or projections
for periods after March 31, 1998. The costs and time schedules set forth in
the Capital Expenditure Budget and Schedule are reasonable estimates and
projections. Except as set forth in Schedule 3.11(d), there are no
outstanding or, to the Company's knowledge, threatened requirements by any
insurance company which has issued an insurance policy covering any Company
Property, or by any board of fire underwriters or other body exercising
similar functions, requiring any repairs or alterations to be made to any
Company Property that would, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
(e) Schedule 3.11(e) contains a list of each Company
Property which consists of or includes undeveloped land or which is in the
process of being developed or redeveloped (collectively, the "Development
Properties") and a brief description of the development or redevelopment
intended by the Company or any Subsidiary to be carried
<PAGE>
out or completed thereon (collectively, the "Projects"), including any
budget and development schedule therefor prepared by or for the Company or
any Subsidiary (collectively, the "Development Budget and Schedule").
Except as set forth on Schedule 3.11(e), each Development Property is zoned
for the lawful development or redevelopment thereon of the applicable
Project, and the Company or its Subsidiaries have obtained all permits,
licenses, consents and authorizations required for the lawful development
or redevelopment thereon of such Project, except only for such failure to
meet the foregoing standards as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect. To the
Company's knowledge, there are no material impediments to or constraints on
the development or redevelopment of any Project in all material respects
within the time frame and for the cost set forth in the Development Budget
and Schedule applicable thereto. In the case of each Project the
development of which has commenced, to the Company's knowledge, the costs
and expenses incurred in connection with such Project and the progress
thereof are consistent and in compliance in all material respects with the
Development Budget and Schedule applicable thereto. The Company has made
available to Buyer all feasibility studies, soil tests, due diligence
reports and other studies, tests or reports performed by or for the Company
at any time since the Company's initial public offering, which relate to
the Development Properties or the Projects.
(f) The Company and each of its Subsidiaries have good and
sufficient title to all the personal and non-real properties and assets
reflected in their books and records as being owned by them (including
those reflected in the balance sheets of the Company and its Subsidiaries
as of March 31, 1997, except as since sold or otherwise disposed of in the
ordinary course of business), free and clear of all Liens, except for
Permitted Liens which are not, individually or in the aggregate, reasonably
expected to have a Material Adverse Effect.
(g) Schedule 3.11(g) sets forth all structural and
engineering reports that are in the Company's possession or control, true
and correct copies of all of which have been heretofore delivered to Buyer.
Except as disclosed in such reports, the Company has received no notice of,
and has no knowledge of any Structural Defect at any Company Property that
would, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
Section 3.12 Environmental Matters.
(a) Except as disclosed in the Company Environmental
Reports, each of the Company and its Subsidiaries has obtained, and now
maintains as currently valid and effective, all permits, certificates of
financial responsibility and other governmental authorizations required to
be obtained by the Company or any Subsidiary under the Environmental Laws
(the "Environmental Permits") in connection with the operation of their
respective businesses and properties. Except as disclosed in the Company
Environmental Reports, each of the Company and its Subsidiaries, and each
of the Company Properties is and has been in compliance with all terms and
conditions of the Environmental Permits and all Environmental Laws, except
only to an extent which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. The Company
has no knowledge of any circumstances or conditions that may prevent or
interfere with such compliance in the future.
(b) Each of the Company and its Subsidiaries has provided to
Buyer evidence of all formal communications, oral or written (whether from
a Government Authority, citizens' group, employee or other person), which
the Company has received regarding (x) alleged or suspected noncompliance
of any of the Company Properties with any Environmental Laws or
Environmental Permits or (y) alleged or suspected Liability of
<PAGE>
the Company or its Subsidiaries under any Environmental Law, which
noncompliance or Liability would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(c) There are no liens or encumbrances on any of the Company
Properties which arose pursuant to or in connection with any Environmental
Law or Environmental Claim and, to the Company's knowledge, no government
actions have been taken or threatened to be taken or are in process which
are reasonably likely to subject any Company Property to such liens or
other encumbrances.
(d) Except as disclosed in Schedule 3.12(d) (none of which
matters would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect), or set forth in the Company Environmental
Reports, no Environmental Claim has been asserted or, to the Company's
knowledge, threatened that may result in a Liability in excess of $100,000
with respect to the operations or the businesses of the Company or its
Subsidiaries, or with respect to the Company Properties. Except as set
forth in the Company Environmental Reports, no circumstances, past or
present actions, conditions, events or incidents which exist with respect
to the Company or its Subsidiaries or the Company Properties that would
reasonably be expected to result in any such Environmental Claim in excess
of $100,000 being asserted, in any such case, against (i) the Company or
its Subsidiaries, or (ii) to the Company's knowledge, any person whose
liability for any Environmental Claims the Company or its Subsidiaries has
or may have retained or assumed either contractually or by operation of
law.
(e) Except as disclosed in Schedule 3.12(e) (none of which
matters would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect), or set forth in the Company Environmental
Reports, (i) none of the Company or its Subsidiaries has been notified or
anticipates being notified of potential responsibility in connection with
any site that has been placed on, or proposed to be placed on, the National
Priorities List or its state or foreign equivalents pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 et seq., or analogous state laws, (ii) no
Materials of Environmental Concern are present on, in or under any Company
Property in a manner or condition that is reasonably likely to give rise to
an Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, (iii) none of the Company or its Subsidiaries has
Released or arranged for the Release of any Materials of Environmental
Concern at any location to an extent or in a manner which would reasonably
be expected to result in a Material Adverse Effect, (iv) no underground
storage tanks, surface impoundments, disposal areas, pits, ponds, lagoons,
open trenches or disused industrial equipment is present at any of the
Company Properties in a manner or condition that is reasonably likely to
give rise to an Environmental Claim which would reasonably be expected to
result in a Material Adverse Effect, (v) no transformers, capacitors or
other equipment containing fluid with more than 50 parts per million
polychlorinated biphenyls are present at any of the Company Properties in a
manner or condition that is reasonably likely to give rise to an
Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, except for any such transformers, capacitors or
other equipment owned by any utility company, and (vi) except as set forth
on Schedule 3.12(e) to the Company's knowledge no friable asbestos and no
friable asbestos-containing material is present at any of the Company
Properties and no Employee, agent, contractor or subcontractor of the
Company or its Subsidiaries or any other person is now or has in the past
been exposed to friable asbestos at any Company Property, except, in the
case of each of the matters set forth in this subpart (vi), for such
matters as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
<PAGE>
(f) Schedule 3.12(f) contains a list of each environmental
report prepared for the Company or its Subsidiaries or otherwise in the
possession of any of them with respect to the environmental condition of
any of the Company Properties (collectively, the "Company Environmental
Reports"). The Company has previously delivered or made available to Buyer
true and complete copies of each Company Environmental Report. To the
Company's knowledge, none of the matters disclosed by the Company
Environmental Reports would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. The Company has no
knowledge of any facts or circumstances relating to the environmental
condition of any property owned, leased or otherwise held by the Company
that is not a Company Property that are reasonably likely to result in a
Material Adverse Effect.
(g) For purposes hereof, the terms listed below shall have
the following meanings:
(i) "Claim" shall mean all actions, causes of action, suits,
judgments, executions, claims, Liabilities and demands
whatsoever, in law or equity.
(ii) "Environmental Claim" shall mean any Claim
investigation or notice by any person alleging potential
liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources
damages, property damages, personal injuries or fatalities, or
penalties) arising out of, based on or resulting from (A) the
presence, generation, transportation, treatment, use, storage,
disposal or Release of Materials of Environmental Concern or the
threatened Release of Materials of Environmental Concern at any
location, or (B) activities or conditions forming the basis of
any violation, or alleged violation of, or liability or alleged
liability under, any Environmental Law.
(iii) "Environmental Laws" shall mean federal, state, and
local laws, ordinances, common law, orders, statutes, and
regulations relating to the pollution or protection of the
environment or of flora or fauna or their habitat or of human
health and safety, or to the cleanup or restoration of the
environment.
(iv) "Materials of Environmental Concern" shall mean all
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum or any fraction thereof, petroleum products and
hazardous substances or solid or hazardous wastes as now defined
and regulated under any Environmental Laws.
(v) "Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration.
Section 3.13 Employees and Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a complete and accurate list
of all employment agreements between the Company or any of its Subsidiaries
and employees of the Company or any of its Subsidiaries. Except for the
employees who are parties to such employment agreements, all of the
employees of the Company and each of its Subsidiaries are employed on an
at-will basis (except for restrictions or limitations on the at-will basis
of such employees imposed by law or equity or general principles of law or
equity).
(b) Schedule 3.13(b) sets forth a complete and accurate list
of all Employee Benefit Plans and all material Benefit Arrangements which
cover Employees of the Company or any of its Subsidiaries with respect to
their employment relationship with the Company or any of its Subsidiaries
(the "Company Plans"). With respect to each
<PAGE>
Company Plan, the Company has made available to Buyer true and complete
copies of: (i) the plans and related trust documents and amendments
thereto, (ii) the most recent summary plan descriptions, if any, and the
most recent annual report, if any, and (iii) the most recent actuarial
valuation (to the extent applicable).
(c) With respect to each Company Plan, (i) the Company and
each of its Subsidiaries is in compliance in all material respects with the
terms of each Company Plan and with the requirements prescribed by all
applicable statutes, orders or governmental rules or regulations, (ii) the
Company and each of its Subsidiaries has contributed to each Pension Plan
included in the Company Plans not less than the amounts accrued for such
plan for all plan periods for which payment is due, (iii) none of the
Company or any of its Subsidiaries has any funding commitment or other
accrued liabilities except as set forth on Schedule 3.13(c) or as reserved
for in the financial statements in or incorporated by reference into the
Company Reports, and (iv) there are and have been no prohibited
transactions involving any Company Plan and in the case of each of clauses
(i), (ii), (iii) and (iv), except for such matters as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(d) Except as set forth on Schedule 3.13(d), none of the
Company or any of its Subsidiaries has made any commitment to establish any
new Employee Benefit Plan, to modify any Employee Benefit Plan, or to
increase benefits or compensation of Employees of the Company or any of its
Subsidiaries (except for normal increases in compensation consistent with
past practices), and to the Company's knowledge, no intention to do so has
been communicated to Employees of the Company or any of its Subsidiaries.
(e) There are no pending or, to the Company's knowledge,
anticipated claims (excluding claims for benefits incurred in the ordinary
course of Company Plan activities) against or otherwise involving any of
the Company Plans or any fiduciaries thereof with respect to their duties
to the Company Plans and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Company Plan
activities) has been brought against or with respect to any such Company
Plans.
(f) Neither the Company nor any of the ERISA Affiliates has,
at any time after September 25, 1980, contributed to, or been required to
contribute to, any "multiemployer plan" (as defined in Sections 3(37) and
4001(a)(3) of ERISA).
(g) Except as required by the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code
or requirements of state law and regulations and except as set forth on
Schedule 3.13(g), the Company and its Subsidiaries do not maintain or
contribute to any plan or arrangement which provides or has any liability
to provide life insurance, medical or other employee welfare benefits
described in Section 3(l) of ERISA to any Employee or former Employee
following his retirement or termination of employment and, to the Company's
knowledge, the Company and its Subsidiaries have never represented,
promised or contracted (whether in oral or written form) to any Employee or
former Employee that such benefits would be provided.
(h) For purposes hereof, "Employee Benefit Plans" means each
and all "employee benefit plans" as defined in Section 3(3) of ERISA
maintained or contributed to by the Company or a Subsidiary or in which the
Company or a Subsidiary participates or participated and which provides
benefits to Employees, including (i) any such plans that are "employee
welfare benefit plans" as defined in Section 3(l) of ERISA, including
retiree medical and life insurance plans ("Welfare Plans"), and (ii) any
such plans that constitute "employee pension benefit plans" as defined in
Section 3(2) of ERISA ("Pension Plans").
<PAGE>
"Benefit Arrangements" means life and health insurance, hospitalization,
savings, bonus, deferred compensation, incentive compensation, holiday,
vacation, severance pay, sick pay, sick leave, disability, tuition refund,
service award, company car, scholarship, relocation, patent award, fringe
benefit, individual employment, consultancy or severance contracts and
other polices or practices of the Company or a Subsidiary providing
employee or executive compensation or benefits to Employees maintained or
contributed to by the Company or a Subsidiary, other than Employee Benefit
Plans. "Employees" mean all current employees, former employees and retired
employees of the Company or any of its Subsidiaries, including employees on
disability, layoff or leave status. "Controlled Group Liability" means any
and all liabilities (other than such liabilities that arise solely out of,
or relate solely to, the Company Plans) of the ERISA Affiliates (other than
the Company and its Subsidiaries) under (i) Title IV of ERISA, (ii) Section
302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the
continuation coverage requirements of Section 601 et seq. of ERISA and
Section 4980B of the Code, and (v) corresponding or similar provisions of
foreign laws or regulations.
(i) To the Company's knowledge, with respect to each Company
Plan that is subject to Title IV or Section 302 of ERISA or Section 412 or
4971 of the Code: (i) there does not exist any accumulated funding
deficiency within the meaning of Section 412 of the Code or Section 302 of
ERISA, whether or not waived, (ii) the fair market value of the assets of
such plan equals or exceeds the actuarial present value of all accrued
benefits under such plan, on a termination basis, (iii) no reportable event
within the meaning of Section 4043(c) of ERISA has occurred, and the
consummation of the transactions contemplated by this Agreement will not
result in the occurrence of any such reportable event, and (iv) all
premiums due to the Pension Benefit Guaranty Corporation have been timely
paid in full.
(j) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a
liability of the Company following the Closing. Without limiting the
generality of the foregoing, neither the Company nor any ERISA Affiliate
has engaged in any transaction described in Section 4069 or Section 4204 of
ERISA.
(k) Except as set forth in Schedule 3.13(k), neither the
execution and delivery of this Agreement and the Transaction Documents nor
the consummation of the transactions contemplated hereby or thereby will
(either alone or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee of the Company.
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14,
none of the Company or any of its Subsidiaries is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. Except for
the matters set forth in Schedule 3.14 (none of which matters would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect), there is no unfair labor practice or labor arbitration
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries. To the Company's knowledge, there
are no organizational efforts with respect to the formation of a collective
bargaining unit presently being made or threatened involving employees of
the Company or any of its Subsidiaries.
Section 3.15 Affiliate Transactions. Schedule 3.15 sets forth a
complete and accurate list of all transactions, series of related
transactions or currently proposed transactions or series of related
transactions entered into by the Company or any of its Subsidiaries since
January 1, 1997 which are of the type required to be disclosed by the
<PAGE>
Company pursuant to Item 404 of Regulation S-K of the Securities Laws. A
true and complete copy of all agreements or contracts relating to any such
transaction have been made available to Buyer prior to the date hereof.
Section 3.16 Insurance. The Company maintains insurance policies,
including liability policies, covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company
and each of its Subsidiaries (collectively, the "Insurance Policies"),
which are of a type and in amounts customarily carried by persons
conducting businesses similar to those of the Company. Schedule 3.16 sets
forth a complete and accurate summary of the Insurance Policies. There is
no material claim by the Company or any of its Subsidiaries pending under
any of the material Insurance Policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies.
Section 3.17 Proxy Statement. The Proxy Statement and all of the
information included or incorporated by reference therein (other than any
information supplied or to be supplied by Buyer for inclusion or
incorporation by reference therein) will not, as of the date such Proxy
Statement is first mailed to the stockholders of the Company and as of the
time of the meeting of the stockholders of the Company in connection with
the transactions contemplated hereby, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder.
Section 3.18 Regulatory Compliance.
(a) Compliance with Law. Except as set forth in Schedule
3.18(a), to the knowledge of the Company, neither the Company nor any
Subsidiary is the subject of any investigation, nor has any investigation
or prosecution or other action been threatened by any Governmental Entity
or any private entity or person regarding non-compliance with any Law and
no basis exists for any such investigation or prosecution. None of the
Company, any of the Subsidiaries, or any individual employed by the Company
or any of the Subsidiaries, to the knowledge of the Company, may reasonably
be expected to have criminal culpability or to be excluded from
participation in any Medical Reimbursement Program for its or his corporate
or individual actions or failure to act. To the Company's knowledge, there
is no executive officer of the Company or any Subsidiary continuing to be
employed by the Company or any of the Subsidiaries who may reasonably be
expected to have individual culpability for matters under investigation by
the OIG or other Governmental Entity.
(b) Billing. Current billing policies, arrangements,
protocols, and instructions comply in all material respects with
requirements of Medical Reimbursement Programs and are administered by
properly trained personnel, except as set forth in Schedule 3.18(b). The
Company and each Subsidiary has complied with all applicable Medicare and
all other third party pay or billing policies, procedures, limitations and
restrictions, and there is no pending or threatened recoupment or penalty
action or proceedings against the Company or any Subsidiary under the
Medicare program or by any other third party payor, except for such
non-compliance, actions or proceedings that individually or in the
aggregate would not have a Material Adverse Effect. The Company's current
operations do not require compliance with Blue Cross/Blue Shield, Medicaid
or CHAMPUS policies, procedures, limitations or restrictions.
<PAGE>
(c) Licenses and Permits. The Company and each of the
Subsidiaries has obtained, and maintain in force, all Permits required from
any Governmental Entity to operate their respective businesses and to
occupy, operate and use any buildings, improvements, fixtures and equipment
owned or leased in connection with the operation of assisted living
facilities to provide the level one, two and three services described in
the Company's 1997 Form 10-K at all locations by the Company or any of the
Subsidiaries, and all such Permits are valid and in full force and effect
and shall remain so upon consummation of the transactions contemplated by
this Agreement with only such exceptions that would not, individually or in
the aggregate, have a Material Adverse Effect. All of the Permits
referenced in the foregoing sentence have been issued in the name of the
Company or the applicable Subsidiary or Affiliated Limited Partnership
having an ownership or leasehold interest in the facilities referenced
therein. The Company's Subsidiary, Pro Motive Rehabilitative Services,
Inc., has a valid license to provide rehabilitation therapy services under
Part B of the Medicare Program. No Permits of the Company or any Subsidiary
have been suspended, canceled or terminated and, to the knowledge of the
Company, no suspension, cancelation or termination of any such Permits is
threatened or imminent. Each employee of the Company and of each of the
Subsidiaries (including, but not limited to, each facility administrator)
has obtained, and maintains in force, all licenses, permits or similar
authorizations required to authorize such employee to perform his or her
duties on behalf of the Company and the Subsidiaries with only such
exceptions that, individually and in the aggregate, would not have a
Material Adverse Effect.
(d) Certain Payments. Neither the Company nor any
Subsidiary, nor any director, officer or employee of the Company or any
Subsidiary acting for or on behalf of the Company or any Subsidiary, has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company or any Subsidiary: (i) any bribe, kickback or other
similar payment to any Governmental Entity or any agent of any supplier or
customer; or (ii) any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by
applicable law).
(e) Third Party Payors; Medicare. To the extent required in
the ordinary course of their business, the Company and each Subsidiary is
qualified for the conduct of the Company's business in the ordinary and
regular course, for participation in the Medicare program and is a party to
provider agreements for such programs which are in full force and effect
with no events of default having occurred thereunder, except as set forth
in Schedule 3.18(e) and such exceptions that would not, individually or in
the aggregate, have a Material Adverse Effect. The Company and each of the
Subsidiaries has filed or will timely file all claims or other reports
required to be filed with respect to the purchase of services by
third-party payors, including, but not limited to, the Medical
Reimbursement Programs. All such claims or reports are or will be complete
and accurate in all material respects. The Company and each of the
Subsidiaries has paid or has properly recorded on the Company's financial
statements all actually known and undisputed refunds, discounts or
adjustments which have become due pursuant to such claims, and neither the
Company nor any Subsidiary has any material liability to any payor with
respect thereto, except as has been fully reserved for in the Company's
financial statements. Except as set forth in Schedule 3.18(e), there are no
pending appeals, overpayment determinations, adjustments, challenges,
audits, litigation, or notices of intent to reopen Medicare claims
determinations or other reports required to be filed by the Company or any
Subsidiary in order to be paid by a payor for services rendered. Neither
the Company nor any of the Subsidiaries, nor any of their respective
directors, officers, employees, partners, consultants or stockholders has
been convicted of, or pled guilty or nolo contendere to, patient abuse or
neglect, or any other Medicare program-related
<PAGE>
offense. Neither the Company nor any of the Subsidiaries, nor any of their
respective directors, officers, stockholders, or to the Company's
knowledge, their current employees, partners or consultants, has committed
any offense which may serve as the basis for suspension or exclusion from
the Medicare program, including, but not limited to, defrauding a
government program, loss of a license to provide health care services, and
failure to provide quality care.
(f) Fraud and Abuse. The Company, each of the Subsidiaries,
and their respective directors, officers and employees and the other
persons and entities providing professional services for the Company and
the Subsidiaries, have not engaged in any activities which are in violation
of Sections 1128A, 1128B, 1128C or 1877 of the Social Security Act (42
U.S.C. ss.ss. 1320a-7a, 1320a-7b, 1320a-7c and 1395nn), the False Claims
Act (31 U.S.C. ss. 3729 et seq.), the False Statements Acts (18 U.S.C. ss.
2002), the Program Fraud Civil Penalties Act (31 U.S.C. ss. 3801 et seq.),
California Business and Professions Code ss.ss. 650, 650.01 and 650.01,
California Labor Code ss.ss. 139.3 and 139.31, California Health and Safety
Code ss. 445, California Welfare and Institutions Code ss.ss. 14107,
14107.2 and 14107.3, or related regulations or other federal or state laws
and regulations, including, but not limited to, the following:
(i) knowingly and wilfully making or causing to be made a
false statement or representation of a material fact in any
application for any benefit or payment;
(ii) knowingly and wilfully making or causing to be made a
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(iii) failure to disclose knowledge by a Medicare or
Medicaid claimant or a claimant under any Medical Reimbursement
Program of the occurrence of any event affecting the initial or
continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such
benefit or payment;
(iv) knowingly and wilfully offering, paying, soliciting or
receiving any renumeration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or
in kind (i) in return for referring an individual to a person for
the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by any
Medical Reimbursement Program or (ii) in return for purchasing,
leasing, or ordering, or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by any
Medical Reimbursement Program; or
(v) referring or billing a patient for designated health
services (as defined in 42 U.S.C. ss. 1395nn) or providing
designated health services to a patient upon a referral from an
entity or person with which the physician or an immediate family
member has a financial relationship, and to which no exception
under 42 U.S.C. ss. 1395nn applies.
Section 3.19 Vote Required. The affirmative vote of the holders
of a majority (including the Advancing Party and its Controlled Affiliates
(as defined in the Stockholders Agreement) for purposes of determining a
quorum and for determining a majority) of the outstanding shares of Company
Common Stock entitled to vote hereon and duly present in person or by proxy
at a meeting duly called to vote (and with each share of Company Common
Stock entitled to one vote per share) is the only vote of the holders of
<PAGE>
any class or series of Company Stock necessary to approve the election of
the existing Directors and the Investor Nominees as contemplated by this
Agreement and the Transaction Documents.
Section 3.20 Brokers or Finders. No agent, broker, investment
banker or other firm or person, including any of the foregoing that is an
Affiliate of the Company, is or will be entitled to any broker's or
finder's fee or any other commission or similar fee from the Company in
connection with this Agreement or the Transaction Documents or any of the
transactions contemplated hereby or thereby for which Buyer or any of its
Affiliates will be responsible other than Salomon Brothers Inc (the
"Broker"). The fee of the Broker shall be paid by the Company pursuant to a
separate agreement between the Company and the Broker. The Company agrees
to indemnify and hold harmless Buyer and its successors and assigns from
and against any and all claims, losses, liabilities and expenses, including
without limitation reasonable attorneys' fees, disbursements and charges,
arising out of any claim or demand for commissions or other compensation
for bringing about this transaction by any agent, broker, investment banker
or other firm or person, including without limitation the Broker, who
claims to have dealt with the Company in connection with this Agreement or
the Transaction Documents or any of the transactions contemplated hereby or
thereby.
Section 3.21 Knowledge Defined. As used herein, the phrase "to
the Company's knowledge" (or words of similar import) means the actual
knowledge of any of John A. Booty, David P. Collins, Graham P.
Espley-Jones, Sheila M. Muldoon, Patrick M. Donovan, Erik K. Davidson,
Brian Flornes and each president of each division of the Company and
includes any facts, matters or circumstances (i) set forth in the files
maintained by such person, (ii) that would be known by such persons after
the exercise of reasonable inquiry and (iii) set forth in any written
notice from any Government Authority or any other material written notice
received by the Company or any of its Subsidiaries from any other person,
and also including any matter of which Buyer informs the Company in
writing.
Section 3.22 Certain Information. If Buyer has obtained knowledge
prior to the Closing that any of the representations or warranties of the
Company set forth in this Article 3 are untrue in any respect and Buyer
nevertheless elects to acquire Company Notes at the Closing, then such
breach shall be deemed to have been waived by the Buyer and the Company
shall have no liability to Buyer in respect thereof. For the purposes of
this Section, Buyer shall be deemed to have knowledge of any such matter
only if (i) such matter is set forth in a Schedule to this Agreement
including Schedule 3.22, (ii) such matter was set forth in a letter,
memorandum or other written communication from the Company that
specifically states that such letter, memorandum or other written
communication is being delivered pursuant to this Section 3.22 or (iii)
Buyer has actual knowledge of such matter as a result of its due diligence
review contemplated by this Agreement or otherwise.
<PAGE>
ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Buyer and the Advancing Party hereby jointly and severally
represent and warrant to the Company as follows:
Section 4.1 Organization.
(a) Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite power and authority to enter into this
Agreement and the Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder.
(b) The Advancing Party is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware. The Advancing Party has all requisite power and
authority to enter into this Agreement and the Transaction Documents to
which it is a party and to perform its obligations hereunder and
thereunder.
Section 4.2 Due Authorization. The execution, delivery and
performance of this Agreement and the Transaction Documents to which Buyer
and the Advancing Party are parties have been duly and validly authorized
by all necessary action on the part of Buyer and the Advancing Party. This
Agreement and the Transaction Documents to which Buyer and the Advancing
Party are parties have been duly executed and delivered by each of Buyer
and the Advancing Party for itself and constitute the valid and legally
binding obligations of Buyer and the Advancing Party, enforceable against
Buyer or the Advancing Party, as the case may be, in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights or general principles of equity.
Section 4.3 Conflicting Agreements and Other Matters. Neither the
execution and delivery of this Agreement nor the performance by Buyer or
the Advancing Party, as the case may be, of its obligations hereunder will
conflict with, result in a breach of the terms, conditions or provisions
of, constitute a default under, result in the creation of any mortgage,
security interest, encumbrance, lien or charge of any kind upon any of the
properties or assets of Buyer or the Advancing Party, as the case may be,
pursuant to, or require any consent, approval or other action by or any
notice to or filing with any Government Authority pursuant to, the
organizational documents or agreements of Buyer or the Advancing Party, as
the case may be, or any agreement, instrument, order, judgment, decree,
statute, law, rule or regulation by which Buyer or the Advancing Party, as
the case may be, is bound, except for filings after the Closing under
Section 13(d) or Section 16 of the Exchange Act.
Section 4.4 Acquisition for Investment; Sophistication; Source of
Funds.
(a) Buyer is acquiring the Company Notes being purchased by
it for its own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and Buyer has no
present intention or plan to effect any distribution of the Company Notes,
provided that the disposition of Company Notes owned by Buyer shall at all
times be and remain within its control, subject to the provisions of this
Agreement and the Transaction Documents.
<PAGE>
(b) Buyer is able to bear the economic risk of the
acquisition of Company Common Stock pursuant hereto and can afford to
sustain a total loss on such investment, and has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment. On the
Settlement Date, the Advancing Party shall have available and shall advance
to Buyer all of the funds necessary to satisfy Buyer's obligations
hereunder and to pay any related fees and expenses in connection with the
foregoing.
(c) Each of Buyer and the Advancing Party is an "accredited
investor" as such term is defined in Regulation D promulgated under the
Securities Act.
Section 4.5 Proxy Statement. None of the information supplied or
to be supplied by Buyer for inclusion or incorporation by reference in the
Proxy Statement will, as of the date the Proxy Statement is first mailed to
the stockholders of the Company and as of the time of the meeting of the
stockholders of the Company in connection with the transactions
contemplated hereby, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
Section 4.6 Brokers or Finders. No agent, broker, investment
banker or other firm or person, including any of the foregoing that is an
Affiliate of Buyer, or the Advancing Party, is or will be entitled to any
broker's or finder's fee or any other commission or similar fee from Buyer
or the Advancing Party in connection with this Agreement or any of the
transactions contemplated hereby for which the Company or any of its
Affiliates will be responsible. Buyer agrees to indemnify and hold harmless
the Company from and against any and all claims, losses, liabilities and
expenses, including without limitation reasonable attorneys' fees,
disbursements and charges, arising out of any claim or demand for
commissions or other compensation for bringing about this transaction by
any agent, broker, investment banker or other firm or person (excluding the
Broker) who claims to have dealt with the Buyer in connection with this
Agreement or the Transaction Documents or any of the transactions
contemplated hereby or thereby.
Section 4.7 Investment Company Matters. Neither the Advancing
Party nor Buyer is, and after giving effect to the purchase of Company
Common Stock contemplated hereby neither will be, an "investment company"
or an entity "controlled" by an "investment Company", as such terms are
defined in the Investment Company Act of 1940, as amended.
ARTICLE 5
Covenants Relating to Closing
Section 5.1 Taking of Necessary Action.
(a) Each party hereto agrees to take or cause to be taken
all action and promptly to do or cause to be done all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement and the
Transaction Documents, subject to the terms and conditions hereof and
thereof, including all actions and things necessary to cause all conditions
precedent set forth in Article 7 to be satisfied.
<PAGE>
(b) As promptly as practicable after the date hereof, the
Company shall prepare and file with the SEC a preliminary proxy statement
(the "Proxy Statement") by which the Company's stockholders will be asked
to approve, among other things, the election of the existing Directors and
the Investor Nominees as contemplated by this Agreement and the Transaction
Documents. The Proxy Statement as initially filed with the SEC, as it may
be amended and refiled with the SEC and as it may be mailed to the
Company's stockholders, shall be in form and substance reasonably
satisfactory to Buyer. The Company shall use its reasonable efforts to
respond to any comments of the SEC and to cause the Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable time. As
promptly as practicable after the date hereof, the Company shall prepare
and file any other filings required of the Company or its Subsidiaries
under the Exchange Act, the Securities Act or any other federal, state or
local laws relating to this Agreement and the transactions contemplated
hereby, and state takeover laws (the "Other Filings"). The Company and
Buyer will notify each other promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff or any
other government officials for amendments or supplements to the Proxy
Statement or any Other Filing or for additional information and will supply
each other with copies of all correspondence between each of them or any of
their respective representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to
the Proxy Statement or any Other Filing. The Proxy Statement and any Other
Filing shall comply in all material respects with all applicable
requirements of law. Buyer shall provide the Company all information about
Buyer (including the Investor Nominees) required to be included or
incorporated by reference in the Proxy Statement or any Other Filing and
shall otherwise cooperate with the Company in taking the actions described
in this paragraph. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement or any Other
Filing, the Company or Buyer, as the case may be, shall promptly inform the
other party of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials, and/or mailing to stockholders of
the Company, such amendment or supplement.
(c) The Company shall call a meeting of its stockholders to
be held as promptly as practicable for the purpose, among other things, of
voting upon the election of directors as contemplated by this Agreement and
the Transaction Documents.
(d) The Company shall use commercially reasonable efforts to
obtain estoppel certificates addressing certain issues identified in
writing to the Company by Buyer in form and substance reasonably
satisfactory to Buyer from the applicable landlords under the following
leases: NHP leases, Meditrust and Healthcare REIT leases and HCPI leases.
Section 5.2 Registration Rights Agreement. Concurrent with the
execution of this Agreement, the Company, the Advancing Party and Buyer
shall enter into the Registration Rights Agreement.
Section 5.3 Stockholders Agreement. Concurrent with the execution
of this Agreement, the Company, the Advancing Party and Buyer shall enter
into the Stockholders Agreement.
Section 5.4 Public Announcements; Confidentiality.
(a) Subject to each party's disclosure obligations imposed
by law and any stock exchange or similar rules and the confidentiality
provisions contained in Section 5.4(b), all news releases and other public
information disclosures with respect to this Agreement and the Transaction
Documents and any of the transactions contemplated
<PAGE>
hereby or thereby will require the mutual approval of Buyer and the Company
before such release or disclosure is made. If a party is required by law or
any stock exchange or similar rule to issue a news release or other public
announcement, it shall advise the other party in advance thereof and use
reasonable best efforts to cause a mutually agreeable release or
announcement to be issued.
(b) Buyer agrees that all information provided to Buyer or
any of its representatives pursuant to this Agreement shall be kept
confidential, and Buyer shall not (x) disclose such information to any
persons other than the directors, officers, employees, financial advisors,
investors, lenders, legal advisors, accountants, consultants and affiliates
of Buyer who reasonably need to have access to the confidential information
and who are advised of the confidential nature of such information or (y)
use such information in a manner which would be detrimental to the Company;
provided, however, the foregoing obligation of Buyer shall not (i) relate
to any information that (1) is or becomes generally available other than as
a result of unauthorized disclosure by Buyer or by persons to whom Buyer
has made such information available, (2) is or becomes available to Buyer
on a nonconfidential basis from a third party that is not, to Buyer's
knowledge, bound by any other confidentiality agreement with the Company,
or (ii) prohibit disclosure of any information if required by law, rule,
regulation, court order or other legal or governmental process.
(c) In the event that Buyer is requested or required (by
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any of the
confidential information, Buyer shall provide the Company with prompt
written notice so that the Company may seek a protective order or other
appropriate remedy. In the event such protection or other remedy is not
obtained and Buyer is required to provide such confidential information or
stand subject to contempt or other censure or penalty, Buyer shall give the
Company written notice of the confidential information to be disclosed as
far in advance of its disclosure as is practicable and, upon the Company's
request and at the Company's expense, use its reasonable efforts to obtain
assurances that confidential treatment will be accorded to such
confidential information. In the event such information is requested, or is
the subject of a subpoena, pursuant to an informal or formal inquiry or
investigation by the SEC, any U.S. state securities or blue sky authority,
and U.S. or foreign stock exchange or regulatory authority, Buyer shall be
free to disclose such information thereto without a protective order.
(d) Buyer and the Company agree that money damages would not
be a sufficient remedy for any breach of the Agreement by the other party
or its representatives and that in addition to all other remedies the
Company shall be entitled to specific performance and injunctive or other
equitable relief as a remedy for any such breach, Buyer further agrees to
waive and to use its best efforts to cause its representatives to waive an
requirement for the securing or posting of any bond in connection with such
remedy.
Section 5.5 No Solicitation of Transactions. Unless and until
this Agreement is terminated in accordance with its terms, none of the
Company or its Subsidiaries shall, directly or indirectly, through any
officer, director, agent or otherwise, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction, or enter into or
maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize or knowingly
permit any of the officers, directors or employees of such party or any of
its Subsidiaries or any investment
<PAGE>
banker, financial advisor, attorney, accountant or other representative
retained by such party or any of such party's Subsidiaries to take any such
action, and the Company shall notify Buyer orally (within one Business Day)
and in writing (as promptly as practicable) of all of the relevant details
relating to all inquiries and proposals which any officer or director of
the Company may receive relating to any of such matters and if such inquiry
or proposal is in writing, the Company shall deliver to Buyer a copy of
such inquiry or proposal; provided, however, that nothing contained in this
Section shall prohibit the Board from complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer or
prohibit the Board from taking such other actions as may be required to
comply with its fiduciary obligations. If the Board determines with the
advice of counsel that failure to do so could be held to violate its
fiduciary duties, it may provide information in response to an unsolicited
proposal. If the Company receives a bona fide proposal for a Competing
Transaction that the Board determines in good faith (based on the advice of
a nationally recognized financial advisor) may provide greater value to the
Company and its stockholders than the transactions contemplated by this
Agreement, it may enter into negotiations with respect to such proposal.
The Company will notify Buyer of any such superior proposal not less than
two Business Days prior to entering into any definitive agreement with
respect to a Competing Transaction; provided, however, that in no event
shall the Company enter into a definitive agreement with respect to a
Competing Transaction less than five Business Days after the Company's
initial notification to Buyer of an inquiry or proposal relating to a
Competing Transaction. Within the two-Business-Day or five-Business-Day
period referred to above, Buyer may propose an improved transaction.
Section 5.6 Information and Access. Unless and until this
Agreement is terminated in accordance with its terms, (i) the Company and
its Subsidiaries shall afford to Buyer and Buyer's accountants, counsel and
other representatives full and reasonable access during normal business
hours (and at such other times as the parties may mutually agree) to its
properties, books, contracts, commitments, records and personnel and,
during such period, shall furnish promptly to Buyer (1) a copy of each
report, schedule and other document filed or received by it pursuant to the
requirements of the Securities Laws, and (2) all other information
concerning their businesses, personnel and the Company Properties as Buyer
may reasonably request, and (ii) without limiting the generality of the
foregoing, Buyer shall have the right to (1) conduct or cause to be
conducted an environmental, physical, structural, electrical, mechanical
and other inspection and review of any Company Properties, for which
inspection Buyer will and hereby does indemnify and hold the Company
harmless from any and all damages whatsoever caused by such inspection, or
(2) request that the Company update, at Buyer's expense, any existing
reports, reviews or inspections thereof, in which case the Company shall
promptly so update its reports, reviews and inspections and cause them to
be certified to Buyer by the firm or person who prepared such report or
conducted such review or inspection. Buyer and its accountants, counsel and
other representatives shall, in the exercise of the rights described in
this Section, not unduly interfere with the operation of the businesses of
the Company or its Subsidiaries.
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale. Buyer acknowledges and agrees that the
Company Notes that Buyer will acquire will not be registered under the
Securities Act and may only be sold or otherwise disposed of in one or more
transactions registered under the Securities Act and, where applicable,
relevant state securities laws or as to which an exemption from the
<PAGE>
registration requirements of the Securities Act and, where applicable, such
state securities laws is available, and Buyer agrees that the Company Notes
shall bear a legend with respect to the restrictions on transfer under the
Securities Act and under applicable state securities laws. Prior to any
proposed transfer of the Company Notes, unless such transfer is made
pursuant to an effective registration statement under the Securities Act,
Buyer will deliver to the Company an opinion of counsel, reasonably
satisfactory in form and substance to the Company, to the effect that the
Company Notes may be sold or otherwise transferred without registration
under the Securities Act. The Company will remove the legend relating to
Securities Act restrictions from any Company Common Stock acquired pursuant
to the Stock Purchase Agreement at any time two years after issuance if
Buyer delivers to the Company an opinion of counsel, reasonably
satisfactory in form and substance to the Company, to the effect that such
Company Common Stock is no longer subject to transfer restrictions under
the Securities Act. Until such time as such Company Common Stock shall have
been registered under the Securities Act or sold pursuant to Rule 144
promulgated thereunder (or any similar rule or regulation) each stock
certificate for such Company Common Stock shall bear any restricted
securities legend required pursuant to the Stockholders Agreement, unless
such legend is no longer required thereunder.
Section 6.2 Guarantee. The Advancing Party hereby unconditionally
and irrevocably guarantees and agrees to be responsible for the payment and
performance of all of Buyer's obligations hereunder.
ARTICLE 7
Conditions to Closing
Section 7.1 Conditions of the Closing. The obligation of Buyer to
purchase the Company Notes at the Closing is subject to satisfaction or
waiver of each of the following condition precedent:
Representations and Warranties; Covenants. The
representations and warranties of the Company contained herein shall be
true and correct in all respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on
and as of the Closing Date (except for representations and warranties that
speak as of a specific date or time other than the Closing Date (which need
only be true and correct in all respects as of such date or time)), other
than, in all such cases, such failures to be true and/or correct as would
not in the aggregate reasonably be expected to have a Material Adverse
Effect; provided, however, that if any of the representations and
warranties is already qualified in any respect by materiality or as to
Material Adverse Effect for purposes of this Section 7.1(a) such
materiality or Material Adverse Effect qualification will be in all
respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants
and agreements of the Company to be performed on or before the Closing Date
in accordance with this Agreement shall have been duly performed in all
respects, other than (except for the covenants set forth in Sections 5.2
and 5.3, as to which the proviso set forth in this other-than clause shall
not apply) for such failures to have been performed as would not in the
aggregate reasonably be expected to have a Material Adverse Effect
(provided, however that if any such covenant or agreement is already
qualified in any respect by materiality or as to Material Adverse Effect
for purposes of determining whether this condition has been satisfied, such
materiality or Material Adverse Effect or qualification will be in all
respects ignored and such covenant or agreement shall have been performed
in all respects without regard to such qualification (but subject to the
overall exception as
<PAGE>
to Material Adverse Effect set forth immediately prior to this proviso)).
In making any determination as to Material Adverse Effect under this
Section 7.1, the matters set forth in such Section shall be aggregated and
considered together.
Section 7.2 Conditions of Sale. The obligation of the Company to
issue and sell the Company Notes at the Closing is subject to satisfaction
or waiver of the following condition precedent:
Representations and Warranties; Covenants. The
representations and warranties of Buyer and the Advancing Party contained
herein shall have been true and correct in all respects on and as of the
date hereof, and shall be true and correct in all respects on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that speak as of a specific date or time
other than the Closing Date (which need only be true and correct in all
respects as of such date or time)), other than, in all such cases, such
failures to be true and/or correct as would not in the aggregate reasonably
be expected to have a Material Adverse Effect on the Company or Buyer's
ability to consummate the transactions contemplated hereby; provided,
however, that if any of the representations and warranties is already
qualified in any respect by materiality or as to Material Adverse Effect
for purposes of this Section 7.2(a) such materiality or Material Adverse
Effect qualification will be in all respects ignored (but subject to the
overall standard as to Material Adverse Effect set forth immediately prior
to this proviso). The covenants and agreement, of Buyer to be performed on
or before the Closing Date in accordance with this Agreement shall have
been duly performed in all respects, other than (except for Buyer's
covenants set forth in Sections 5.2 and 5.3, as to which the proviso set
forth in this other-than clause shall not apply) for such failures to have
been performed as would not in the aggregate reasonably be expected to have
a Material Adverse Effect on the Company or Buyer's ability to consummate
the transactions contemplated hereby (provided, however, that if any such
covenant or agreement is already qualified in any respect by materiality or
as to Material Adverse Effect for purposes of determining whether this
condition has been satisfied, such materiality or Material Adverse Effect
qualification will be in all respects ignored and such covenant or
agreement shall have been performed in all respects without regard to such
qualification (but subject to the overall exception as to Material Adverse
Effect set forth immediately prior to this proviso)).
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival. Except as otherwise provided in this
Agreement, all representations, warranties and (except as provided by the
last sentence of this Section 8.1) covenants and agreements of the parties
contained herein, including indemnity or indemnification agreements
contained herein, or in any Schedule or Exhibit hereto, or any certificate,
document or other instrument delivered in connection herewith shall survive
the Closing until the first anniversary of the Closing. No Action or
proceeding may be brought with respect to any of the representations and
warranties, or any of the covenants or agreements which survive until such
first anniversary, unless written notice thereof, setting forth in
reasonable detail the claimed misrepresentation or breach of warranty or
breach of covenant or agreement, shall have been delivered to the party
alleged to have breached such representation or warranty or such covenant
or agreement prior to such first anniversary; provided, however, that, if
Buyer shall have complied with this Section 8.1, the damages for breach by
the Company of any of the representations and warranties, or any of the
covenants or agreements which survive until such first anniversary, shall
be
<PAGE>
measured with respect to all of Buyer's purchases of Company Common Stock
and Company Notes hereunder and not with respect only to Buyer's purchases
under this Agreement (including purchases under the Stock Purchase
Agreement) made prior to such first anniversary, but such measurement shall
not in any event include any shares of Company Stock that Buyer may have
purchased other than from the Company. Those covenants or agreements that
contemplate or may involve actions to be taken or obligations in effect
after the Closing shall survive in accordance with their terms.
Section 8.2 Indemnification by Buyer or the Company.
(a) Subject to Section 8.1, from and after the Closing Date,
Buyer shall indemnify and hold harmless the Company, its successors and
assigns, from and against any and all damages, claims, losses, expenses,
costs, obligations, and liabilities, including liabilities for all
reasonable attorneys' fees and expenses (including attorney and expert fees
and expenses incurred to enforce the terms of this Agreement)
(collectively, "Loss and Expenses") suffered, directly or indirectly, by
the Company by reason of, or arising out of, (i) any breach as of the date
made or deemed made or required to be true of any representation or
warranty made by Buyer in or pursuant to this Agreement, or (ii) any
failure by Buyer or the Advancing Party to perform or fulfill any of its
covenants or agreements set forth herein. Notwithstanding any other
provision of this Agreement to the contrary, in no event shall Loss and
Expenses include a party's incidental or consequential damages.
(b) Subject to Section 8.1, from and after the Closing Date,
the Company shall indemnify and hold harmless Buyer, its successors and
assigns, from and against any and all Loss and Expenses, suffered, directly
or indirectly, by Buyer by reason of, or arising out of, (i) any breach as
of the date made or deemed made or required to be true of any
representation or warranty made by the Company in or pursuant to this
Agreement and any statements made in any certificate delivered pursuant to
this Agreement, or (ii) any failure by the Company to perform or fulfill
any of its covenants or agreements set forth herein. Notwithstanding any
other provision of this Agreement to the contrary, in no event shall Loss
and Expenses include a party's incidental or consequential damages.
(c) Notwithstanding the foregoing, (i) neither Buyer nor the
Company shall be responsible for any Loss and Expenses as provided by
paragraphs (a) and (b), respectively, of this Section 8.2 until the
cumulative aggregate amount of such Loss and Expenses suffered by Buyer or
the Company, as the case may be, exceeds $100,000, in which case Buyer or
the Company, as the case may be, shall then be liable for all such Loss and
Expenses, and (ii) the cumulative aggregate indemnity obligation of each of
Buyer and the Company under this Section 8.2 shall in no event exceed the
actual aggregate amount paid by Buyer for the shares of Company Common
Stock and Company Notes purchased by it from the Company pursuant to this
Agreement. Except with respect to third-party claims being defended in good
faith or claims for indemnification with respect to which there exists a
good faith dispute, the indemnifying party shall satisfy its obligations
hereunder within 30 days of receipt of a notice of claim under this Article
8.
Section 8.3 Third-Party Claims. If a claim by a third party is
made against an Indemnified Party and if such Indemnified Party intends to
seek indemnity with respect thereto under this Article, such Indemnified
Party shall promptly notify the indemnifying party in writing of such
claims setting forth such claims in reasonable detail; provided, however,
the foregoing notwithstanding, the failure of any Indemnified Party to give
any notice required to be given hereunder shall not affect such Indemnified
Party's right to
<PAGE>
indemnification hereunder except to the extent the indemnifying party from
whom such indemnity is sought shall have been prejudiced in its ability to
defend the claim or action for which such indemnification is sought by
reason of such failure. The indemnifying party shall have 20 days after
receipt of such notice to undertake, through counsel of its own choosing
and at its own expense, the settlement or defense thereof, and the
Indemnified Party shall cooperate with it in connection therewith;
provided, however, that the Indemnified Party may participate in such
settlement or defense through counsel chosen by such Indemnified Party,
provided that the fees and expenses of such counsel shall be borne by such
Indemnified Party. The Indemnified Party shall not pay or settle any claim
which the indemnifying party is contesting. Notwithstanding the foregoing,
the Indemnified Party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to indemnity therefor
by the indemnifying party. If the indemnifying party does not notify the
Indemnified Party within 20 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
ARTICLE 9
Termination
Section 9.1 Termination. (a) This Agreement may be terminated at
any time prior to the Closing by:
(i) the mutual consent of the Company and Buyer;
(ii) Buyer (if it is not in breach of any of its material
obligations hereunder) in the event of a breach or failure by the
Company that is material in the context of the transactions
contemplated hereby of any representation, warranty, covenant or
agreement by the Company contained herein; or
(iii) the Company (if it is not in breach of any of its
material obligations hereunder) in the event of a breach or
failure by Buyer that is material in the context of the
transactions contemplated hereby of any representation, warranty,
covenant or agreement by Buyer contained herein which has not
been, or cannot be, cured within 30 Business Days after written
notice of such breach is given to Buyer.
Section 9.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of the Company and Buyer
pursuant to Section 9.1, written notice thereof shall forthwith be given by
the terminating party to the other party hereto, and this Agreement shall
thereupon terminate and become void and have no effect, and the
transactions contemplated hereby shall be abandoned without further action
by the parties hereto, except that the provisions of Sections 3.20 and 4.7
(Brokers or Finders), 5.4 (Public Announcements; Confidentiality), Article
8 (Survival; Indemnification), 9.3 (Expenses), 10.2 (Governing law), and
10.4 (Notices), and any related definitional, interpretive or other
provisions necessary for the logical interpretation of such provisions,
shall survive the termination of this Agreement; provided, however, that
such termination shall not relieve any party hereto of any liability for
any breach of this Agreement.
<PAGE>
Section 9.3 Expenses. Except as set forth in this Agreement,
whether or not the Note Purchase is consummated and regardless of any
reason for which this Agreement may have been terminated pursuant to
Section 9.1, all costs and expenses incurred by Buyer in connection with
this Agreement and the transactions contemplated hereby, including without
limitation, reasonable fees, expenses and reimbursements of counsel to
Buyer, reasonable out-of-pocket expenses incurred by Buyer and Buyer's
agents and representatives incurred in performing due diligence and all
other reasonable out-of-pocket expenses incurred by Buyer in connection
with this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby (collectively, "Buyer's
Expenses") shall be paid by the Company.
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have
been signed by each party hereto and delivered to the other party. Copies
of executed counterparts transmitted by telecopy, telefax or other
electronic transmission service shall be considered original executed
counterparts for purposes of this Section, provided receipt of copies of
such counterparts is confirmed.
Section 10.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 10.3 Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto
contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set
forth or referred to herein. This Agreement is not intended to confer upon
any person not a party hereto (and their successors and assigns) any rights
or remedies hereunder.
Section 10.4 Notices. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight delivery
service or, to the extent receipt is confirmed, telecopy, telefax or other
electronic transmission service to the appropriate address or number as set
forth below. Notices to the Company shall be addressed to:
ARV Assisted Living, Inc.
245 Fischer Avenue, D-1
Costa Mesa, CA 92626
Attention: President and General Counsel
Telecopy Number: (714) 435-7102
with a copy to:
Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, CA 90071
Attention: William J. Cernius
<PAGE>
Telecopy Number: (714) 755-8290
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Lazard Freres Real Estate Investors L.L.C.
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert P. Freeman, Murry N. Gunty & Klaus Kretschmann
Telecopy Number: (212) 332-5980
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy Number: (212) 474-3700
Section 10.5 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors. Buyer and the Advancing Party shall be permitted to
assign any of their rights hereunder to any Affiliate of Buyer or the
Advancing Party, provided that such Affiliate agrees to be bound hereby and
by the Stockholders Agreement, and provided that Buyer and the Advancing
Party shall remain liable hereunder, and provided that any bona fide
financial institution to which any Buyer, the Advancing Party or any
permitted transferee has Transferred (as that term is used in the
Stockholders Agreement) (including upon foreclosure of a pledge) shares of
Company Stock or Company Notes for the purpose of securing bona fide
indebtedness of any Buyer and which has agreed to be bound by this
Agreement and the Stockholders Agreement shall also be entitled to enforce
the rights of Buyer and the Advancing Party hereunder.
Section 10.6 Headings. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference only
and will not affect the meaning or interpretation of this Agreement. All
references to Sections or Articles contained herein mean Sections or
Articles of this Agreement unless otherwise stated.
Section 10.7 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing
signed by the party against whom enforcement of any such modification or
amendment is sought. Either party hereto may, only by an instrument in
writing, waive compliance by the other party hereto with any term or
provision hereof on the part of such other party hereto to be performed or
complied with. The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent
breach.
Section 10.8 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall
be held to include the plural and vice versa and words of one gender shall
be held to include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Schedules and Exhibits hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph,
Exhibit and Schedule references are to the Articles, Sections, paragraphs,
Exhibits and Schedules to this Agreement unless otherwise
<PAGE>
specified, (iii) the word "including" and words of similar import when used
in this Agreement shall mean "including, without limitation," unless the
context otherwise requires or unless otherwise specified, (iv) the word
"or" shall not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the
party drafting or causing any instrument to be drafted.
Section 10.9 Severability. Any provision hereof which is invalid
or unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
Section 10.10 Further Assurances. The Company and Buyer agree
that, from time to time, whether before, at or after any Closing Date, each
of them will execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry out the
purposes and intents hereof.
Section 10.11 Specific Performance. Buyer and the Company each
acknowledge that, in view of the uniqueness of the parties hereto, the
parties hereto would not have an adequate remedy at law for money damages
in the event that this Agreement were not performed in accordance with its
terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the parties hereto may be entitled at law or in equity.
Section 10.12 Joint and Several Liability. The obligations and
liabilities of Buyer and the Advancing Party under or in connection with
this Agreement are joint and several.
Section 10.13 Interpretation of Schedules. Any matter set forth
on any Schedule shall be deemed to be referred to on all other Schedules to
which such matter logically relates and where such reference would be
appropriate and can reasonably be inferred from the matters disclosed on
the first Schedule as if set forth on such other Schedules.
Section 10.14 Acknowledgment of Company's Right to Take Certain
Actions. Notwithstanding anything to the contrary herein, the Company may,
at its sole discretion, reincorporate the Company under the laws of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above written.
ARV ASSISTED LIVING, INC.
by: /s/ Sheila M. Muldoon
------------------------
Name: Sheila M. Muldoon
Title: Vice President
PROMETHEUS ASSISTED LIVING LLC
by: Lazard Freres Real Estate Investors
L.L.C., its sole member
by: /s/ Robert P. Freeman
-------------------------
Name: Robert P. Freeman
Title: President
LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.
by: /s/ Robert P. Freeman
---------------------------
Name: Robert P. Freeman
Title: President
Exhibit 2
EXECUTION COPY
------------------------------------------------
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
dated as of
October 29, 1997
------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions........................................................1
"Adjusted Fully Diluted Basis".................................1
"Affiliate" ...................................................1
"Agreement"....................................................2
"Beneficially Own".............................................2
"Board"........................................................2
"Buyer"........................................................2
"Code".........................................................2
"Company"......................................................2
"Company Charter"..............................................2
"Company Common Stock".........................................2
"Control"......................................................2
"Covered Transaction"..........................................2
"Director".....................................................2
"Early Standstill Termination Event"...........................2
"Exercise Notice"..............................................2
"Extraordinary Transaction"....................................2
"Fully Diluted Basis"..........................................2
"Government Authority".........................................3
"Group"........................................................3
"Investor".....................................................3
"Investor Nominees"............................................3
"Kapson".......................................................3
"Kapson Agreement".............................................3
"Key Committees"...............................................3
"1933 Act".....................................................3
"1934 Act".....................................................3
"Participation Notice".........................................3
"person".......................................................3
"Standstill Period"............................................3
"Stock Purchase Agreement".....................................3
"Termination Event"............................................3
"13D Group"....................................................3
"Transfer".....................................................4
"Voting Securities"............................................4
ARTICLE 2
Board of Directors.................................................4
Section 2.1 Members of the Board..............................4
Section 2.2 [Intentionally Omitted]...........................5
Section 2.3 Vacancies.........................................5
Section 2.4 Officers..........................................5
Section 2.5 President/CEO.....................................5
ARTICLE 3
Voting and Participation Rights....................................5
<PAGE>
Page
Section 3.1 Voting Rights.....................................5
Section 3.2 Participation Rights..............................6
ARTICLE 4
Standstill Provisions..............................................8
Section 4.1 Standstill Period.................................8
Section 4.2 Restrictions During Standstill Period.............9
Section 4.3 Restrictions on Transfer.........................10
Section 4.4 Notice to Company................................11
Section 4.5 Compliance with Insider Trading Policy...........11
Section 4.6 Investment Company Matters.......................11
Section 4.7 Waiver of Restrictions and Limits................11
ARTICLE 5
Additional Covenants..............................................11
Section 5.1 Restrictions on Investments......................11
ARTICLE 6
Miscellaneous.....................................................12
Section 6.1 Counterparts.....................................12
Section 6.2 Governing Law....................................12
Section 6.3 Entire Agreement.................................12
Section 6.4 Expenses.........................................12
Section 6.5 Notices..........................................12
Section 6.6 Successors and Assigns...........................13
Section 6.7 Headings.........................................13
Section 6.8 Amendments and Waivers...........................13
Section 6.9 Interpretation; Absence of Presumption...........13
Section 6.10 Severability....................................14
Section 6.11 Further Assurances..............................14
Section 6.12 Specific Performance............................14
Section 6.13 Investor Breach.................................14
Section 6.14 Confidentiality.................................14
Section 6.15 Public Announcements............................15
<PAGE>
THIS AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT (this "Agreement"), dated as of October
29, 1997, is made by and between Lazard Freres
Real Estate Investors L.L.C., a New York limited
liability company (the "Advancing Party"),
Prometheus Assisted Living LLC, a Delaware limited
liability company (the "Buyer"), and ARV Assisted
Living, Inc., a California corporation (the
"Company"). Capitalized terms not otherwise
defined herein have the meaning ascribed to them
in the Stock Purchase Agreement (as hereinafter
defined).
RECITALS:
WHEREAS, the Company, the Buyer and the Advancing Party have
entered into a Stock Purchase Agreement, dated as of July 14, 1997 (as
amended to date, including the Amended and Restated Stock and Note Purchase
Agreement dated as of the date hereof, the "Stock Purchase Agreement"),
that provides for the purchase by Buyer and sale by the Company to Buyer of
shares of Company Common Stock and Company Notes;
WHEREAS, the parties previously entered into a Stockholders
Agreement dated as of July 14, 1997 (the "Stockholders Agreement"),
providing for certain rights and restrictions with respect to the
investment by Investor (as hereinafter defined) in the Company and the
corporate governance of the Company; and
WHEREAS, the Company, the Advancing Party and Buyer desire
to amend and restate the Stockholders Agreement as contemplated by the
Stock Purchase Agreement;
NOW THEREFORE, in consideration of the premises and the
covenants and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby, agree to amend and restate the Stockholders Agreement as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have
the following respective meanings:
"Adjusted Fully Diluted Basis" shall mean on a Fully Diluted
Basis, except that shares of Common Stock issuable upon conversion of the
Convertible Debt or upon exercise of options granted under management
benefit plans shall not be included.
"Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 promulgated under the 1934 Act, and as in effect on the date hereof.
<PAGE>
"Agreement" shall have the meaning set forth in the first
paragraph hereof.
"Beneficially Own" shall mean, with respect to any security,
having direct or indirect (including through any Subsidiary or Affiliate)
"beneficial ownership" of such security, as determined pursuant to Rule
13d-3 under the 1934 Act, including pursuant to any agreement, arrangement
or understanding, whether or not in writing; provided, however, that all of
the shares of Company Common Stock that Investor then has the right to
acquire upon conversion of the Company Notes in accordance with their terms
shall be deemed to be Beneficially Owned by Investor.
"Board" shall mean the board of directors of the Company.
"Buyer" shall have the meaning set forth in the first
paragraph hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and
regulations promulgated thereunder.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Company Charter" shall have the meaning set forth in the
Stock Purchase Agreement.
"Company Common Stock" shall have the meaning set forth in
the second paragraph hereof.
"Control" shall mean with respect to any person, the power
to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "Controlled" shall have a correlative meaning.
"Convertible Debt" shall mean the Company's 6-3/4%
Convertible Subordinated Notes due 2006.
"Covered Transaction" shall have the meaning set forth in
Section 4.1.
"Director" shall mean a member of the Board.
"Early Standstill Termination Event" shall have the meaning
set forth in Section 4.1.
"Exercise Notice" shall have the meaning set forth in
Section 3.2(b).
"Extraordinary Transaction" shall mean (a) any merger,
consolidation, sale of a material portion of the Company's assets,
recapitalization, other business combination, liquidation, or other similar
action out of the ordinary course of business of the Company, or (b) any
issuance of securities to any person or Group requiring stockholder
approval in accordance with the guidelines of the NASDAQ National Market
(or any stock exchange on which the Company Common Stock is then listed) as
to such matters, as in effect as of the date of the Stock Purchase
Agreement.
"Fully Diluted Basis" shall mean then outstanding Company
Stock plus any shares of stock or other equity or debt exchangeable for
Company Stock and any shares of stock or other equity or debt the holders
of which have the right to vote with the stockholders of the Company on any
matter, and shall include Company Common Stock issuable under the Company
Notes, the Convertible Debt, the instruments listed in
<PAGE>
Schedule 3.3(a) of the Stock Purchase Agreement and under option or other
equity-incentive plans listed on Schedule 3.13(b) of the Stock Purchase
Agreement and awards issued pursuant thereto.
"Government Authority" shall mean any government or state
(or any subdivision thereof) of or in the United States, or any agency,
authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
"Group" shall mean a "group" as such term is used in Section
13(d)(3) of the 1934 Act.
"Investor" shall mean the Buyer, and shall also include any
permitted assignee of the Buyer pursuant to the Stock Purchase Agreement
and, for purposes only of the provisions of the Registration Rights
Agreement, any bona fide financial institution to which any Investor has
Transferred (including upon foreclosure of a pledge) shares of Company
Common Stock for the purpose of securing bona fide indebtedness of any
Investor and which has agreed to be bound by this Agreement.
"Investor Nominees" shall have the meaning set forth in
Section 2.1(a).
"Kapson" shall mean Kapson Senior Quarters, Corp.
"Kapson Agreement" shall mean the letter agreement dated as
of September 30, 1997, as amended and restated as of October 29, 1997,
among the Advancing Party, Buyer and the Company relating to Kapson.
"Key Committees" shall have the meaning set forth in Section
2.2(a).
"1933 Act" shall mean the Securities Act of 1933, as
amended.
"1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Participation Notice" shall have the meaning set forth in
Section 3.2(b).
"person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust,
unincorporated organization, other form of business or legal entity or
Government Authority.
"Standstill Period" shall have the meaning set forth in
Section 4.1.
"Stock Purchase Agreement" shall have the meaning set forth
in the Recitals hereof.
"Termination Event" shall mean the date on which either (i)
Investor no longer Beneficially Owns a number of shares of Company Common
Stock equal to at least 5% of the outstanding Company Common Stock, on a
Fully Diluted Basis or (ii) Investor no longer Beneficially Owns Company
Common Stock having an aggregate market value of at least $25,000,000.
"13D Group" shall mean any group of persons acquiring,
holding, voting or disposing of Voting Securities which would be required
under Section 13(d) of the 1934 Act and the rules and regulations
thereunder (as in effect, and based on legal interpretations thereof
existing, on the date hereof) to file a statement on Schedule 13D with the
Securities and Exchange Commission as a "person" within the meaning of
<PAGE>
Section 13(d)(3) of the 1934 Act if such group beneficially owned Voting
Securities representing more than 5% of any class of Voting Securities then
outstanding.
"Transfer" shall have the meaning set forth in Section 4.3.
"Voting Securities" shall mean at any time shares of any
class of capital stock of the Company which are then entitled to vote
generally in the election of Directors.
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) As of the Closing Date, the Company and Investor will
take all actions necessary to cause the Board to be structured to consist
of nine members, of which three members will be designees of Investor (at
least one in each class of the Board) (the "Investor Nominees"), and the
Company and Investor will take all actions necessary to cause such nominees
to become members of the Board as of the Closing Date. The initial Investor
Nominees shall be Robert P. Freeman, Murry N. Gunty and Kenneth M. Jacobs.
If necessary to effectuate the placement of Investor Nominees on the Board,
the Company shall solicit the resignations of the appropriate number of
Directors to the extent necessary to permit the Investor Nominees to serve.
Thereafter until the occurrence of a Termination Event, at each annual or
special meeting of stockholders of the Company at, or the taking of action
by written consent of stockholders of the Company with respect to which any
class of Directors is to be elected, Investor shall have the right (but not
obligation) pursuant to this Agreement and pursuant to the By-laws of the
Company to designate three nominees to the Board if the Board is a single
class, and one designee per class if the Board is divided into three
classes.
(b) Investor will not name any person as an Investor Nominee
if (i) such person is not reasonably experienced in business, financial or
real estate matters, (ii) such person has been convicted of, or has pled
nolo contendere to a felony, (iii) the election of such person would
violate any law, or (iv) any event required to be disclosed pursuant to
Item 401(f) of Regulation S-K of the 1934 Act has occurred with respect to
such person. Investor shall use its reasonable efforts to afford the
independent directors of the Company a reasonable opportunity to meet any
individual that Investor is considering naming as an Investor Nominee.
(c) The Company will support the nomination of and the
election of each Investor Nominee to the Board, and the Company will
exercise all authority under applicable law to cause each Investor Nominee
to be elected to the Board. Without limiting the generality of the
foregoing, with respect to each meeting of stockholders of the Company at
which Directors are to be elected, the Company shall use its reasonable
efforts to solicit from the stockholders of the Company eligible to vote in
the election of Directors proxies in favor of each Investor Nominee.
(d) During the period that Investor shall have the right to
designate nominees to the Board under this Agreement, the number of
Directors on the Board shall not exceed nine at any time.
<PAGE>
(e) If Investor's right to nominate directors to the Board
is reduced, Investor shall cause the applicable number of its Investor
Nominees to immediately resign (regardless of the remaining term, if any)
from the Board.
(f) It is hereby agreed that any decision to take or omit to
take any action on the Company's behalf with respect to any transaction or
agreement involving or relating to Investor shall be subject only to the
approval of a majority of non-Investor Nominee Directors.
Section 2.2 [Intentionally Omitted]
Section 2.3 Vacancies. In the event that any Investor
Nominee shall cease to serve as a Director for any reason other than the
fact that Investor no longer has a right to nominate a Director, as
provided in Section 2.1(a), the vacancy resulting thereby shall be filled
by an Investor Nominee designated by Investor; provided, however, that any
Investor Nominee so designated shall satisfy the qualification requirements
set forth in Section 2.1(b).
Section 2.4 Officers. The Investor agrees to cooperate with
the Company in connection with the negotiation, execution and delivery of
employment agreements between the Company and certain key employees of the
Company.
Section 2.5 President/CEO. The Company covenants and agrees
to use commercially reasonable efforts to identify, select and retain a new
President/CEO of the Company within 90 days after the Closing Date. The
retention of such President/CEO shall require the prior written consent of
Investor, such approval not to be unreasonably withheld. The Investor
agrees to cooperate with the Company in the identification, selection and
retention of a new President/CEO of the Company. The parties acknowledge
that the identification, selection and retention of a new President/CEO of
the Company is a critical element for the ongoing success of the Company
and the parties agree to act in good faith in connection therewith. Upon
the retention of a new President/CEO of the Company in accordance with this
Section, the Company shall use its best efforts to cause a Director who is
not an Investor Nominee to resign from the Board, the Company will cause
such new President/CEO to be nominated as a director at the next succeeding
annual meeting of the Company and the Company and the Investor will use
their best efforts to cause such new President/CEO to be elected to the
Board.
ARTICLE 3
Voting and Participation Rights
Section 3.1 Voting Rights. Subject to the provisions of this
Section 3.1, Investor may vote the shares of Company Common Stock which it
owns in its sole and absolute discretion. During the Standstill Period the
Advancing Party, the Buyer and Investor and any of their Controlled
Affiliates will vote all shares of Company Common Stock owned by any of
them that represent aggregate ownership in excess of 35.8% of the
outstanding shares of Company Common Stock, in one of the following two
manners, at their option: (x) in accordance with the recommendation of the
Board, or (y) proportionally in accordance with the votes of the other
holders of Company Common Stock. Notwithstanding anything to the contrary
in the foregoing, during the Standstill Period, the Advancing Party, the
Buyer and Investor and any of their Controlled Affiliates shall vote all
shares of Company Common Stock owned by any of them in favor of the
election of all Directors nominated by the nominating committee, if any, or
the Board provided such nominations are in accordance with Section 2.1(a).
<PAGE>
Section 3.2 Participation Rights
(a) Rights to Participate. From and after the date hereof
until a Termination Event, if any, Investor shall be entitled to a
participation right to purchase or subscribe up to that number of
additional shares of capital stock (including as "capital stock" for
purposes of this Section 3.2, any security, option, warrant, call,
commitment, subscription, right to purchase or other agreement of any
character that is convertible into or exchangeable or redeemable for shares
of capital stock of the Company or any Subsidiary (and all references in
this Section 3.2 to capital stock shall, as appropriate, be deemed to be
references to any such securities), and also including additional shares of
capital stock to be issued pursuant to the conversion, exchange or
redemption of any security, option, warrant, call, commitment,
subscription, right to purchase or other agreement of a character that is
convertible into or exchangeable or redeemable for shares of capital stock,
as if the price at which such additional shares of capital stock is issued
pursuant to any such conversion, exchange or redemption were the market
price on the date of such issuance) to be issued or sold by the Company
which represents the same proportion (the "shareholder percentage") of the
total number of shares of capital stock to be issued or sold by the Company
(including the shares of capital stock to be issued to Investor upon
exercise of its participation rights hereunder; it being understood and
agreed that the Company will accordingly be required to either increase the
number of shares of capital stock to be issued or sold so that Investor may
purchase additional shares to maintain its proportionate interest, or to
reduce the number of shares of capital stock to be issued or sold to
Persons other than Investor) as is represented by the number of shares of
Company Common Stock Beneficially Owned by Investor prior to such sale or
issuance relative to the number of outstanding shares of Company Common
Stock, on an Adjusted Fully Diluted basis, prior to such sale or issuance
(but in no event more than 35.8% of the total number of shares of capital
stock to be issued or sold by the Company at all subsequent offerings);
provided, however, that the provisions of this Section 3.2 shall not to
apply to (i) the issuance or sale by the Company of any of its capital
stock issued to the Company or any of its Subsidiaries or pursuant to
options, rights or warrants or other commitments or securities in effect or
outstanding as of July 14, 1997 (including without limitation, any options
issued or to be issued pursuant to the Employment Agreements), (ii) the
issuance of capital stock pursuant to the conversion, exchange or
redemption of any other capital stock, but shall, without limitation, apply
to the issuance by the Company of any of its capital stock pursuant to
benefit, option, stock purchase, or other similar plans or arrangements,
including pursuant to or upon the exercise of options, rights, warrants, or
other securities or agreements (including those issued pursuant to the
Company's benefit plans) and (iii) the issuance of stock for consideration
other than cash; provided further, however, that in the case of debt
securities of the Company that entitle the Investor to participation rights
hereunder, such participation rights shall apply only to the issuance of
such debt securities, i.e., the Investor shall have participation rights
with respect to such debt securities, and shall have whatever conversion
rights to which holders of such debt securities are entitled, but shall
have no other participation rights with respect thereto and the Investor
shall only have the right to acquire such debt securities themselves.
Notwithstanding the foregoing, any participation rights provided for in
this Section which arise as a result of the exception contained in clause
(ii) of the preceding sentence shall be deferred until such time as
participation rights shall otherwise arise under this Section 3.2. The
provisions of this Section 3.2 shall apply to the Convertible Debt only
upon conversion, in which event the Company agrees from time to time to
issue the number of additional shares necessary to permit the Buyer to
maintain its shareholder percentage (as defined above), provided that the
purchase price for such shares shall be the closing price of the Company
Common Stock on the date of each such conversion; provided further that the
Company shall provide the Buyer within 15 days after the end of each
calendar quarter with a schedule of the conversions during such quarter
(and the related closing prices for the Common Stock on the dates of
conversion),
<PAGE>
the number of additional shares of Common Stock the Buyer is entitled to
purchase hereunder and the purchase price therefor; provided further that
Buyer shall have until 15 days after receipt of such schedule to purchase
such additional shares. Any conversion or exercise of securities acquired
by Investor pursuant to this Section 3.2 shall be deferred by Investor if
it would result in Investor's share percentage exceeding 49.9%.
(b) Notice. In the event the Company proposes to issue or
sell any shares of capital stock in a transaction giving rise to the
participation rights provided for in this Section, the Company shall send a
written notice (the "Participation Notice") to Investor setting forth the
number of shares of such capital stock of the Company that the Company
proposes to sell or issue, the price (before any commission or discount) at
which such shares are proposed to be issued (or, in the case of an
underwritten or privately placed offering in which the price is not known
at the time the Participating Notice is given, the method of determining
such price and an estimate thereof), and all other relevant information as
to such proposed transaction as may be necessary for Investor to determine
whether or not to exercise the rights granted in this Section. At any time
within 20 days after its receipt of the Participation Notice, Investor may
exercise its participation rights to purchase or subscribe for shares of
such shares of capital stock, as provided for in this Section, by so
informing the Company in writing (an "Exercise Notice"). Each Exercise
Notice shall state the percentage of the proposed sale or issuance that the
Investor elects to purchase. Each Exercise Notice shall be irrevocable,
subject to the conditions to the closing of the transaction giving rise to
the participation right provided for in this Section.
(c) Abandonment of Sale or Issuance. The Company shall have
the right, in its sole discretion, at all times prior to consummation of
any proposed sale or issuance giving rise to the participation right
granted by this Section, to abandon, rescind, annul, withdraw or otherwise
terminate such sale or issuance, whereupon all participation rights in
respect of such proposed sale or issuance pursuant to this Section shall
become null and void, and the Company shall have no liability or obligation
to Investor or any Affiliate thereof who has acquired shares of Company
Stock pursuant to the Stock Purchase Agreement or from Investor with
respect thereto by virtue of such abandonment, rescission, annulment,
withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by Investor
or an Affiliate thereof, as the case may be, pursuant to this Section shall
be on the same price and other terms and conditions, including the date of
sale or issuance, as are applicable to the purchasers or subscribers of the
additional shares of capital stock of the Company whose purchases or
subscriptions give rise to the participation rights (except that the price
to Investor to make such purchase or subscription shall be net of payment
of any underwriting, placement agent or similar fee associated with such
purchase or subscription), which price and other terms and conditions shall
be substantially as stated in the relevant Participation Notice (which
standard shall be satisfied if the price, in the case of a negotiated
transaction, is not greater than 110% of the estimated price set forth in
the relevant Participation Notice or, in the case of an underwritten or
privately placed offering, is not greater than of (i) 110% of the estimated
price set forth in the relevant Participation Notice, and (ii) the most
recent closing price on or prior to the date of the pricing of the
offering); provided, however, that in the event the purchases or
subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the 1933 Act and in which offering
it is not legally permissible for the securities to be purchased by
Investor to be included, such securities to be purchased by Investor will
be purchased in a concurrent private placement.
(e) Timing of Sale. If, with respect to any Participation
Notice, Investor fails to deliver an Exercise Notice within the requisite
time period, the Company shall have
<PAGE>
120 days after the expiration of the time in which the Exercise Notice is
required to be delivered in which to sell not more than 110% of the number
of shares of capital stock of the Company described in the Participation
Notice (plus, in the event such shares are to be sold in an underwritten
public offering, an additional number of shares of capital stock of the
Company, not in excess of 15% of 110% of the number of shares of capital
stock of the Company described in the Participation Notice, in respect of
any underwriters over allotment option) and not less than 90% of the number
of shares of capital stock of the Company described in the Participation
Notice at a price of not less than 90% of the estimated price set forth in
the Participation Notice. If, at the end of 120 days following the
expiration of the time in which the Exercise Notice is required to be
delivered, the Company has not completed the sale or issuance of capital
stock of the Company in accordance with the terms described in the
Participation Notice (or at a price which is at least 90% of the estimated
price set forth in the Participation Notice), or in the event of any
contemplated sale or issuance within such 120-day period but outside such
price parameters, the Company shall again be obligated to comply with the
provisions of this Section with respect to, and provide the opportunity to
participate in, any proposed sale or issuance of shares of capital stock of
the Company; provided, however, that notwithstanding the foregoing, if the
price at which such capital stock is to be sold in an underwritten offering
(or a privately placed offering in which the price is not less than 97% of
the most recent closing price at the time of the pricing of the offering)
is not at least 90% of the estimated price set forth in the Participation
Notice, the Company may inform Investor of such fact and Investor shall be
entitled to elect, by written notice delivered within two Business Days
following such notice from the Company, to participate in such offering in
accordance with the provisions of this Section 4.2.
ARTICLE 4
Standstill Provisions
Section 4.1 Standstill Period. The "Standstill Period" shall be
the period commencing on the date of this Agreement and ending on the
earlier of (x) the third anniversary of the Settlement Date or (y) the
earliest of:
(i) the occurrence of any event of default on the part of
the Company or any Subsidiary under any debt agreements,
instruments or arrangements (other than those disclosed to the
Advancing Party or Investor prior to the Closing Date) that would
reasonably be expected to result in a Material Adverse Effect,
and, in the case of a non-monetary event of default, which event
of default cannot be, or is not, cured by the Company within the
applicable cure period under such debt agreement, instrument or
arrangement and that would reasonably be expected to result in a
Material Adverse Effect;
(ii) the authorization by the Company or the Board or any
committee thereof (with all Investor Nominees abstaining or
voting against) of the solicitation of offers or proposals or
indications of interest with respect to any merger,
consolidation, other business combination, liquidation, sale of
the Company or all or substantially all of the assets of the
Company or any other change of control of the Company or similar
extraordinary transaction, but excluding any merger,
consolidation or other business combination in which the Company
is the surviving and acquiring corporation and in which the
business or assets so acquired do not, or would not reasonably be
expected to, have a value greater than 50% of the assets of the
Company prior to such merger, consolidation or other business
combination (any of the foregoing, a "Covered Transaction");
<PAGE>
(iii)the written submission by any person or Group other
than Investor or any Affiliate thereof of a proposal to the
Company (including to the Board or any agent, representative or
Affiliate of the Company ) with respect to, or otherwise
expressing an interest in pursuing, a Covered Transaction;
provided, however, that the Standstill Period shall not terminate
pursuant to this Section 4.1(a)(iii) if, as soon as practicable
after receipt of any such proposal, the Board determines that
such proposal is not in the best interest of the Company and its
stockholders and for so long as the Board continues to reject
such proposal as a result of such determination;
(iv) in connection with any actual or proposed Covered
Transaction, the removal of any rights plan, provisions of the
Company Charter relating to staggered terms of office for
directors, provisions of the Company Charter or the By-laws of
the Company relating to supermajority voting of the Company's
stockholders, "excess share" provisions of the Company Charter or
the By-laws of the Company, or any other similar arrangements,
agreements, commitments or provisions in the Company Charter or
the By-laws of the Company which would reasonably be expected to
impede the consummation of such actual or proposed Covered
Transaction by action of any Government Authority, the Board, the
stockholders of the Company or otherwise;
(v) 90 days after the occurrence of a Termination Event;
(vi) any breach by the Company of the Stock Purchase
Agreement which is neither cured nor desisted from within 30 days
of receipt of written notice from Investor of such breach and
which would reasonably be expected to materially adversely affect
Investor or cause a Material Adverse Effect; or
(vii)any breach of this Agreement by the Company which is
neither cured nor desisted within 30 days of receipt of written
notice from Investor of such breach and which would reasonably be
expected to materially adversely affect Investor or cause a
Material Adverse Effect.
Any event set forth in clauses (i)-(vii) of this Section 4.1 shall be an
"Early Standstill Termination Event."
Section 4.2 Restrictions During Standstill Period
(a) During the Standstill Period, the Advancing Party, the Buyer,
and Investor will not, and will cause each of their Controlled Affiliates
not to, directly or indirectly:
(i) act in concert with any other person or Group by
becoming a member of a 13D Group, other than any 13D Group
comprised exclusively of Investor and one or more of its
Affiliates;
(ii) purchase or otherwise acquire shares of Company Common
Stock (or options, rights or warrants or other commitments to
purchase and securities convertible into (or exchangeable or
redeemable for) shares of Company Common Stock) as a result of
which, after giving effect to such purchase or acquisition, the
Advancing Party, the Buyer, and Investor and their Controlled
Affiliates will Beneficially Own in the aggregate more than 49.9%
of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis;
(iii) solicit, encourage or propose to effect or negotiate any
Covered Transaction;
<PAGE>
(iv) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the 1934 Act, disregarding clause (iv) of
Rule 14a-1(1)(2) and including an exempt solicitation pursuant to
Rule 14a-2(b)(1)); call, or in any way encourage or participate
in a call for, any special meeting of stockholders of the Company
(or take any action with respect to acting by written consent of
the stockholders of the Company); request, or take action to
obtain or retain, any list of holders of any securities of the
Company; or initiate or propose any stockholder proposal or
participate in or encourage the making of, or solicit
stockholders of the Company for the approval of, one or more
stockholder proposals; provided, however, that Investor shall not
be prohibited from communicating with a security holder who is
engaged in any "solicitation" of "proxies" or who is a
"participant" in any "election contest";
(v) seek representation on the Board or a change in the
composition or size of the Board other than as permitted by
Article 2;
(vi) enter into or (to the extent such person has the power
to do so) permit Kapson to enter into sale/leaseback or other
financing arrangements of the type contemplated by the Kapson
Agreement with any public or private company (other than the
Company) the principal business of which is the ownership,
management, operation and development of assisted living
facilities (which shall not include health care real estate
investment trusts) in the United States unless such company
enters into a written standstill agreement with the Company
containing provisions substantially similar to the provisions of
Section 4.1 and this Section 4.2;
(vii)request the Company or any of its directors, officers,
employees or agents to amend or waive any provisions of this
Section 4.2 or seek to challenge the legality or effect thereof;
or
(viii) assist, advise, encourage or act in concert with any
person with respect to, or seek to do, any of the foregoing.
Section 4.3 Restrictions on Transfer. During the Standstill
Period, the Advancing Party, the Buyer and Investor will not, and will
cause each of their Controlled Affiliates not to, directly or indirectly,
Transfer any shares of Company Common Stock or Company Notes except for:
(a) Transfers made in compliance with the requirements of Rule 144 of the
1933 Act, (b) Transfers pursuant to negotiated transactions with third
parties provided that any such Transfer is not made to any public or
private company the principal business of which is, or that derives more
than $15 million of annual revenue from (in either case as of the date of
such Transfer), the ownership, management, operation and development of
assisted living facilities in the United States, unless 75% of the
Directors of the Company (other than Investor Nominees) have consented to
such Transfer and provided further that the transferee acknowledges that it
is subject to the provisions of Article 5 of this Agreement, (c) Transfers
pursuant to or in accordance with the Registration Rights Agreement in a
bona fide public offering, (d) Transfers to one or more Controlled
Affiliates of Investor who agree to be bound by the terms and conditions of
this Agreement, who make the representations set forth in Sections 4.8,
4.10 and 4.11 of the Stock Purchase Agreement and who satisfy the ownership
criteria in the definition of "Investor", and (e) Transfers to a bona fide
financial institution for the purpose of securing bona fide indebtedness of
any Investor. After the expiration of the Standstill Period, there shall be
no restrictions on the ability of the Advancing Party, the Buyer, Investor
and their Controlled Affiliates to Transfer any shares of Company Common
Stock.
<PAGE>
Section 4.4 Notice to Company. During the Standstill Period,
if any party wishes to sell pursuant to Section 4.3(a), (b) or (c) any
shares of Company Common Stock or Company Notes, such party shall give the
Company 15 days' prior written notice of such proposed sale, setting forth
the number of shares of Company Common Stock or the principal amount of
Company Notes (as the case may be) that such party proposes to sell, the
expected timing of the proposed sale, and the expected selling price of
such sale, in order to enable the Company to make an offer to purchase such
shares or Company Notes. During the period described in the preceding
sentence, such party shall also notify the Company if such party reaches a
formal board-level decision to sell shares of Company Common Stock, or
Company Notes convertible into shares of Company Common Stock, representing
more than 2% of the shares of Company Common Stock on an Adjusted Fully
Diluted Basis.
Section 4.5 Compliance with Insider Trading Policy. For as
long as the Advancing Party, the Buyer or Investor Beneficially Owns any
shares of Company Common Stock, such parties will, and will use their
commercially reasonable efforts to cause their directors, officers,
employees, agents, and representatives to, comply with any written policy
of the Company reasonably designed to prevent violations of insider trading
and similar laws.
Section 4.6 Investment Company Matters. From and after the
Stockholder Approval Date, if any, until a Termination Event, if any,
Investor shall use its reasonable best efforts to not be or become an
"investment company" or any entity "controlled" by an "investment company",
as such terms are defined in the Investment Company Act of 1940, as
amended.
Section 4.7 Waiver of Restrictions and Limits. The Company
shall take all actions, including by providing any necessary conditional
exemptions from or amendments to any agreement or instrument which governs
ownership of shares of Company Stock by any person, necessary to permit
Investor to Beneficially Own up to and including 35.8% of the outstanding
shares of Company Common Stock on an Adjusted Fully Diluted Basis. If any
third party shall be given the right to Beneficially Own more than 35.8% of
the outstanding shares of Company Common Stock on an Adjusted Fully Diluted
Basis, the Company shall take all actions (including by providing the
foregoing exemptions and amendments) to waive any and all restrictions or
limits on Investor. Notwithstanding the foregoing but subject to the
provisions of Section 5.1, Investor or the Company may at any time acquire
Beneficial Ownership of the securities of such other party or its
Affiliates to the extent permitted by applicable law and the provisions of
the organizational documents of such party or its Affiliates, as
applicable, and other agreements from time to time governing the ownership
of such securities.
ARTICLE 5
Additional Covenants
Section 5.1 Restrictions on Investments. Except as
contemplated by the Kapson Agreement, from the date of this Agreement until
the occurrence of a Termination Event or an Early Standstill Termination
Event, the Advancing Party, the Buyer, Investor and their Controlled
Affiliates shall not, directly or indirectly, own any equity interest
(other than a de minimis amount) in any public or private company the
principal business of which is the ownership, management, operation and
development of assisted living facilities in the United States, unless 75%
of the Directors of the Company (other than the Investor Nominees) have
consented to such ownership. Upon the
<PAGE>
termination of the Kapson Agreement or any provisions thereof, this Section
5.1 shall terminate and be of no further effect.
ARTICLE 6
Miscellaneous
Section 6.1 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party. Copies
of executed counterparts transmitted by telecopy, telefax or other
electronic transmission service shall be considered original executed
counterparts for purposes of this Section, provided receipt of copies of
such counterparts is confirmed.
Section 6.2 Governing Law. THIS AGREEMENT SHALL BE GOV ERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 6.3 Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto
contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties and other than those set
forth or referred to herein. This Agreement is not intended to confer upon
any person not a party hereto (and their successors and assigns) any rights
or remedies hereunder.
Section 6.4 Expenses. Except as set forth in the Stock
Purchase Agreement, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the Company including, without limitation, those specified
in Section 9.3(a) of the Stock Purchase Agreement.
Section 6.5 Notices. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight delivery
service or, to the extent receipt is confirmed, telecopy, telefax or other
electronic transmission service to the appropriate address or number as set
forth below. Notice to the Company shall be addressed to:
ARV Assisted Living, Inc.
245 Fischer Avenue, D-1
Costa Mesa, CA 92626
Attention: President and General Counsel
Telecopy: (714) 759-9283
with a copy to:
Latham & Watkins
650 Town Center Drive
20th Floor
Costa Mesa, CA 92626
Attention: William J. Cernius
Telecopy: (714) 755-8290
<PAGE>
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to the
Advancing Party, the Buyer or Investor shall be addressed to:
Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert P. Freeman,
Murry N. Gunty and
Klaus Kretschmann
Telecopy: (212) 838-3239
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy: (212) 474-3700
Section 6.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors (including, in the case of the Advancing Party, any
successor to the principal business of the Advancing Party). No party shall
be permitted to assign any of its rights hereunder to any third party,
except that the Buyer, the Advancing Party and any Investor shall be
permitted to assign its rights hereunder to the same extent as the Buyer or
the Advancing Party is permitted to assign its rights under the Stock
Purchase Agreement, provided that such person agrees to be bound by this
Agreement.
Section 6.7 Headings. The Section, Article and other
headings contained in this Agreement are inserted for convenience of
reference only and will not affect the meaning or interpretation of this
Agreement. All references to Sections or Articles contained herein means
Sections or Articles of this Agreement unless otherwise stated.
Section 6.8 Amendments and Waivers. This Agreement may not
be modified or amended except by an instrument or instruments in writing
signed by the party against whom enforcement of any such modification or
amendment is sought. Any party hereto may, only by an instrument in
writing, waive compliance by another party hereto with any term or
provision hereof on the part of such other party hereto to be performed or
complied with. The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent
breach.
Section 6.9 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall
be held to include the plural and vice versa and words of one gender shall
be held to include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Schedules and Exhibits hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections, paragraphs,
Schedules and Exhibits to this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (iv) the word "or" shall
not
<PAGE>
be exclusive, (v) provisions shall apply, when appropriate, to successive
events and transactions and (vi) terms used herein but not otherwise
defined herein shall have the meanings assigned to such terms in the Stock
Purchase Agreement.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the
party drafting or causing any instrument to be drafted.
Section 6.10 Severability. Any provision hereof which is
invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the remaining
provisions hereof.
Section 6.11 Further Assurances. The Company and Investor
agree that, from time to time, each of them will, and will cause their
respective Affiliates to, execute and deliver such further instruments and
take such other action as may be necessary to carry out the purposes and
interests hereof.
Section 6.12 Specific Performance. The Company and Investor
each acknowledge that, in view of the uniqueness of arrangements
contemplated by this Agreement, the parties hereto would not have an
adequate remedy at law for money damages in the event that this Agreement
were not performed in accordance with its terms, and therefore agree that
the parties hereto shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 6.13 Investor Breach. In the event Investor shall
have breached (i) its obligation to effect a purchase of the Company Notes
pursuant to the Stock Purchase Agreement or (ii) any of its obligations
under this Agreement which breach is neither cured nor desisted from within
30 days of receipt of written notice of such breach and which would
reasonably be expected to materially adversely affect the Company, the
Company shall no longer be required to perform any of its obligations
hereunder.
Section 6.14 Confidentiality. The Advancing Party, the Buyer
and Investor agree that all information provided to any of them or any of
their representatives pursuant to this Agreement shall be kept
confidential, and such parties shall not (x) disclose such information to
any persons other than the directors, officers, employees, financial
advisors, legal advisors, accountants, consultants and affiliates of such
parties who reasonably need to have access to the confidential information
and who are advised of the confidential nature of such information or (y)
use such information in a manner
<PAGE>
which would be detrimental to the Company; provided, however, the foregoing
obligation of such parties shall not (a) relate to any information that (i)
is or becomes generally available other than as a result of unauthorized
disclosure by such parties or by persons to whom such parties have made
such information available; (ii) is or becomes available to such parties on
a non-confidential basis from a third party that is not, to such parties'
knowledge, bound by any other confidentiality agreement with the Company,
or (b) prohibit disclosure of any information if required by law, rule,
regulation, court order or other legal or governmental process.
Section 6.15 Public Announcements. Subject to each party's
disclosure obligations imposed by law and any stock exchange or similar
rules and the confidentiality provisions contained herein and in Section
5.4(b) of the Stock Purchase Agreement, all news releases and other public
information disclosures with respect to this Agreement, the Stock Purchase
Agreement and the Transaction Documents and any of the transactions
contemplated hereby or thereby will require the mutual approval of Buyer
and the Company before such release or disclosure is made. If a party is
required by law or any stock exchange or similar rule to issue a news
release or other public announcement, it shall advise the other party in
advance thereof and use reasonable best efforts to cause a mutually
agreeable release or announcement to be issued.
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above written.
LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.
by /s/ Robert P. Freeman
------------------------
Name: Robert P. Freeman
Title: President
PROMETHEUS ASSISTED LIVING LLC
by LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.,
by /s/ Robert P. Freeman
------------------------
Name: Robert P. Freeman
Title: President
ARV ASSISTED LIVING, INC.
by /s/ Sheila M. Muldoon
------------------------
Name: Sheila M. Muldoon
Title: Vice President
Exhibit 3
EXECUTION COPY
========================================================================
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
by and among
ARV ASSISTED LIVING, INC.
and
PROMETHEUS ASSISTED LIVING LLC
dated as of
October 29, 1997
========================================================================
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions.................................................1
(a) "Agreement"..............................................1
(b) "Buyer"..................................................1
(c) "Commencement Date"......................................1
(d) "Commission".............................................1
(e) "Company"................................................1
(f) "Company Registration Expenses"..........................1
(g) "Demand Registration"....................................2
(h) "Exchange Act"...........................................2
(i) "NASD"...................................................2
(j) "Registrable Securities".................................2
(k) "Registration Expenses"..................................2
(l) "Registration Suspension Period".........................2
(m) "Securities Act".........................................2
(n) "Stock Purchase Agreement"...............................2
(o) "Suspension Notice"......................................2
(p) "Underwritten/Placed Offering"...........................3
Section 2. Demand Registration.........................................3
(a) Obligation to File.......................................3
(b) Black-Out Periods of Buyer...............................3
(c) Number of Demand Registrations...........................4
(d) Size of Demand Registration..............................4
(e) Notice...................................................4
(f) Expenses.................................................5
(g) Selection of Underwriters................................5
Section 3. Incidental Registrations....................................5
(a) Notification and Inclusion...............................5
(b) Cut-back Provisions......................................5
(c) Expenses.................................................6
(d) Duration of Effectiveness................................6
(e) Limitation on Availability...............................6
Section 4. Registration Procedures.....................................6
Section 5. Requested Underwritten Offerings............................9
Section 6. Preparation; Reasonable Investigation.......................9
Section 7. Indemnification.............................................9
(a) Indemnification by the Company...........................9
(b) Indemnification by Buyer................................10
(c) Notices of Claims, etc..................................11
(d) Other Indemnification...................................11
(e) Indemnification Payments................................11
(f) Contribution............................................11
Section 8. Covenants Relating to Rule 144.............................12
<PAGE>
Page
Section 9. Miscellaneous..............................................12
(a) Counterparts............................................12
(b) Governing Law...........................................12
(c) Entire Agreement........................................12
(d) Notices.................................................12
(e) Successors and Assigns..................................13
(f) Headings................................................13
(g) Amendments and Waivers..................................14
(h) Interpretation; Absence of Presumption..................14
(i) Severability............................................14
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT (the "Agreement") dated as of October
29, 1997, by and among ARV Assisted Living, Inc.,
a California corporation (the "Company"), and
Prometheus Assisted Living LLC, a Delaware limited
liability company ("Buyer"). Capitalized terms not
otherwise defined herein have the meaning ascribed
to them in the Stock Purchase Agreement (as
hereinafter defined).
RECITALS:
WHEREAS, the Company, the Advancing Party and Buyer have
entered into a Stock Purchase Agreement, dated as of July 14, 1997 (as
amended to date, including the Amended and Restated Stock and Note Purchase
Agreement dated as of the date hereof, the "Stock Purchase Agreement") that
provides for the purchase by Buyer and sale by the Company to Buyer of
shares of Company Common Stock and Company Notes; and
WHEREAS, in order to induce Buyer to enter into the Stock
Purchase Agreement, the Company agreed to provide registration rights
pursuant to a Registration Rights Agreement dated as of July 14, 1997, by
and among the Company and Buyer (the "Registration Rights Agreement");
WHEREAS, the Company and Buyer desire to amend and restate
the Registration Rights Agreement as contemplated by the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree to amend and restate the Registration Rights Agreement as
follows:
Section 1. Definitions. As used herein, the following terms
shall have the following meanings:
"Agreement" shall have the meaning set forth in the first
paragraph hereof.
"Buyer" shall mean Buyer together with any other Investor as
defined in the Stockholders Agreement.
"Commencement Date" shall mean July 14, 1999.
"Commission" shall mean the Securities and Exchange
Commission, and any successor thereto.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Company Registration Expenses" shall mean the fees and
disbursements of counsel and independent public accountants for
the Company incurred in connection with the Company's performance
of or compliance with this
<PAGE>
Agreement, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, and any premiums and other costs of policies of
insurance obtained by the Company against liabilities arising out
of the sale of any securities.
"Demand Registration" shall have the meaning set forth in
Section 2(a).
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any successor thereto, and the rules and
regulations thereunder.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Registrable Securities" shall mean (i) any and all shares
of Company Common Stock acquired by Buyer pursuant to the Stock
Purchase Agreement, (ii) any and all securities acquired by Buyer
upon conversion of the Company Notes, (iii) any and all
securities acquired by Buyer pursuant to Section 3.2 of the
Stockholders Agreement, and (iv) any securities issued or
issuable with respect to any Company Common Stock or other
securities referred to in clause (i), (ii) or (iii) by way of
conversion, exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to
any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (A) a
registration statement with respect to the sale of such
securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance
with such registration statement, (B) such securities shall have
been sold in accordance with Rule 144 (or any successor
provision) under the Securities Act or (C) such securities are
eligible to be resold pursuant to Rule 144(k).
"Registration Expenses" shall mean all registration, filing
and stock exchange or NASD fees, all fees and expenses of
complying with securities or blue sky laws, all printing
expenses, messenger and delivery expenses, any fees and
disbursements of any separate counsel retained by Buyer, and
transfer taxes, if any, and any premiums and other costs of
policies of insurance obtained by Buyer against liabilities
arising out of the public offering of securities, including
Company Registration expenses, but specifically excludes any fees
and disbursements of underwriters customarily paid by sellers of
securities who are not the issuers of such securities and all
underwriting discounts and commissions.
"Registration Suspension Period" shall have the meaning set
forth in Section 2(b).
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor thereto, and the rules and regulations
thereunder.
"Stock Purchase Agreement" shall have the meaning set forth
in the Recitals hereof.
"Suspension Notice" shall have the meaning set forth in
Section 2(b).
<PAGE>
"Underwritten/Placed Offering" shall mean a sale of
securities of the Company to an underwriter or underwriters for
reoffering to the public or on behalf of a person other than the
Company through an agent for sale to the public.
Section 2. Demand Registration
(a) Obligation to File. At any time following the
Commencement Date, promptly upon the written request of Buyer,
the Company will use its reasonable best efforts to file with the
Commission a registration statement under the Securities Act for
the offering of all of the Registrable Securities which Buyer
requests to be registered (the "Demand Registration"). The Demand
Registration shall be on an appropriate form and the Demand
Registration and any form of prospectus included therein shall
reflect such plan of distribution or method of sale as Buyer
notifies the Company, including the sale of some or all of the
Registrable Securities in a public offering or, if requested by
Buyer, subject to receipt by the Company of such information
(including information relating to purchasers) as the Company
reasonably may require, (i) in a transaction constituting an
offering outside the United States which is exempt from the
registration requirements of the Securities Act in which the
seller undertakes to effect registration after the completion of
such offering in order to permit such shares to be freely
tradeable in the United States, (ii) in a transaction
constituting a private placement under Section 4(2) of the
Securities Act in connection with which the seller undertakes to
effect a registration after the conclusion of such placement to
permit such shares to be freely tradeable by the purchasers
thereof, or (iii) in a transaction under Rule 144A of the
Securities Act, if available, in connection with which the seller
undertakes to effect a registration after the conclusion of such
transaction to permit such shares to be freely tradeable by the
purchasers thereof. The Company shall use its reasonable best
efforts to cause the Demand Registration to become effective,
and, upon the request of Buyer, keep the Demand Registration
effective for up to 90 days, unless the distribution of
securities registered thereunder has been earlier completed;
provided, however, that if such Demand Registration will require
the Company to prepare or file audited financial statements with
respect to any fiscal year by a date prior to the date on which
the Company would otherwise be required to prepare and file such
audited financial statements, then Buyer must notify the Company
at least thirty days in advance of the date upon which such
audited financial statements will be required to be filed. During
the period during which the Demand Registration is effective, the
Company shall supplement or make amendments to the Demand
Registration, if required by the Securities Act or if reasonably
requested by Buyer or an underwriter of Registrable Securities,
including to reflect any specific plan of distribution or method
of sale, and shall use its reasonable best efforts to have such
supplements and amendments declared effective, if required, as
soon as practicable after filing.
(b) Black-Out Periods of Buyer. Notwithstanding anything
herein to the contrary, (i) the Company shall have the right from
time to time to require Buyer not to sell under the Demand
Registration or to suspend the effectiveness thereof during the
period starting with the date 30 days prior to the Company's good
faith estimate, as certified in writing by an executive officer
of the Company to Buyer, of the proposed date of filing of a
registration statement or a preliminary prospectus supplement
relating to an existing shelf registration statement, in either
<PAGE>
case, pertaining to an underwritten public offering of equity
securities of the Company for the account of the Company, and
ending on the date 75 days following the effective date of such
registration statement or the date of filing of the final
prospectus supplement, and (ii) the Company shall be entitled to
require Buyer not to sell under the Demand Registration or to
suspend the effectiveness thereof (but not for a period exceeding
75 days in any calendar year) if the Company determines, in its
good faith judgment, that such offering or continued
effectiveness would interfere with any material financing,
acquisition, disposition, corporate reorganization or other
material transaction involving the Company or any of its
subsidiaries or public disclosure thereof would be required prior
to the time such disclosure might otherwise be required, or when
the Company is in possession of material information that it
deems advisable not to disclose in a registration statement.
Once any registration statement filed pursuant to this
Section 2 or in which Registrable Securities are included
pursuant to Section 3 has been declared effective, any period
during which the Company fails to keep such registration
statement effective and usable for resale of Registrable
Securities for the period required by Section 4(b) shall be
referred to as a "Registration Suspension Period". A Registration
Suspension Period shall commence on and include the date that the
Company gives written notice to Buyer of its determination that
such registration statement is no longer effective or usable for
resale of Registrable Securities (the "Suspension Notice") to and
including the date when the Company notifies Buyer that the use
of the prospectus included in such registration statement may be
resumed for the disposition of Registrable Securities.
(c) Number of Demand Registrations. The Company shall be
obligated to effect, under this Section 2, only six Demand
Registrations (no more than two of which may be requested in any
two-year period). A Demand Registration shall not be deemed to
have been effected, nor shall it be sufficient to reduce the
number of Demand Registrations available to Buyer under this
Section 2, if such registration cannot be used by Buyer for more
than 60 days as a result of any stop order, injunction or other
order of the Commission or other Government Authority for any
reason other than an act or omission of Buyer and all the
Registerable Securities registered thereunder are not sold.
(d) Size of Demand Registration. The Company shall not be
required to effect a Demand Registration of less than a fair
market value, based on the closing market price on the trading
day immediately prior to the date of notice (as reported in the
Wall Street Journal), of $10,000,000, except that if the fair
market value, based on the closing market price on the trading
day immediately prior to the date of notice (as reported in the
Wall Street Journal), of the Registrable Securities outstanding
is less than $10,000,000, then the Company shall be required to
effect a Demand Registration of all of the remaining Registrable
Securities outstanding.
(e) Notice. The Company shall give Buyer prompt notice in
the event that the Company has suspended sales of Registrable
Securities under Section 2(b).
<PAGE>
(f) Expenses. All Registration Expenses incurred in
connection with the first four Demand Registrations which may be
requested under this Section 2 shall be borne by the Company,
with Buyer only paying underwriting fees and discounts. All
Registration Expenses and underwriting fees and discounts
incurred in connection with any further Demand Registrations
which may be requested under this Section 2 shall be borne by
Buyer.
(g) Selection of Underwriters. Any and all underwriters or
other agents involved in any sale of Registrable Securities
pursuant to a registration statement contemplated by this Section
2 shall include such underwriter(s) or other agent(s) as selected
by Buyer and approved by the Company, which approval shall not be
unreasonably withheld; provided that any Affiliate of Buyer shall
in all events be approved by the Company.
Section 3. Incidental Registrations
(a) Notification and Inclusion. If the Company proposes to
register for its own account any common equity securities of the
Company or any securities convertible into common equity
securities of the Company under the Securities Act (other than a
registration relating solely to the sale of securities to
participants in a dividend reinvestment plan, a registration on
Form S-4 relating to a business combination or similar
transaction permitted to be registered on such Form S-4, a
registration on Form S-8 relating solely to the sale of
securities to participants in a stock or employee benefit plan, a
registration permitted under Rule 462 under the Securities Act
registering additional securities of the same class as were
included in an earlier registration statement for the same
offering, and declared effective) the Company shall, at each such
time after the Commencement Date until Buyer no longer holds
Registerable Securities, promptly give written notice of such
registration to Buyer. Upon the written request of Buyer given
within 10 days after receipt of such notice by Buyer, the Company
shall seek to include in such proposed registration such
Registrable Securities as Buyer shall request be so included and
shall use its reasonable best efforts to cause a registration
statement covering all of the Registrable Securities that Buyer
has requested to be registered to become effective under the
Securities Act. The Company shall be under no obligation to
complete any offering of securities it proposes to make under
this Section 3 and shall incur no liability to Buyer for its
failure to do so. If, at any time after giving written notice of
its intention to register any securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any
reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice
of such determination to Buyer and, thereupon, (i) in the case of
a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to
pay the Registration Expenses incurred in connection therewith)
and (ii) in the case of a determination to delay registering, the
Company shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such
other securities.
(b) Cut-back Provisions. If a registration pursuant to this
Section 3 involves an Underwritten/Placed Offering of the
securities so being registered, whether or not solely for sale
for the account of the Company, which securities
<PAGE>
are to be distributed by or through one or more underwriters of
recognized standing under underwriting terms customary for such
transaction, and the underwriter or the managing underwriter, as
the case may be, of such Underwritten/ Placed Offering shall
inform the Company of its belief that the amount of securities
requested to be included in such registration or offering exceeds
the amount which can be sold in (or during the time of) such
offering without delaying or jeopardizing the success of the
offering (including the price per share of the securities to be
sold), then the Company will include in such registration (i)
first, all the securities of the Company which the Company
proposes to sell for its own account or the account of others
(other than Buyer) requesting inclusion in such registration
pursuant to rights to registration on request, and (ii) second,
to the extent of the amount which the Company is so advised can
be sold in (or during the time of) such offering, Registrable
Securities and other securities requested to be included in such
registration, pro rata among Buyer and others exercising
incidental registration rights, on the basis of the shares of
Company Common Stock owned by all such persons.
(c) Expenses. The Company shall bear and pay all Company
Registration Expenses incurred in connection with any
registration of Registrable Securities pursuant to this Section 3
for Buyer and all Registration Expenses incurred in connection
with any registration of any securities for the Company's own
account referred to in the first sentence of Section 3(a), and
Buyer shall bear and pay all Registration Expenses (other than
Company Registration Expenses) and all underwriting fees and
discounts incurred in connection with any registration of
Registrable Securities pursuant to this Section 3 for Buyer.
(d) Duration of Effectiveness. At the request of Buyer, the
Company shall, subject to Section 2(b), use its reasonable best
efforts to keep any registration statement for which Registrable
Securities are included under this Section 3 effective and usable
for up to 90 days (subject to extension for the length of any
Registration Suspension Period), unless the distribution of
securities registered thereunder has been earlier completed;
provided, however, that in no event will the Company be required
to prepare or file audited financial statements with respect to
any fiscal year by a date prior to the date on which the Company
would be so required to prepare and file such audited financial
statements if such registration statement were no longer
effective and usable.
(e) Limitation on Availability. The registration rights set
forth in Section 2 shall not be exercisable unless Buyer is at
the time permitted to sell Registrable Securities pursuant to
Section 4.3 of the Stockholders Agreement and the registration
rights set forth in this Section 3 shall not be exercisable
unless Buyer is at the time permitted to sell Registrable
Securities pursuant to Section 4.3 or 5.2 of the Stockholders
Agreement.
Section 4. Registration Procedures. In connection with the
filing of any registration statement as provided in Section 2 or 3, the
Company shall use its reasonable best efforts to, as expeditiously as
reasonably practicable:
(a) prepare and file with the Commission the requisite
registration statement (including a prospectus therein) to effect
such registration and use its reasonable best efforts to cause
such registration statement to become effective,
<PAGE>
provided that before filing such registration statement or any
amendments or supplements thereto, the Company will furnish to
the counsel selected by Buyer copies of all such documents
proposed to be filed, which documents will be subject to the
review of such counsel before any such filing is made, and the
Company will comply with any reasonable request made by such
counsel to make changes in any information contained in such
documents relating to Buyer;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to maintain the
effectiveness of such registration and to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until
the earlier of such time as all of such securities have been
disposed of and the date which is 90 days after the date of
initial effectiveness of such registration statement;
(c) furnish to Buyer such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration
statements (including each complete prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, including documents
incorporated by reference, as Buyer may reasonably request;
(d) register or qualify all Registrable Securities under
such other securities or blue sky laws of such jurisdictions as
Buyer shall reasonably request, to keep such registration or
qualification in effect for so long as such registration
statement remains in effect, and take any other action which may
be reasonably necessary or advisable to enable Buyer to
consummate the disposition in such jurisdictions of the
securities owned by Buyer, except that the Company shall not for
any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this paragraph be obligated to be so
qualified, or to consent to general service of process in any
such jurisdiction, or to subject the Company to any material tax
in any such jurisdiction where it is not then so subject;
(e) cause all Registrable Securities covered by such
registration statement to be registered with or approved by such
other Government Authority as may be reasonably necessary to
enable Buyer to consummate the disposition of such Registrable
Securities;
(f) furnish to Buyer a signed counterpart, addressed to
Buyer (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to Buyer, and
<PAGE>
(ii) to the extent permitted by then applicable rules of
professional conduct, a "comfort" letter, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
signed by the independent public accountants who have
certified the Company's financial statements included in
such registration statement, covering substantially the same
matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to
the date of such financial statements, all as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in
underwritten public offerings of securities;
(g) immediately notify Buyer at any time when the Company
becomes aware that a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made, and at the request of Buyer promptly
prepare and furnish to Buyer a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made;
(h) comply or continue to comply in all material respects
with the Securities Act and the Exchange Act and with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with the
first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy
the provisions of Section 11 (a) of the Securities Act, and not
file any amendment or supplement to such registration statement
or prospectus to which Buyer shall have reasonably objected on
the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities
Act, having been furnished with a copy thereof at least five
Business Days prior to the filing thereof;
(i) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement; and
(j) list all Company Common Stock covered by such
registration statement on any securities exchange on which any of
the Company Common Stock is then listed.
Buyer shall furnish in writing to the Company such information regarding
Buyer (and any of its affiliates), the Registrable Securities to be sold,
the intended method of distribution of such Registrable Securities, and
such other information requested by the Company as
<PAGE>
is necessary for inclusion in the registration statement relating to such
offering pursuant to the Securities Act and the rules of the Commission
thereunder. Such writing shall expressly state that it is being furnished
to the Company for use in the preparation of a registration statement,
preliminary prospectus, supplementary prospectus, final prospectus or
amendment or supplement thereto, as the case may be.
Buyer agrees by acquisition of the Registrable Securities that
upon receipt of any notice from the Company of the happening of any event
of the kind described in paragraph (g) of this Section 4, Buyer will
forthwith discontinue its disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until
Buyer's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (g) of this Section 4.
Section 5. Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offerings by Buyer, under a
registration requested pursuant to Section 2(a), the Company will enter
into a customary underwriting agreement with such underwriters for such
offering, to contain such representations and warranties by the Company and
such other terms as are customarily contained in agreements of this type,
including indemnities to the effect and to the extent provided in Section
7. Buyer shall be a party to such underwriting agreement and may, at its
option, require that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of Buyer. Buyer shall not be
required to make any representations or warranties to or agreement with the
Company or the underwriters other than representations, warranties or
agreements regarding Buyer and Buyer's intended method of distribution and
any other representation or warranty required by law.
Section 6. Preparation; Reasonable Investigation. In
connection with the preparation and filing of the registration statement
under the Securities Act, the Company will give Buyer, its underwriters, if
any, and their respective counsel, the opportunity to participate in the
preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with
its officers, its counsel and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of
Buyer's and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
Section 7. Indemnification
(a) Indemnification by the Company. In the event of any
registration of any Registrable Securities of the Company under
the Securities Act, the Company will, and hereby does, indemnify
and hold harmless Buyer, each other person who participates as an
underwriter in the offering or sale of such securities and each
other person who controls any such underwriter within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Buyer or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration
<PAGE>
statement under which such Registrable Securities were registered
under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and
the Company will reimburse Buyer and each such underwriter and
controlling person for any reasonable legal or any other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceedings;
provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information
furnished to the Company by Buyer or any other person who
participates as an underwriter in the offering or sale of such
securities, in either case, specifically stating that it is for
use in the preparation thereof, and provided, further, that the
Company shall not be liable to any person who participates as an
underwriter in the offering or sale of Registrable Securities or
any other person, if any, who controls such underwriter within
the meaning of the Securities Act in any such case to the extent
that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such
person's failure to send or give a copy of the final prospectus
or supplement to the persons asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable
Securities to such person if such statement or omission was
corrected in such final prospectus or supplement. Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of Buyer or any such
underwriter or controlling person and shall survive the transfer
of such securities by Buyer.
(b) Indemnification by Buyer. The Buyer will, and hereby
does, indemnify, and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) of this Section 7) the
Company, each director of the Company, each officer of the
Company and each other person, if any, who controls the Company
within the meaning of the Securities Act, and each other person
who participates as an underwriter in the offering or sale of
such securities and each other person who controls any such
underwriter within the meaning of the Securities Act, with
respect to any untrue statement or alleged untrue statement of a
material fact in or omission or alleged omission to state a
material fact from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such untrue
statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company by Buyer specifically
stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director,
officer, or controlling person and shall survive the transfer of
such securities by Buyer.
<PAGE>
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding
paragraphs of this Section 7, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the
preceding paragraphs of this Section 7, except to the extent that
the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party
for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than
reasonable costs of investigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding paragraphs of this Section 7 (with
appropriate modifications) shall be given by the Company and
Buyer with respect to any required registration or other
qualification of securities under any federal or state law or
regulation of Governmental Authority other than the Securities
Act.
(e) Indemnification Payments. The Indemnification required
by this Section 7 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
as and when bills are received or expense, loss, damage or
liability is incurred.
(f) Contribution. If, for any reason, the foregoing
indemnity is unavailable, or is insufficient to hold harmless an
indemnified party, then the indemnifying party shall contribute
to the amount paid or payable by the indemnified party as a
result of the expense, loss, damage or liability, (i) in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on
the other (determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying
party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission), or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated, in the proportion as is
appropriate to reflect not only the relative fault of the
indemnifying party and the indemnified party, but also the
relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, as well as any other
relevant equitable considerations. No indemnified party guilty of
fraudulent misrepresentation
<PAGE>
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any indemnifying party who was
not guilty of such fraudulent misrepresentation.
Section 8. Covenants Relating to Rule 144. The Company will
file in a timely manner (taking into account any extensions granted by the
Commission), information, documents and reports in compliance with the
Exchange Act and will, at its expense, forthwith upon the request of Buyer,
deliver to Buyer a certificate, signed by the Company's principal financial
officer, stating (a) the Company's name, address and telephone number
(including area code), (b) the Company's Internal Revenue Service
identification number, (c) the Company's Commission file number, (d) the
number of shares of Company Common Stock and the number of shares of
Company Preferred Stock outstanding as shown by the most recent report or
statement published by the Company, and (e) whether the Company has filed
the reports required to be filed under the Exchange Act for a period of at
least 90 days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder. If at
any time the Company is not required to file reports in compliance with
either Section 13 or Section 15(d) of the Exchange Act, the Company will,
at its expense, forthwith upon the written request of Buyer, make available
adequate current public information with respect to the Company within the
meaning of paragraph (c)(2) of Rule 144 of the General Rules and
Regulations promulgated under the Securities Act.
Section 9. Miscellaneous
(a) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for
purposes of this Section 9, provided receipt of copies of such
counterparts is confirmed.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
(c) Entire Agreement. This Agreement (including agreements
incorporated herein) contains the entire agreement between the
parties with respect to the subject matter hereof and there are
no agreements or understandings between the parties other than
those set forth or referred to herein. This Agreement is not
intended to confer upon any person not a party hereto (and their
successors and assigns) any rights or remedies hereunder.
(d) Notices. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight
delivery service or, to the extent receipt
<PAGE>
is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below.
Notices to the Company shall be addressed to:
ARV Assisted Living, Inc.
245 Fischer Avenue, D-1
Costa Mesa, CA 92626
Attention: President and General Counsel
Telecopy Number: (714) 759-9283
with a copy to:
Latham & Watkins
650 Town Center Drive
20th Floor
Costa Mesa, CA 92626
Attention: William J. Cernius
Telecopy: (714) 755-8290
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Prometheus Assisted Living LLC
c/o Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert P. Freeman, Murry N. Gunty and
Klaus Kretschmann
Telecopy Number: (212) 838-3239
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy Number: (212) 474-3700
(e) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors. Neither party shall be permitted to assign
any of its rights hereunder to any third party, except that if
(i) Buyer transfers or pledges any or all Registrable Securities
to a bona fide financial institution as security for any bona
fide indebtedness of any Buyer and such financial institution
agrees to be bound by the Stockholders Agreement, the pledgee of
the Registrable Securities shall be considered an intended
beneficiary hereof and may exercise all rights of Buyer
hereunder, and (ii) any person included within the definition of
the term Buyer shall be permitted to assign its rights hereunder
to any other person included within such definition.
(f) Headings. The Section and other headings contained in
this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement.
All references to Sections or other
<PAGE>
headings contained herein mean Sections or other headings of this
Agreement unless otherwise stated.
(g) Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Either party hereto may,
only by an instrument in writing, waive compliance by the other
party hereto with any term or provision hereof on the part of
such other party hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision
hereof shall not be construed as a waiver of any subsequent
breach.
(h) Interpretation; Absence of Presumption. For the purposes
hereof, (i) words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section, paragraph or other references are to the
Sections, paragraphs, or other references to this Agreement
unless otherwise specified, (iii) the word "including" and words
of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise
requires or unless otherwise specified, (iv) the word "or" shall
not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be
drafted.
(i) Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above written.
ARV ASSISTED LIVING, INC.
by /s/ Sheila M. Muldoon
--------------------------
Name: Sheila M. Muldoon
Title: Vice President
PROMETHEUS ASSISTED LIVING LLC
by /s/ Robert P. Freeman
---------------------------
Name: Robert P. Freeman
Title: President
Exhibit 4
EXECUTION COPY
-----------------------------------------------------------
STOCKHOLDERS' VOTING AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
the STOCKHOLDERS listed herein
dated as of
October 29, 1997
--------------------------------------------------------
<PAGE>
STOCKHOLDERS' VOTING AGREEMENT made this 29th day of
October, 1997, between certain holders of the shares of
outstanding voting Common Stock, no par value per share
("Common Stock"), of the Company (as defined below) set
forth on the signature page hereof (each, a "Stockholder"
and, collectively, the "Stockholders"), and Lazard Freres
Real Estate Investors L.L.C., a New York limited liability
company ("LFREI"), and Prometheus Assisted Living LLC, a
Delaware limited liability company (the "Investor").
Capitalized terms not otherwise defined herein have the
meaning ascribed to them in the Stock Purchase Agreement (as
defined below).
R E C I T A L S
A. Concurrently with the execution of this Agreement, pursuant to an
Amended and Restated Stock and Note Purchase Agreement (the "Stock Purchase
Agreement") dated as of October 29, 1997, among ARV Assisted Living, Inc.,
a California corporation (the "Company"), LFREI and the Investor, the
parties thereto agreed to a series of transactions, including the sale to
the Investor of certain shares of the Company's Common Stock and the
Company Notes (all such transactions between the Company, LFREI and the
Investor are hereinafter collectively referred to as the "Transactions").
B. As a condition to the Stock Purchase Agreement, the Company, the
Investor and LFREI entered into an Amended and Restated Stockholders
Agreement dated as of October 29, 1997, providing for certain rights and
restrictions with respect to the investment in the Company by LFREI and the
Investor.
C. As an additional inducement to LFREI and the Investor to enter
into the Transactions, each of the Stockholders have agreed to vote in
favor of certain matters relating to the Transactions (and constituting an
integral part thereof) on the terms set forth below.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Voting of Shares. During the term of this Agreement for so long
as such Stockholder shall be the owner of any Shares (as hereinafter
defined), each of the Stockholders covenants and agrees with each other
Stockholder, LFREI and the Investor, to vote (which term shall include
taking action without a meeting by written consent) such number of Shares
that may be voted by such Stockholder in favor of the election of Directors
of the Company (a) nominated by the nominating committee, if any, or the
Board and (b) the Investor Nominees, each as provided in Section 2.1 of the
Stockholders Agreement.
<PAGE>
2. Shares. The term "Shares" as used herein shall mean any and all
shares of capital stock of the Company (including Common Stock) which carry
voting rights (including any voting rights which arise by reason of
default) now owned or subsequently acquired by a Stockholder through
purchase, gift, stock splits, stock dividends and exercise of stock
options.
3. Termination. This Agreement shall terminate concurrently with the
termination of the Stockholders Agreement. Each Stockholder hereby agrees
not to sell, transfer or otherwise dispose of any of its Shares until the
earlier of (A) the date of the stockholder meeting at which the vote
contemplated by Section 1 shall have occurred and or (B) April 12, 1998;
provided, a sale, transfer or other disposition pursuant to a margin loan
shall not be deemed to violate the foregoing so long as, in the case of
margin loans made after July 14, 1997, the principal amount of any such
loan and all other outstanding margin loans secured by Shares shall not
exceed 40% of the aggregate value of the Shares pledged to secure such
loans (with all such Shares valued at $11 per Share).
4. No Revocation. The voting agreements contained herein are coupled
with an interest and may not be revoked prior to termination in accordance
with Section 3, except by written consent of the Investor, the Company and
the Stockholders owning a majority of the Shares.
5. General.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to any principles of conflicts of law.
(b) Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or by facsimile transmission (with subsequent
letter confirmation by mail) or three days after being mailed by certified
or registered mail, postage prepaid, return receipt requested, to the
parties, their successors in interest or their assigns at the following
addresses, or at such other addresses as the parties may designate by
written notice in the manner aforesaid:
If to the Stockholders: ATTN: [Stockholder Name]
c/o ARV Assisted Living, Inc.
245 Fischer Avenue
Costa Mesa, CA 92626
Attention: President and
General Counsel
Telecopy: (714) 759-9283
with a copy to: Latham & Watkins
650 Town Center Drive
20th Floor
Costa Mesa, CA 92626
Attention: William J. Cernius
Telecopy: (714) 755-8290
<PAGE>
If to the Investors: Prometheus Assisted Living LLC
c/o Lazard Freres Real Estate
Investors L.L.C.
60 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Robert Freeman, Murry Gunty
and Klaus Kretschmann
Telecopy: (212) 332-5980
with a copy to: Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Kevin Grehan, Esq.
(c) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto and supersedes any prior
understandings and agreements, either oral or written, between or among the
parties hereto relating to the subject matter hereof.
(d) Equitable Remedies. In addition to legal remedies, in
recognition of the fact that remedies at law may not be sufficient, the
parties (and their permitted successors and assigns) shall be entitled to
equitable remedies for breaches or defaults hereunder, including, without
limitation, specific performance and injunction.
(e) Amendment. No amendment, modification or termination of any
provision of this Agreement shall be valid unless in writing and signed by
the Investor, the Company and Stockholders owning a majority of the Shares.
(f) Binding Agreement; Successors and Assigns. This Agreement
shall be binding upon the parties hereto and their respective successors
and legal representatives; provided, however, that the rights and
obligations of the Investor under this Agreement shall not be assigned to
any party other than: (i) to an affiliate of the Investor or to any entity
with which the Investor merges or combines; or (ii) with the consent of the
Stockholders owning a majority of the Shares.
(g) Counterparts. This Agreement may be executed in several
counterparts, and as so executed shall constitute one agreement, binding on
all of the parties hereto, notwithstanding that all the parties are not a
signatory to the original or the same counterparts.
(h) No Waiver; Cumulative Remedies. No failure or delay on the
part of any party in exercising any right, power or remedy hereunder shall,
except to the extent expressly provided herein, operate as a waiver hereof;
nor shall any single or partial exercise of any right, power or remedy
preclude any other future exercise thereof or the exercise of any other
right, power or remedy hereunder. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(i) Severability. The provisions of this Agreement are severable,
and if any clause or provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such clause or
provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in
<PAGE>
any manner affecting the validity or enforceability of such clause or
provision in any other jurisdiction or the remaining provisions hereof in
any jurisdiction.
(j) By its execution and delivery of this Agreement, each
Stockholder represents and warrants to the Investors that it owns 100% of
the Shares set forth opposite its name on the signature page hereof.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
750 /s/ John A. Booty
---------------------------- ----------------------------------
Name: John A. Booty
Title: Trustee
107,773 BOOTY-JONES FAMILY PARTNERSHIP
----------------------------
by /s/ John A. Booty
-------------------------------
Name: John A. Booty
Title: Managing Partner
418,028 BOOTY FAMILY TRUST
----------------------------
by /s/ John A. Booty
-------------------------------
Name: John A. Booty
Title: Trustee
by /s/ John A. Booty
-------------------------------
Name: John A. Booty
Title: Managing Partner
69,500
---------------------------- KAREN A. BOOTY CHARITABLE
REMAINDER TRUST
by /s/ John A. Booty
-------------------------------
Name: John A. Booty
Title: Trustee
<PAGE>
69,500
---------------------------- JOHN A. BOOTY CHARITABLE REMAINDER
UNITRUST
by /s/ John A. Booty
-------------------------------
Name: John A. Booty
Title: Trustee
/s/ David P. Collins
-------------------------------
Name: David P. Collins
Title: Settlor-Trustee
98,678
---------------------------- D&V COLLINS FAMILY LIMITED
PARTNERSHIP
by /s/ David P. Collins
-------------------------------
Name: David P. Collins
Title: Settlor-Trustee
by /s/ Victoria F. Collins
-------------------------------
Name: Victoria F. Collins
Title: Settlor-Trustee
408,591
---------------------------- COLLINS FAMILY COMMUNITY PROPERTY
TRUST
by /s/ David P. Collins
-------------------------------
Name: David P. Collins
Title: Settlor-Trustee
by /s/ Victoria F. Collins
-------------------------------
Name: Victoria F. Collins
Title: Settlor-Trustee
11,978 DAVID P. COLLINS ANNUITY TRUST
----------------------------
by /s/ David P. Collins
-------------------------------
Name: David P. Collins
Title: Trustee
252,552 /s/ Graham P. Espley-Jones
---------------------------- ----------------------------------
Name: Graham P. Espley-Jones
Title: Chief Financial Officer
and Secretary
<PAGE>
LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.
by /s/ Robert P. Freeman
------------------------------
Name: Robert P. Freeman
Title: President
PROMETHEUS ASSISTED LIVING LLC
by Lazard Freres Real Estate
Investors L.L.C.
by /s/ Robert P. Freeman
--------------------------
Name: Robert P. Freeman
Title: President
Exhibit 5
ARV ASSISTED LIVING, INC.
6 3/4% Convertible Subordinated Notes Due 2007
INDENTURE
Dated as of October 30, 1997
THE CHASE MANHATTAN BANK,
as Trustee
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE....................1
Section 1.1. Definitions.......................................1
Section 1.2. Other Definitions................................ 6
Section 1.3. Incorporation by Reference of Trust Indenture Act 6
Section 1.4. Rules of Construction............................ 7
ARTICLE II. CONVERTIBLE NOTES........................................... 7
Section 2.1. Form and Dating.................................. 7
Section 2.2. Execution and Authentication..................... 8
Section 2.3. Registrar, Paying Agent and Conversion Agent..... 8
Section 2.4. Paying Agent to Hold Money in Trust.............. 8
Section 2.5. Noteholder Lists................................. 9
Section 2.6. Transfer and Exchange; Legends................... 9
Section 2.7. Replacement Convertible Notes....................10
Section 2.8. Outstanding Convertible Notes....................10
Section 2.9. Treasury Convertible Notes.......................10
Section 2.10. Cancellation....................................11
Section 2.11. Defaulted Interest..............................11
ARTICLE III. REDEMPTION.................................................11
Section 3.1. Notices to Trustee...............................11
Section 3.2. Selection of Convertible Notes to be
Redeemed.......................................11
Section 3.3. Notice of Redemption.............................12
Section 3.4. Effect of Notice of Redemption...................12
Section 3.5. Deposit of Redemption Price......................12
Section 3.6. Convertible Notes Redeemed in Part...............13
Section 3.7. Optional Redemption..............................13
Section 3.8. Designated Event Offer...........................13
ARTICLE IV. COVENANTS...................................................16
Section 4.1. Payment of Convertible Notes.....................16
Section 4.2. SEC Reports..................................... 16
Section 4.3. Compliance Certificate...........................16
Section 4.4. Stay, Extension and Usury Laws...................17
Section 4.5. Corporate Existence..............................17
Section 4.6. Taxes............................................18
Section 4.7. Designated Event.................................18
Section 4.8. Shareholder Rights Plan..........................18
ARTICLE V. CONVERSION...................................................18
Section 5.1. Conversion Privilege.............................18
Section 5.2. Conversion Procedure.............................19
<PAGE>
TABLE OF CONTENTS (Cont'd) Page
Section 5.3. Fractional Shares................................20
Section 5.4. Taxes on Conversion..............................20
Section 5.5. Company to Provide Stock.........................20
Section 5.6. Adjustment of Conversion Price...................21
Section 5.7. No Adjustment....................................24
Section 5.8. Other Adjustments................................24
Section 5.9. Adjustments for Tax Purposes.....................25
Section 5.10. Adjustments by the Company......................25
Section 5.11. Notice of Adjustment............................25
Section 5.12. Notice of Certain Transactions..................25
Section 5.13. Effect of Reclassifications, Consolidations,
Mergers or Sales on Conversion Privilege......26
Section 5.14. Trustee's Disclaimer............................27
ARTICLE VI. SUBORDINATION...............................................27
Section 6.1. Agreement to Subordinate.........................27
Section 6.2. No Payment on Convertible Notes if
Senior Debt in Default........................27
Section 6.3. Distribution on Acceleration of Convertible
Notes; Dissolution and Reorganization;
Subrogation of Convertible Notes..............28
Section 6.4. Reliance by Senior Debt on Subordination
Provisions....................................31
Section 6.5. No Waiver of Subordination Provisions............32
Section 6.6. Trustee's Relation to Senior Debt................32
Section 6.7. Other Provisions Subject Hereto..................33
ARTICLE VII. SUCCESSORS.................................................33
Section 7.1. Merger, Consolidation or Sale of Assets..........33
Section 7.2. Successor Corporation Substituted................34
ARTICLE VIII. DEFAULTS AND REMEDIES.....................................34
Section 8.1. Events of Default................................34
Section 8.2. Acceleration.....................................35
Section 8.3. Other Remedies...................................36
Section 8.4. Waiver of Past Defaults..........................36
Section 8.5. Control by Majority..............................36
Section 8.6. Limitation on Suits..............................36
Section 8.7. Rights of Noteholders to Receive Payment.........37
Section 8.8. Collection Suit by Trustee.......................37
Section 8.9. Trustee May File Proofs of Claim.................37
Section 8.10. Priorities......................................37
Section 8.11. Undertaking for Costs...........................38
ARTICLE IX. TRUSTEE.....................................................38
Section 9.1. Duties of Trustee................................38
Section 9.2. Rights of Trustee................................39
Section 9.3. Individual Rights of Trustee.....................40
<PAGE>
TABLE OF CONTENTS (Cont'd) Page
Section 9.4. Trustee's Disclaimer.............................40
Section 9.5. Notice of Defaults...............................40
Section 9.6. Reports by Trustee to Noteholders................40
Section 9.7. Compensation and Indemnity.......................40
Section 9.8. Replacement of Trustee...........................41
Section 9.9. Successor Trustee by Merger, Etc. ...............42
Section 9.10. Eligibility; Disqualification...................42
Section 9.11. Preferential Collection of Claims
Against Company...............................42
Section 9.12. Sections Applicable to Registrar,
Paying Agent and Conversion Agent.............42
ARTICLE X. DISCHARGE OF INDENTURE.......................................43
Section 10.1. Termination of Company's Obligations............43
Section 10.2. Repayment to Company............................43
ARTICLE XI. AMENDMENTS, SUPPLEMENTS AND WAIVERS.........................43
Section 11.1. Without Consent of Noteholders..................43
Section 11.2. With Consent of Noteholders.....................44
Section 11.3. Compliance with Trust Indenture Act.............45
Section 11.4. Revocation and Effect of Consents...............45
Section 11.5. Notation on or Exchange of Convertible Notes....46
Section 11.6. Trustee Protected...............................46
ARTICLE XII. MISCELLANEOUS..............................................46
Section 12.1. Trust Indenture Act Controls....................46
Section 12.2. Notices.........................................46
Section 12.3. Communication by Noteholders with
Other Noteholders.............................47
Section 12.4. Certificate and Opinion as to Conditions
Precedent.....................................47
Section 12.5. Statements Required in Certificate
or Opinion....................................47
Section 12.6. Rules by Trustee and Agents.....................48
Section 12.7. Legal Holidays..................................48
Section 12.8. No Recourse Against Others......................48
Section 12.9. Counterparts....................................48
Section 12.10. Variable Provisions............................48
Section 12.11. Governing Law..................................49
Section 12.12. No Adverse Interpretation of Other
Agreements...................................49
Section 12.13. Successors.....................................49
Section 12.14. Severability...................................49
Section 12.15. Table of Contents, Headings, Etc. .............49
EXHIBIT A FORM OF CONVERTIBLE SUBORDINATED NOTES
EXHIBIT B STATEMENT OF REGISTRATION RIGHTS
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
310(a)(1)............................................7.10
(a)(2)............................................7.10
(a)(3).............................................N/A
(a)(4).............................................N/A
(b)........................................7.8; 7.10
(c).............................................N/A
311(a)............................................7.11
(b)............................................7.11
(c).............................................N/A
312(a).............................................2.5
(b)............................................10.3
(c)............................................10.3
313(a).............................................7.6
(b)(1).............................................N/A
(b)(2).............................................7.6
(c).............................................7.6
(d).............................................7.6
314(a).............................................7.6
(b)........................................4.2, 4.3
(c)(1).............................................N/A
(c)(2)............................................10.4
(c)(3)............................................10.4
(d).............................................N/A
(e).............................................N/A
(f).............................................N/A
315(a).............................................N/A
(b)..........................................7.1(b)
(c).............................................7.5
(d)..........................................7.1(a)
(e)..........................................7.1(c)
316(a) (last sentence).............................6.11
(a)(1)(A)............................................2.9
(a)(1)(B)............................................6.5
(a)(2).............................................N/A
(b).............................................6.7
(c).............................................9.4
317(a)(1)............................................6.8
(a)(2).............................................6.9
(b).............................................2.4
318(a).............................................N/A
N/A means not applicable.
- ---------------------
* This Cross-Reference Table is not part of the Indenture.
<PAGE>
INDENTURE dated as of October 30, 1997 between ARV Assisted
Living, Inc., a California corporation (the "Company") and The Chase
Manhattan Bank, a national banking association, a national banking
association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Noteholders of the
Company's 6 3/4% Convertible Subordinated Notes due 2007 (the "Convertible
Notes"):
ARTICLE I.
Definitions and Incorporation by Reference
Section 1.1. Definitions.
"Affiliate" shall have the meaning ascribed thereto in Rule
Rb-2 promulgated under the Exchange Act, and as in effect on the date
hereon.
"Agent" means any Registrar, Paying Agent, Conversion Agent
or co-registrar.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board of Directors.
"Board Resolution" means a duly authorized resolution of
the Board of Directors.
"Business Day" means any day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of equity
interests in any entity, including, without limitation, corporate stock and
partnership interests.
"Change of Control" means any event where: (i) any "person"
or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act) of shares representing more than
50% of the combined voting power of the then outstanding securities
entitled to vote generally in elections of directors of the Company
("Voting Stock"), (ii) the Company consolidates with or merges into any
other corporation, or conveys, transfers or leases all or substantially all
of its assets (other than to a wholly-owned subsidiary of the Company) or
any other corporation merges into the Company, and, in the case of any such
transaction, the outstanding Common Stock of the Company is reclassified
into or exchanged for any other property or security, unless the
shareholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least a
majority of the combined voting power of the outstanding voting securities
of the corporation resulting from, or to which its assets were conveyed,
transferred or leased in connection with, such transaction in substantially
the same proportion as their ownership of the Voting Stock immediately
before such transaction or (iii) any time the Continuing Directors do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided, that a
Change of Control shall not be deemed to have occurred if either (x) the
last sale price of
<PAGE>
the Common Stock for any five trading days during the ten trading days
immediately preceding the Change of Control is at least equal to 105% of
the Conversion Price in effect on the date of such Change in Control or (y)
at least 90% of the consideration (excluding cash payments for fractional
shares) in the transaction or transactions constituting the Change of
Control consists of shares of common stock that are, or upon issuance will
be, traded on a United States national securities exchange or approved for
trading on an established automated over-the-counter trading market in the
United States.
"Common Stock" means the common stock of the Company as the
same exists at the date of the execution of this Indenture or as such stock
may be constituted from time to time.
"Company" means the party named as such above until a
successor replaces it in accordance with Article VII and thereafter means
the successor.
"Continuing Directors" means as of any date of
determination, any member of the Board of Directors of the Company who (i)
was a member of such Board of Directors on the date of this Indenture or
(ii) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of
such board at the time of such nomination or election.
"Convertible Notes" means the Convertible Notes described
above issued, authenticated and delivered under this Indenture.
"Daily Market Price" means the price of a share of Common
Stock on the relevant date, determined (a) on the basis of the last
reported sale price regular way of the Common Stock as reported on the
Nasdaq National Market, or if the Common Stock is not then listed on the
Nasdaq National Market, as reported on such national securities exchange
upon which the Common Stock is listed, or (b) if there is no such reported
sale on the day in question, on the basis of the average of the closing bid
and asked quotations regular way as so reported, or (c) if the Common Stock
is not listed on the Nasdaq National Market or on any national securities
exchange, on the basis of the average of the high bid and low asked
quotations regular way on the day in question in the over-the-counter
market as reported by the National Association of Securities Dealers
Automated Quotation System, or if not so quoted, as reported by National
Quotation Bureau, Incorporated, or a similar organization.
"Default" means any event that is, or with the passage of
time or the giving of notice or both, would be an Event of Default.
"Designated Event" means the occurrence of a Change of
Control or a Termination of Trading.
"Designated Senior Debt" means any Senior Debt which, at the
date of determination, has an aggregate principal amount outstanding of, or
commitments to lend up to, at least $2 million and is specifically
designated in the instrument evidencing or governing such Senior Debt as
"Designated Senior Debt" for purposes of this Indenture (provided, that
such
<PAGE>
instrument may place limitations and conditions on the right of such Senior
Debt to exercise the rights of Designated Senior Debt).
"Excess Payment" means the excess of (a) the aggregate of
the cash and fair market value of other consideration paid by the Company
or any of its subsidiaries with respect to the shares acquired in a tender
offer or other negotiated transaction over (b) the Daily Market Price of
such acquired shares on the Trading Day immediately after giving effect to
the completion of such tender offer or other negotiated transaction.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters
of credit and reimbursement agreements in respect thereof), of all or any
part of any Indebtedness.
"Indebtedness" means, with respect to any person, all
Obligations, whether or not contingent, of such person (i) (a) for borrowed
money (including, but not limited to, any indebtedness secured by a
security interest, mortgage or other lien on the assets of such person
which is (1) given to secure all or part of the purchase price of property
subject thereto, whether given to the vendor of such property or to
another, or (2) existing on property at the time of acquisition thereof),
(b) evidenced by a note, debenture, bond or other written instrument, (c)
under a lease required to be capitalized on the balance sheet of the lessee
under GAAP or under any lease or related document (including a purchase
agreement) which provides that such person is contractually obligated to
purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees, bankers' acceptances or
guarantees related to the Tax Credit Partnerships, (e) with respect to
indebtedness secured by a mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the
obligation secured thereby shall have been assumed or Guaranteed by or
shall otherwise be such person's legal liability, (f) in respect of the
balance of deferred and unpaid purchase price of any property or assets,
and (g) under interest rate or currency swap agreements, cap, floor and
collar agreements, spot and forward contracts and similar agreements and
arrangements; (ii) with respect to any obligation of others of the type
described in the preceding clause (i) or under clause (iii) below, assumed
by or Guaranteed in any manner by such person or in effect Guaranteed by
such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
Guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
<PAGE>
"Indenture" means this Indenture, as amended from time to
time.
"Issuance Date" means the date on which the Convertible
Notes are first authenticated and issued.
"Material Subsidiary" means any Subsidiary of the Company
which is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date hereof).
"Noteholder" or "holder" means a person in whose name a
Convertible Note is registered.
"Obligations" means any principal, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice-President of the Company. See Sections 12.4 and 12.5
hereof.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of
or counsel to the Company or the Trustee. See Sections 12.4 and 12.5
hereof.
"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 debt security means the principal of the
security plus the premium, if any, on the security.
"Purchaser" means Prometheus Assisted Living LLC.
"Representative" means the trustee, agent or representative
(if any) for an issue of Senior Debt.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Senior Debt" means the principal of, interest on and other
amounts due on Indebtedness of the Company, whether outstanding on the date
of the Indenture or thereafter created, incurred, assumed or Guaranteed by
the Company; unless, in the instrument creating or evidencing or pursuant
to which Indebtedness is outstanding, it is expressly provided that such
Indebtedness is not senior in right of payment to the Convertible Notes.
Senior Debt includes, with respect to the obligations described above,
interest accruing, pursuant to the terms of such Senior Debt, on or after
the filing of any petition in bankruptcy or for reorganization relating to
<PAGE>
the Company, whether or not post-filing interest is allowed in such
proceeding, at the rate specified in the instrument governing the relevant
obligation. Notwithstanding anything to the contrary in the foregoing,
Senior Debt shall not include: (a) Indebtedness of or amounts owed by the
Company for compensation to employees, or for goods, services or materials
purchased in the ordinary course of business; (b) Indebtedness of the
Company to a Subsidiary of the Company or any officer, director or employee
of the Company or any Subsidiary thereof; (c) any liability for Federal,
state, local or other taxes owed or owing by the Company, or (d)
Indebtedness evidenced by the Company's 6 3/4% Convertible Subordinated
Notes Due 2006.
"Statement of Registration Rights" means the Statement of
Registration Rights relating to the Convertible Notes attached hereto as
Exhibit B.
"Subsidiary" means any corporation, association or other
business entity of which more than 50% of the total voting power of shares
of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by any
person or one or more of the other Subsidiaries of that person or a
combination thereof.
"Tax Credit Partnerships" means all partnerships formed or
to be formed by the Company for the purpose of acquiring or developing
affordable apartments and to accrue related tax benefits under the Federal
Low Income Housing Tax Credit program as described in the Offering
Memorandum.
"Termination of Trading" means an event where the Common
Stock (or other common stock into which the Convertible Notes are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on an established automated
over-the-counter trading market in the United States.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss.77aaa-77bbbb) as in effect on the date of execution of this
Indenture.
"Trading Day" shall mean (A) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national securities exchange, a day on which the New York Stock Exchange or
another national securities exchange is open for business, (B) if the
applicable security is quoted on The Nasdaq National Market, a day on which
trades may be made thereon or (c) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor.
"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 senior vice
president, any vice president, any assistant vice president, the secretary
the treasurer, any
<PAGE>
assistant treasurer, the cashier, any assistant cashier, any senior trust
officer, any trust officer, the controller, any assistant controller, or
any other officer of the Trustee customarily performing functions similar
to those performed by the persons who at the time are such officers,
respectively, and also means, with respect to a particular corporate trust
matter, any officer to whom such corporate trust matter is referred because
of his knowledge of and familiarity with the particular subject.
Section 1.2. Other Definitions.
Defined in
Term Section
"Bankruptcy Law"...............................................8.1
"Commencement Date"............................................3.8
"Conversion Agent".............................................2.3
"Conversion Date"..............................................5.2
"Conversion Price".............................................5.1
"Conversion Shares"............................................5.6
"Custodian"....................................................8.1
"Designated Event Offer".......................................4.7
"Designated Event Payment".....................................4.7
"Designated Event Payment Date"................................3.8
"Distribution Date"............................................5.6
"Distribution Record Date".....................................5.6
"Event of Defau1t".............................................8.1
"Legal Holiday"...............................................12.7
"Offer Amount".................................................3.8
"Officer"....................................................12.10
"Paying Agent".................................................2.3
"Payment Blockage Notice"......................................6.2
"Payment Blockage Period"......................................6.2
"Payment Default"..............................................8.1
"Purchase Agreement"...........................................2.1
"Purchase Date"................................................5.6
"Registrar"....................................................2.3
"Rights".......................................................5.6
"Tender Period"................................................3.8
Section 1.3. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of 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:
"indenture securities" means the Convertible Notes;
<PAGE>
"indenture security holder" means a Noteholder;
"indenture qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Convertible Notes means the Company or any
other obligor on the Convertible Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction. Unless the context
otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP consistently applied;
(c) references to "GAAP" shall mean GAAP in effect as of the time
when and for the period as to which such accounting principles
are to be applied;
(d) "or" is not exclusive;
(e) words in the singular include the plural, and words in the plural
include the singular; and
(f) provisions apply to successive events and transactions.
ARTICLE II.
Convertible Notes
Section 2.1. Form and Dating. The Convertible Notes and the
Trustee's certificate of authentication shall be substantially in the form
of Exhibit A-1 attached hereto. The Convertible Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Convertible Note shall be dated the date of its authentication. The
Convertible Notes shall be issued in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. The terms and provisions
contained in the Convertible Notes shall constitute, and are hereby
expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such
terms and provisions and to be bound thereby.
The Convertible Notes are being offered and sold by the
Company pursuant to that certain Amended and Restated Stock and Note
Purchase Agreement by and among Lazard Freres Real Estate Investors, the
Purchaser and the Company, dated as of October 29, 1997.
<PAGE>
Section 2.2. Execution and Authentication. Two officers
shall sign the Convertible Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced, either manually or by
facsimile, on the Convertible Notes.
If an officer whose signature is on a Convertible Note no
longer holds that office at the time the Convertible Note is authenticated,
the Convertible Note shall nevertheless be valid.
A Convertible Note shall not be valid until authenticated by
the manual signature of an authorized officer of the Trustee. The signature
shall be conclusive evidence that the Convertible Note has been
authenticated under this Indenture.
Upon a written order of the Company signed by two Officers,
the Trustee shall authenticate the Convertible Notes for original issue up
to an aggregate principal amount of $60,000,000. The aggregate principal
amount of Convertible Notes outstanding at any time shall not exceed such
amount except as provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Convertible Notes. An authenticating agent
may authenticate Convertible Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights
as an Agent to deal with the Company or an Affiliate.
Section 2.3. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain in the Borough of Manhattan in The City of New
York (i) an office or agency where Convertible Notes may be presented for
registration of transfer or for exchange ("Registrar"), (ii) an office or
agency where Convertible Notes may be presented for payment ("Paying
Agent") and (iii) an office or agency where Convertible Notes may be
presented for conversion ("Conversion Agent"). The Registrar shall keep a
register of the Convertible Notes and of their transfer and exchange. The
Company may appoint the Registrar, the Paying Agent and the Conversion
Agent and may appoint one or more co-registrars, one or more additional
paying agents and one or more additional conversion agents in such other
locations as it shall determine. 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, co-registrar or Conversion Agent without prior notice to any
Noteholder. The Company shall notify the Trustee of the name and address of
any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar, Paying Agent or Conversion Agent, the
Trustee shall act as such. The Company or any of its Affiliates may act as
Paying Agent, Registrar, co-registrar or Conversion Agent.
Section 2.4. Paying Agent to Hold Money in Trust. The
Company shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the benefit of
Noteholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Convertible Notes, and will notify
the Trustee of any default by the Company in making any such payment. While
any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee and to account for
<PAGE>
any money disbursed by it. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or an Affiliate of the Company) shall have
no further liability for the money. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Noteholders all money held by it as
Paying Agent.
Section 2.5. Noteholder 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 Noteholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee on or before
each 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 Noteholders.
Section 2.6. Transfer and Exchange; Legends.
(a) When Convertible Notes are presented by a holder to the Registrar
with a request:
(x) to register the transfer of the Convertible Notes; or
(y) to exchange such Convertible Notes for an equal principal
amount of Convertible Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as
requested; provided, however, that the Convertible Notes presented or
surrendered for register of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to
the Registrar duly executed by such holder or by his attorney, duly
authorized in writing. If such Convertible Note is being delivered to the
Registrar by a holder for registration in the name of such holder, without
transfer, or such Convertible Note is being transferred to the Company, no
certification is required. If such Convertible Note is being transferred
in reliance on any exemption from the registration requirements of the
Securities Act, the transition will be subject to the requirements and
provisions set forth in Section 6.1 of the Purchase Agreement.
(b) Each Convertible Note certificate evidencing certificated
Convertible Notes (and all Convertible Notes issued in exchange
therefor or substitution thereof) shall bear a legend with
respect to the restrictions on transfer under the Securities Act
and under applicable state securities laws. The legend will be
removed only upon satisfaction of the requirements set forth in
of Section 6.1 of the Purchase Agreement.
(c) The Purchaser shall not be required to deliver, and neither the
Company nor the Trustee shall demand therefrom, any of the
certifications or opinions described in this Section 2.6 in
connection with the initial issuance and delivery by the Company
of the Convertible Notes on the effective date hereof.
Section 2.7. Replacement Convertible Notes. If the holder of a
Convertible Note claims that the Convertible Note has been lost, destroyed
or wrongfully taken or if such Convertible Note is mutilated and is
surrendered to the Trustee, the Company shall issue and the Trustee shall
authenticate a replacement Convertible Note if the Trustee's and the
Company's
<PAGE>
requirements are met. If required by the Trustee or the Company, an
indemnity bond must be sufficient in the judgment of both to protect the
Company, the Trustee, any Agent or any authenticating agent from any loss
which any of them may suffer if a Convertible Note is replaced. The Company
may charge for its expenses in replacing a Convertible Note.
In case any such mutilated, destroyed, lost or stolen Convertible
Note has become or is about to become due and payable, or is about to be
purchased by the Company pursuant to Article III hereof, the Company in its
discretion may, instead of issuing a new Convertible Note, pay or purchase
such Convertible Note, as the case may be.
Every replacement Convertible Note is an additional obligation of
the Company.
Section 2.8. Outstanding Convertible Notes. The Convertible Notes
outstanding at any time are all the Convertible Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Convertible Note is replaced, paid or purchased pursuant to
Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives
proof satisfactory to it that the replaced, paid or purchased Convertible
Note is held by a bona fide purchaser.
If Convertible Notes are considered paid under Section 4.1
hereof, they cease to be outstanding and interest on them ceases to accrue.
A Convertible Note does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Convertible Note.
Section 2.9. Treasury Convertible Notes. In determining whether
the Noteholders of the required principal amount of Convertible Notes have
concurred in any direction, waiver or consent, Convertible Notes owned by
the Company or an Affiliate of the Company shall be considered as though
they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
waiver or consent, only Convertible Notes which a Trust Officer of the
Trustee actually knows are so owned shall be so disregarded.
Section 2.10. Cancellation. The Company at any time may deliver
Convertible Notes to the Trustee for cancellation. The Registrar, Paying
Agent and Conversion Agent shall forward to the Trustee any Convertible
Notes surrendered to them for registration of transfer, redemption,
conversion, exchange or payment. The Trustee shall promptly cancel all
Convertible Notes surrendered for registration of transfer, redemption,
conversion, exchange, payment, replacement or cancellation and shall
dispose of canceled Convertible Notes as the Company directs. The Company
may not issue new Convertible Notes to replace Convertible Notes that it
has paid or that have been delivered to the Trustee for cancellation or
that any holder has converted.
Section 2.11. Defaulted Interest. If the Company fails to make a
payment of interest on the Convertible Notes, it shall pay such defaulted
interest plus any interest payable on
<PAGE>
the defaulted interest, in any lawful manner. It may pay such defaulted
interest, plus any such interest payable on it, to the persons who are
Noteholders on a subsequent special record date. The Company shall fix any
such record date and payment date. At least 15 days before any such record
date, the Company shall mail to Noteholders a notice that states the record
date, payment date, and amount of such interest to be paid.
ARTICLE III.
Redemption
Section 3.1. Notices to Trustee. If the Company elects to redeem
Convertible Notes pursuant to the Optional Redemption provision of Section
3.7 hereof, it shall notify the Trustee of the redemption date and the
principal amount of Convertible Notes to be redeemed. The Trustee shall
give notice to each registered holder of Convertible Notes of the
redemption date not less than 20 days prior to such redemption date and
shall give such notice to the Trustee of any event or determination that
obligates the Trustee to take any action or give any notice under this
Article III not less than ten business days prior to the first day in any
period of time specified for the Trustee to take such action or give such
notice (unless a shorter notice period shall be satisfactory to the
Trustee).
Section 3.2. Selection of Convertible Notes to be Redeemed. If
less than all the Convertible Notes are to be redeemed, the Trustee shall
select the Convertible Notes to be redeemed as directed by the Company
(which direction will include compliance with the requirements of the
principal national securities exchange, if any, on which the Convertible
Notes are listed), on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate. The Trustee shall make the
selection not more than 60 days and not less than 30 days before the
redemption date from Convertible Notes outstanding not previously called
for redemption. The Trustee may select for redemption portions of the
principal of Convertible Notes that have denominations larger than $1,000.
Convertible Notes and portions of them it selects shall be in amounts of
$1,000 or integral multiples of $1,000. Provisions of this Indenture that
apply to Convertible Notes called for redemption also apply to portions of
Convertible Notes called for redemption. The Trustee shall notify the
Company promptly of the Convertible Notes or portions of Convertible Notes
to be called for redemption.
If any Convertible Note selected for partial redemption is
converted in part after such selection, the converted portion of such
Convertible Note shall be deemed (so far as may be) to be the portion to be
selected for redemption. The Convertible Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes
hereof, notwithstanding that any such Convertible Note is converted in
whole or in part before the mailing of the notice of redemption. Upon any
redemption of less than all the Convertible Notes, the Company and the
Trustee may treat as outstanding any Convertible Notes surrendered for
conversion during the period 15 days next preceding the mailing of a notice
of redemption and need not treat as outstanding any Convertible Note
authenticated and delivered during such period in exchange for the
unconverted portion of any Convertible Note converted in part during such
period.
<PAGE>
Section 3.3. Notice of Redemption. At least 20 days but not more
than 60 days before a redemption date, the Company shall mail a notice of
redemption to each holder whose Convertible Notes are to be redeemed at
such holder's registered address.
The notice shall identify the Convertible Notes to be redeemed
and shall state:
(a) the redemption date;
(b) the redemption price and, if applicable, the amount of Common
Stock which will be issued upon redemption of such Convertible
Notes;
(c) if any Convertible Note is being redeemed in part, the portion of
the principal amount of such Convertible Note to be redeemed and
that, after the redemption date, upon cancellation of such
Convertible Note, a new Convertible Note or Convertible Notes in
principal amount equal to the unredeemed portion will be issued
in the name of the holder thereof;
(d) the name and address of the Paying Agent;
(e) that Convertible Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price plus accrued
interest;
(f) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on
Convertible Notes called for redemption ceases to accrue on and
after the redemption date; and
(g) the paragraph of the Convertible Notes pursuant to which the
Convertible Notes called for redemption are being redeemed.
Such notice shall also state the current Conversion Price and the
date on which the right to convert such Convertible Notes or portions
thereof into Common Stock of the Company will expire.
At the Company's request, the Trustee shall give notice of
redemption in the Company's name and at its expense.
Section 3.4. Effect of Notice of Redemption. Once notice of
redemption is mailed, Convertible Notes called for redemption become due
and payable on the redemption date at the price set forth in the
Convertible Note.
Section 3.5. Deposit of Redemption Price. On or before 12:00
noon, New York City time, of the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money or shares of Common Stock
(valued at $17.25 per share) sufficient to pay the redemption price of and
accrued interest up to but not including the redemption date on all
Convertible Notes to be redeemed on that date (subject to the right of
holders of record on the relevant record date to receive interest due on an
interest payment date) unless theretofore
<PAGE>
converted into Common Stock pursuant to the provisions hereof subject to
any specific provisions in the Convertible Notes. The Trustee or the Paying
Agent shall return to the Company any money not required for that purpose.
Section 3.6. Convertible Notes Redeemed in Part. Upon
cancellation of a Convertible Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the holder at the
expense of the Company a new Convertible Note equal in principal amount to
the unredeemed portion of the Convertible Note surrendered.
Section 3.7. Optional Redemption. The Company may redeem all or
any portion of the Convertible Notes, upon the terms and at the redemption
prices set forth in each of the Convertible Notes. Any redemption pursuant
to this Section 3.7 shall be made pursuant to the provisions of Section 3.1
through 3.6 hereof.
Section 3.8. Designated Event Offer.
(a) In the event that, pursuant to Section 4.7 hereof, the Company
shall commence a Designated Event Offer, the Company shall follow
the procedures in this Section 3.8.
(b) The Designated Event Offer shall remain open for a period
specified by the Company which shall be no less than 30 calendar
days and no more than 40 calendar days following its commencement
on the date of the mailing of notice in accordance with Section
4.7(b) hereof (the "Commencement Date"), except to the extent
that a longer period is required by applicable law (the "Tender
Period"). Upon the expiration of the Tender Period (the
"Designated Event Payment Date"), the Company shall purchase the
principal amount of Convertible Notes required to be purchased
pursuant to Section 4.7 hereof (the "Offer Amount").
(c) If the Designated Event Payment Date is on or after an interest
payment record date and on or before the related interest payment
date, any accrued interest will be paid to the person in whose
name a Convertible Note is registered at the close of business on
such record date, and no additional interest will be payable to
Noteholders who tender Convertible Notes pursuant to the
Designated Event Offer.
(d) The Company shall provide the Trustee with notice of the
Designated Event Offer at least 10 Business Days before the
Commencement Date.
(e) On or before the Commencement Date, the Company or the Trustee
(at the expense of the Company) shall send, by first class mail,
a notice to each of the Noteholders, which shall govern the terms
of the Designated Event Offer and shall state:
(i) that the Designated Event Offer is being made pursuant
to this Section 3.8 and Section 4.7 hereof and that all
Convertible Notes tendered will be accepted for payment;
<PAGE>
(ii) the Offer Amount, the purchase price (as determined in
accordance with Section 4.7 hereof), the length of time the
Designated Event Offer will remain open and the Designated Event
Payment Date;
(iii) that any Convertible Note or portion thereof not
tendered or accepted for payment will continue to accrue
interest;
(iv) that, unless the Company defaults in the payment of the
Designated Event Payment, any Convertible Note or portion thereof
accepted for payment pursuant to the Designated Event Offer shall
cease to accrue interest after the Designated Event Payment Date;
(v) that Noteholders electing to have a Convertible Note or
portion thereof purchased pursuant to any Designated Event offer
will be required to surrender the Convertible Note, with the form
entitled "Option of Noteholder To Elect Purchase" on the reverse
of the Convertible Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on
the third Business Day preceding the Designated Event Payment
Date;
(vi) that Noteholders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Designated
Event Payment Date, or such longer period as may be required by
law, a letter or a telegram, telex or facsimile transmission
(receipt of which is confirmed and promptly followed by a letter)
setting forth the name of the Noteholder, the principal amount of
the Convertible Note or portion thereof the Noteholder delivered
for purchase and a statement that such Noteholder is withdrawing
his election to have the Convertible Note or portion thereof
purchased; and
(vii) that Noteholders whose Convertible Notes are being
purchased only in part will be issued new Convertible Notes equal
in principal amount to the unpurchased portion of the Convertible
Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof.
In addition, the notice shall contain all instructions and
materials that the Company shall reasonably deem necessary to enable such
Noteholders to tender Convertible Notes pursuant to the Designated Event
Offer.
(f) At least one Business Day prior to the Designated Event Payment
Date, the Company shall irrevocably deposit with the Trustee or a
Paying Agent in immediately available funds an amount equal to
the Offer Amount to be held for payment in accordance with the
terms of this Section 3.8. On the Designated Event Payment Date,
the Company shall, to the extent lawful, (i) accept for payment
the Convert ible Notes or portions thereof tendered pursuant to
the Designated Event Offer, (ii) deliver or cause to be delivered
to the Trustee Convertible Notes so accepted and (iii) deliver to
the Trustee an Officers' Certificate stating such
<PAGE>
Convertible Notes or portions thereof have been accepted for
payment by the Company in accordance with the terms of this
Section 3.8. The Paying Agent shall promptly (but in any case not
later than ten (10) calendar days after the Designated Event
Payment Date) mail or deliver to each tendering Noteholder an
amount equal to the purchase price of the Convertible Notes
tendered by such Noteholder, and the Trustee shall promptly
authenticate and mail or deliver to such Noteholders a new
Convertible Note equal in principal amount to any unpurchased
portion of the Convertible Note surrendered, if any; provided,
that each new Convertible Note shall be in a principal amount of
$1,000 or an integral multiple thereof. Any Convertible Notes not
so accepted shall be promptly mailed or delivered by or on behalf
of the Company to the holder thereof. The Company will publicly
announce the results of the Designated Event Offer on, or as soon
as practicable after, the Designated Event Payment Date.
(g) The Designated Event Offer shall be made by the Company in
compliance with all applicable provisions of the Exchange Act,
and all applicable tender offer rules promulgated thereunder, and
shall include all instructions and materials that the Company
shall reasonably deem necessary to enable such Noteholders to
tender their Convertible Notes.
ARTICLE IV.
Covenants
Section 4.1. Payment of Convertible Notes. The Company shall pay
the principal of and interest on the Convertible Notes on the dates and in
the manner provided in the Convertible Notes. Principal and interest shall
be considered paid on the date due if the Paying Agent (other than the
Company or an Affiliate of the Company) holds on that date money designated
for and sufficient to pay all principal and interest then due and such
Paying Agent is not prohibited from paying such money to the Noteholders on
that date pursuant to the terms of this Indenture. To the extent lawful,
the Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the rate borne by the
Convertible Notes, compounded semiannually.
If the Paying Agent pays out any amount due under the terms of
the Convertible Notes on or after the due date therefor on the assumption
that the corresponding payment for such amount has been or will be made by
the Company and such payment has in fact not been so made by the Company
prior to the time that the Paying Agent makes such payment, then the
company shall on demand reimburse the Paying Agent for the relevant amount,
and pay interest to the Paying Agent on such amount from the date on which
it is paid out to the date of reimbursement at a rate per annum equal to
the cost to the Paying Agent of funding the amount paid out, as certified
by the Paying Agent and expressed as a rate per annum.
Section 4.2. SEC Reports. Whether or not required by the rules
and regulations of the SEC, so long as any Convertible Notes are
outstanding, the Company will file with the SEC
<PAGE>
and, if requested, furnish to the Trustee and to the holders of Convertible
Notes all quarterly and annual financial information required to be
contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to annual information only, a report thereon
by the Company's certified independent accountants.
Section 4.3. Compliance Certificate. The Company shall deliver to
the Trustee, within 120 days after the end of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities
of the Company and its subsidiaries during the preceding fiscal year has
been made under the supervision of the signing officers with a view to
determining whether the Company has kept, observed, performed and fulfilled
its obligations under, and complied with the covenants and conditions
contained in, this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge the Company has
kept, observed, performed and fulfilled each and every covenant, and
complied with the covenants and conditions contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of
which he may have knowledge) and that to the best of his knowledge no event
has occurred and remains in existence by reason of which payments on
account of the principal or of interest, if any, on the Convertible Notes
are prohibited.
One of the Officers signing such Officers' Certificate shall be
either the Company's principal executive officer, principal financial
officer or principal accounting officer.
The Company will, so long as any of the Convertible Notes are
outstanding, deliver to the Trustee, forthwith upon becoming aware of:
(a) any Default, Event of Default or default in the performance of
any covenant, agreement or condition contained in this Indenture;
or
(b) any event of default under any other mortgage, indenture or
instrument as that term is used in Section 8.1(e),
an Officers' Certificate specifying such Default, Event of Default or
default.
Immediately upon the occurrence of any event giving rise to
Liquidated Damages in respect of the Convertible Notes in accordance with
Section 11 of the form thereof or the termination of such Liquidated
Damages, the Company shall give the Trustee notice of such Liquidated
Damages or termination thereof and of the event giving rise to such
Liquidated Damages or termination thereof (such notice to be contained in
an Officers' Certificate), and prior to receipt of such Officers'
Certificate the Trustee shall be entitled to assume that no such Liquidated
Damages are owing or that no termination thereof has occurred, as the case
may be.
Section 4.4. Stay, Extension and Usury Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time
insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever
<PAGE>
enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.5. Corporate Existence. Subject to Article VII hereof,
the Company will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each subsidiary of the Company
in accordance with the respective organizational documents of each
subsidiary and the rights (charter and statutory), licenses and franchises
of the Company and its subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or
the corporate, partnership or other existence of any subsidiary, if the
Board of Directors (as evidenced by a Board Resolution certified by the
Secretary of the Company) shall determine in good faith that the
preservation thereof is no longer desirable in the conduct of the business
of the Company and its subsidiaries taken as a whole and that the loss
thereof is not adverse in any material respect to the Noteholders.
Notwithstanding the foregoing, the corporate existence of any Subsidiary
may be terminated in connection with any Board-approved corporate
restructuring or reorganization.
Section 4.6. Taxes. The Company shall, and shall cause each of its
subsidiaries to, pay prior to delinquency all taxes, assessments and
governmental levies, except as contested in good faith and by appropriate
proceedings.
Section 4.7. Designated Event. Upon the occurrence of a Designated
Event, each holder of Convertible Notes may elect, in accordance with this
Section 4.7 and Section 3.8 hereof:
(a) To require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's
Convertible Notes pursuant to the terms of Section 3.8 (the
"Designated Event Offer") at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest
thereon to the Designated Event Payment Date (the "Designated
Event Payment"); or
(b) If the Designated Event is a Change of Control that was not
approved by a majority of the Continuing Directors, to convert
such holder's Convertible Notes to Common Stock at a conversion
price of $16.25 per share.
(c) Within 30 days following any Designated Event, the Company shall
mail to each holder the notice provided by Section 3.8(e); and
Section 4.8. Shareholder Rights Plan. The Company shall take any
and all action with respect to any shareholder rights plan or agreement of
the Company in existence from time to time required to provide the holders
of Common Stock issuable upon conversion of the Convertible Notes with the
rights and other benefits such holder would have received if such
<PAGE>
holder's Common Stock were issued and outstanding on the date of the
Indenture up to and including the date of determination.
ARTICLE V.
Conversion
Section 5.1. Conversion Privilege. A holder of a Convertible Note
may convert the principal amount thereof (or any portion thereof that is an
integral multiple of $1,000) into fully paid and nonassessable shares of
Common Stock of the Company at any time after 90 days following the date of
original issuance thereof and prior to the close of business (New York City
time) on the date of the Convertible Note's maturity at the Conversion
Price then in effect, except that, with respect to any Convertible Note
called for redemption, such conversion right shall terminate at the close
of business on the third Business Day immediately preceding the redemption
date (unless the Company shall default in making the redemption payment
when it becomes due, in which case the conversion right shall terminate on
the date such default is cured). The number of shares of Common Stock
issuable upon conversion of a Convertible Note is determined by dividing
the principal amount of the Convertible Note converted by the conversion
price in effect on the Conversion Date (the "Conversion Price").
The initial Conversion Price is stated in paragraph 10 of the
Convertible Notes and is subject to adjustment as provided in this Article
V and in Section 4.8 hereof.
Provisions of this Indenture that apply to conversion of all of a
Convertible Note also apply to conversion of a portion of it. A holder of
Convertible Notes is not entitled to any rights of a holder of Common Stock
(other than as provided in Section 4.8 hereof) until such holder of
Convertible Notes has converted such Convertible Notes into Common Stock,
and only to the extent that such Convertible Notes are deemed to have been
converted into Common Stock under this Article V.
Section 5.2. Conversion Procedure. To convert a Convertible Note,
a holder must satisfy the requirements in paragraph 10 of the Convertible
Notes. The date on which the holder satisfies all of those requirements is
the conversion date (the "Conversion Date"). As soon as practicable after
the Conversion Date, the Company (through its stock transfer agent) shall
deliver to the holder a certificate for the number of whole shares of
Common Stock issuable upon the conversion and a check for any fractional
share determined pursuant to Section 5.3. The person in whose name the
certificate is registered shall become the shareholder of record on the
Conversion Date and, as of such date, such person's rights as a Noteholder
shall cease; provided, however, that no surrender of a Convertible Note on
any date when the stock transfer books of the Company shall be closed shall
be effective to constitute the person entitled to receive the shares of
Common Stock upon such conversion as the shareholder of record of such
shares of Common Stock on such date, but such surrender shall be effective
to constitute the person entitled to receive such shares of Common Stock as
the shareholder of record thereof for all purposes at the close of business
on the next succeeding day on which such stock transfer books are open;
provided further, however, that such conversion shall be at the Conversion
Price in
<PAGE>
effect on the date that such Convertible Note shall have been surrendered
for conversion, as if the stock transfer books of the Company had not been
closed.
No payment or adjustment will be made for accrued and unpaid
interest on a converted Convertible Note or for dividends or distributions
on shares of Common Stock issued upon conversion of a Convertible Note, but
if any holder surrenders a Convertible Note for conversion after the close
of business on the record date for the payment of an installment of
interest and prior to the opening of business on the next interest payment
date, then, notwithstanding such conversion, the interest payable on such
interest payment date shall be paid to the holder of such Convertible Note
on such record date. In such event, any such Convertible Note not called
for redemption, when surrendered for conversion, must be accompanied by
payment in funds acceptable to the Company of an amount equal to the
interest payable on such interest payment date on the portion so converted.
If a holder converts more than one Convertible Note at the same
time, the number of whole shares of Common Stock issuable upon the
conversion shall be based on the total principal amount of Convertible
Notes converted.
Upon surrender of a Convertible Note that is converted in part,
the Trustee shall authenticate for the holder a new Convertible Note equal
in principal amount to the unconverted portion of the Convertible Note
surrendered.
Section 5.3. Fractional Shares. The Company will not issue
fractional shares of Common Stock upon conversion of a Convertible Note. In
lieu thereof, the Company will pay an amount in cash based upon the Daily
Market Price of the Common Stock on the trading day prior to the date of
conversion.
Section 5.4. Taxes on Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of any Convertible Note shall be
made without charge to the converting Noteholder for such certificates or
for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the respective names of, or in such names
as may be directed by, the holder or holders of the converted Convertible
Note; provided, however, that in the event that certificates for shares of
Common Stock are to be issued in a name other than the name of the holder
of the Convertible Note converted, such Convertible Note, when surrendered
for conversion, shall be accompanied by an instrument of transfer, in form
satisfactory to the Company, duly executed by the registered holder thereof
or his duly authorized attorney; and provided further, however, that the
Company and Conversion Agent shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the holder of the
converted Convertible Note, and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid or is not applicable.
Section 5.5. Company to Provide Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common
<PAGE>
Stock, solely for the purpose of issuance upon conversion of Convertible
Notes as herein provided, a sufficient number of shares of Common Stock to
permit the conversion of all outstanding Convertible Notes for shares of
Common Stock.
All shares of Common Stock which may be issued upon conversion of
the Convertible Notes shall be duly authorized, validly issued, fully paid
and nonassessable when so issued.
Section 5.6. Adjustment of Conversion Price. The Conversion Price
shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (1) pay a dividend in shares of Common
Stock to holders of Common Stock, (2) make a distribution in
shares of Common Stock to holders of Common Stock, (3) subdivide
its outstanding shares of Common Stock into a greater number of
shares of Common Stock or (4) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the
Conversion Price in effect immediately prior to such action shall
be adjusted so that the holder of any Convertible Note thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock which he would have owned
immediately following such action had such Convertible Notes been
converted immediately prior thereto. Any adjustment made pursuant
to this subsection (a) shall become effective immediately after
the record date in the case of a dividend, or distribution and
shall become effective immediately after the effective date in
the case of a subdivision or combination.
(b) In case the Company shall issue rights or warrants to
substantially all holders of Common Stock entitling them (for a
period commencing no earlier than the record date for the
determination of holders of Common Stock entitled to receive such
rights or warrants and expiring not more than 45 days after such
record date) to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price per
share less than the current market price (as determined pursuant
to subsection (f) below) of the Common Stock on such record date,
the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding on such record date, plus the number of shares of
Common Stock which the aggregate offering price of the offered
shares of Common Stock (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price, and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered (or into
which the convertible securities so offered are convertible).
Such adjustments shall become effective immediately after such
record date.
(c) In case the Company shall distribute to all holders of Common
Stock shares of any class of Capital Stock of the Company (other
than Common Stock), evidences of
<PAGE>
indebtedness or other assets (including securities, but
excluding those rights, warrants, dividends and distributions
referred to in the preceding clauses (a) and (b) and dividends
and distributions in connection with the liquidation, dissolution
or winding up of the Company or paid exclusively in cash out of
current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to
subscribe for securities (other than those securities referred to
in subsection (b) above), then in each such case the Conversion
Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction
of which the numerator shall be the current market price
(determined as provided in subsection (f) below) of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market
value and described in a Board Resolution) of the portion of the
assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock, and of which the
denominator shall be such current market price of the Common
Stock. Such adjustment shall become effective immediately after
the record date for the determination of the holders of Common
Stock entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the Company shall distribute rights
or warrants to subscribe for additional shares of the Company's
Capital Stock (other than the Common Stock referred to in
subsection (b) above) ("Rights") pro rata to holders of Common
Stock, the Company may, in lieu of making any adjustment pursuant
to this Section 5.6, make proper provision so that each holder of
a Convertible Note who converts such Convertible Note (or any
portion thereof) after the record date for such distribution and
prior to the expiration or redemption of the Rights shall be
entitled to receive upon such conversion, in addition to the
shares of Common Stock issuable upon such conversion (the
"Conversion Shares"), a number of Rights to be determined as
follows: (i) if such conversion occurs on or prior to the date
for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"),
the same number of Rights to which a holder of a number of shares
of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the
terms and provisions of and applicable to the Rights; and (ii) if
such conversion occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares of
Common Stock into which the principal amount of the Convertible
Note so converted was convertible immediately prior to the
Distribution Date would have been entitled on the Distribution
Date in accordance with the terms and provisions of and
applicable to the Rights.
(d) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of its Common Stock cash (including any
distributions of cash out of current or retained earnings of the
Company but excluding any cash that is distributed as part of a
distribution requiring a Conversion Price adjustment pursuant to
paragraph (c) of this Section) in an aggregate amount that,
together
<PAGE>
with the sum of (x) the aggregate amount of any other
distributions to all holders of its Common Stock made in cash
plus (y) all Excess Payments, in each case made within the 12
months preceding the date fixed for determining the shareholders
entitled to such distribution (the "Distribution Record Date")
and in respect of which no Conversion Price adjustment pursuant
to paragraphs (c) or (e) of this Section or this paragraph (d)
has been made, exceeds 15% of the product of the current market
price per share (determined as provided in paragraph (f) of this
Section) of the Common Stock on the Distribution Record Date
times the number of shares of Common Stock outstanding on the
Distribution Record Date (excluding shares held in the treasury
of the Company), the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying such
Conversion Price in effect immediately prior to the effectiveness
of the Conversion Price reduction contemplated by this paragraph
(d) by a fraction of which the numerator shall be the current
market price per share (determined as provided in paragraph (f)
of this Section) of the Common Stock on the Distribution Record
Date less the amount of such cash and other consideration
(including any Excess Payments) so distributed applicable to one
share (based on the pro rata portion of the aggregate amount of
such cash and other consideration (including any Excess
Payments), divided by the shares of Common Stock outstanding on
the Distribution Record Date) of Common Stock and the denominator
shall be such current market price per share (determined as
provided in paragraph (f) of this Section) of the Common Stock on
the Distribution Record Date, such reduction to become effective
immediately prior to the opening of business on the day following
the Distribution Record Date.
(e) In case a tender offer or other negotiated transaction made by
the Company or any Subsidiary of the Company for all or any
portion of the Common Stock shall be consummated, if an Excess
Payment is made in respect of such tender offer or other
negotiated transaction and the amount of such Excess Payment,
together with the sum of (x) the aggregate amount of all Excess
Payments plus (y) the aggregate amount of all distributions to
all holders of the Common Stock made in cash (specifically
including distributions of cash out of retained earnings), in
each case made within the 12 months preceding the date of payment
of such current negotiated transaction consideration or
expiration of such current tender offer, as the case may be (the
"Purchase Date"), and as to which no adjustment pursuant to
paragraph (c) or paragraph (d) of this Section or this paragraph
(e) has been made, exceeds 15% of the product of the current
market price per share (determined as provided in paragraph (f)
of this Section) of the Common Stock on the Purchase Date times
the number of shares of Common Stock outstanding (including any
tendered shares but excluding any shares held in the treasury of
the Company) on the Purchase Date, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying such Conversion Price in effect immediately prior to
the effectiveness of the Conversion Price reduction contemplated
by this paragraph (e) by a fraction of which the numerator shall
be the current market price per share (determined as provided in
paragraph (f) of this Section)
<PAGE>
of the Common Stock on the Purchase Date less the amount of such
Excess Payments and such cash distributions, if any, applicable
to one share (based on the pro rata portion of the aggregate
amount of such Excess Payments and such cash distributions,
divided by the shares of Common Stock outstanding on the Purchase
Date) of Common Stock and the denominator shall be such current
market price per share (determined as provided in paragraph (f)
of this Section) of the Common Stock on the Purchase Date, such
reduction to become effective immediately prior to the opening of
business on the day following the Purchase Date.
(f) The current market price per share of Common Stock on any date
shall be deemed to be the average of the Daily Market Prices for
the shorter of (i) 30 consecutive Business Days ending on the
last full trading day on the exchange or market referred to in
determining such Daily Market Prices prior to the time of
determination or (ii) the period commencing on the date next
succeeding the first public announcement of the issuance of such
rights or such warrants or such other distribution or such
negotiated transaction through such last full trading day on the
exchange or market referred to in determining such Daily Market
Prices prior to the time of determination.
(g) In any case in which this Section 5.6 shall require that an
adjustment be made immediately following a record date for an
event, the Company may elect to defer, until such event, issuing
to the holder of any Convertible Note converted after such record
date the shares of Common Stock and other Capital Stock of the
Company issuable upon such conversion over and above the shares
of Common Stock and other Capital Stock of the Company issuable
upon such conversion only on the basis of the Conversion Price
prior to adjustment; and, in lieu of the shares the issuance of
which is so deferred, the Company shall issue or cause its
transfer agents to issue due bills or other appropriate evidence
of the right to receive such shares.
Section 5.7. No Adjustment. No adjustment in the Conversion Price
shall be required until cumulative adjustments amount to 1% or more of the
Conversion Price as last adjusted; provided, however, that any adjustments
which by reason of this Section 5.7 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article V shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. No adjustment
need be made for rights to purchase Common Stock pursuant to a Company plan
for reinvestment of dividends or interest. No adjustment need be made for
a change in the par value or no par value of the Common Stock.
Section 5.8. Other Adjustments.
(a) In the event that, as a result of an adjustment made pursuant to
Section 5.6 above, the holder of any Convertible Note thereafter
surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Company other than shares of its
Common Stock, thereafter the Conversion Price of such other
shares
<PAGE>
so receivable upon conversion of any Convertible Notes shall be
subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Article V.
(b) In the event that shares of Common Stock are not delivered after
the expiration of any of the rights or warrants referred to in
Section 5.6(b) and Section 5.6(c) hereof, the Conversion Price
shall be readjusted to the Conversion Price which would otherwise
be in effect had the adjustment made upon the issuance of such
rights or warrants been made on the basis of delivery of only the
number of shares of Common Stock actually delivered.
Section 5.9. Adjustments for Tax Purposes. The Company may, at its
option, make such reductions in the Conversion Price, in addition to those
required by Section 5.6 above, as it determines to be advisable in order
that any stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities or distribution of securities convertible into
or exchangeable for stock made by the Company to its shareholders will not
be taxable to the recipients thereof.
Section 5.10. Adjustments by the Company. The Company from time to
time may, to the extent permitted by law, reduce the Conversion Price by
any amount for any period of at least 20 days, in which case the Company
shall give at least 15 days' notice of such reduction in accordance with
Section 5.11, if the Board of Directors has made a determination that such
reduction would be in the best interests of the Company, which
determination shall be conclusive.
Section 5.11. Notice of Adjustment. Whenever the Conversion Price
is adjusted, the Company shall promptly mail to Noteholders at the
addresses appearing on the Registrar's books and the Conversion Agent a
notice of the adjustment and file with the Trustee an Officers Certificate
briefly stating the facts requiring the adjustment and the manner of
computing it. The certificate shall be conclusive evidence of the
correctness of such adjustment.
Section 5.12. Notice of Certain Transactions. In the event that:
(1) the Company takes any action which would require an adjustment
in the Conversion Price;
(2) the Company takes any action that would require a supplemental
indenture pursuant to Section 5.13; or
(3) there is a dissolution or liquidation of the Company;
a holder of a Convertible Note may wish to convert such Convertible Note
into shares of Common Stock prior to the record date for or the effective
date of the transaction so that he may receive the rights, warrants,
securities or assets which a holder of shares of Common Stock on that date
may receive. Therefore, the Company shall mail to Noteholders at the
addresses appearing on the Registrar's books and the Conversion Agent and
the Trustee a notice stating the proposed record or effective date, as the
case may be. The Company shall mail the notice at least
<PAGE>
15 days before such date; however, failure to mail such notice or any
defect therein shall not affect the validity of any transaction referred to
in clause (1), (2) or (3) of this Section 5.12.
Section 5.13. Effect of Reclassifications, Consolidations,
Mergers or Sales on Conversion Privilege. If any of the following shall
occur, namely: (i) any reclassification or change of outstanding shares of
Common Stock issuable upon conversion of Convertible Notes (other than a
change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Company is a party other than a
merger in which the Company is the continuing corporation and which does
not result in any reclassification of, or change (other than a change in
name, or par value, or from par value to no par value, or from no par value
to par value or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (iii) any sale or conveyance of all
or substantially all of the property or business of the Company as an
entirety, then the Company, or such successor or purchasing corporation, as
the case may be, shall, as a condition precedent to such reclassification,
change, consolidation, merger, sale or conveyance, execute and deliver to
the Trustee a supplemental indenture in form satisfactory to the Trustee
providing that the holder of each Convertible Note then outstanding shall
have the right to convert such Convertible Note into the kind and amount of
shares of stock and other securities and property (including cash)
receivable upon such reclassification, change, consolidation, merger, sale
or conveyance by a holder of the number of shares of Common Stock
deliverable upon conversion of such Convertible Note immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance.
Such supplemental indenture shall provide for adjustments of the Conversion
Price which shall be as nearly equivalent as may be practicable to the
adjustments of the Conversion Price provided for in this Article V. The
foregoing, however, shall not in any way affect the right a holder of a
Convertible Note may otherwise have, pursuant to clause (ii) of the last
sentence of subsection (c) of Section 5.6, to receive Rights upon
conversion of a Convertible Note. If, in the case of any such
consolidation, merger, sale or conveyance, the stock or other securities
and property (including cash) receivable thereupon by a holder of Common
Stock includes shares of stock or other securities and property of a
corporation other than the successor or purchasing corporation, as the
case may be, in such consolidation, merger, sale or conveyance, then such
supplemental indenture shall also be executed by such other corporation and
shall contain such additional provisions to protect the interests of the
holders of the Convertible Notes as the Board of Directors of the Company
shall reasonably consider necessary by reason of the foregoing. The
provision of this Section 5.13 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental indenture
pursuant to this Section 5.13, the Company shall promptly file with the
Trustee an Officers' Certificate briefly stating the reasons therefor, the
kind or amount of shares of stock or securities or property (including
cash) receivable by holders of the Convertible Notes upon the conversion of
their Convertible Notes after any such reclassification, change,
consolidation, merger, sale or conveyance and any adjustment to be made
with respect thereto.
Section 5.14. Trustee's Disclaimer. The Trustee has no duty to
determine when an adjustment under this Article V should be made, how it
should be made or what such adjustment should be, but may accept as
conclusive evidence of the correctness of any such
<PAGE>
adjustment, and shall be protected in relying upon the Officers'
Certificate with respect thereto which the Company is obligated to file
with the Trustee pursuant to Section 5.11. The Trustee makes no
representation as to the validity or value of any securities or assets
issued upon conversion of Convertible Notes, and the Trustee shall not be
responsible for the Company's failure to comply with any provisions of this
Article V.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture
executed pursuant to Section 5.13, but may accept as conclusive evidence of
the correctness thereof, and shall be protected in relying upon, the
Officers' Certificate with respect thereto which the Company is obligated
to file with the Trustee pursuant to Section 5.13.
ARTICLE VI.
Subordination
Section 6.1. Agreement to Subordinate. The Company, for itself and
its successors, and each Noteholder, by his acceptance of Convertible
Notes, agree that the payment of the principal of or interest on or any
other amounts due on the Convertible Notes is subordinated in right of
payment, to the extent and in the manner stated in this Article VI, to the
prior payment in full of all existing and future Senior Debt.
Section 6.2. No Payment on Convertible Notes if Senior Debt in
Default. Anything in this Indenture to the contrary notwithstanding, no
payment on account of principal of or redemption of, interest on or other
amounts due on the Convertible Notes (including the making of a deposit
pursuant to Section 8.1), and no redemption, purchase, or other acquisition
of the Convertible Notes, shall be made by or on behalf of the Company (i)
unless full payment of amounts then due for principal and interest and of
all other amounts then due on all Senior Debt has been made or duly
provided for pursuant to the terms of the instrument governing such Senior
Debt, (ii) if, at the time of such payment, redemption, purchase or other
acquisition, or immediately after giving effect thereto, there shall exist
under any Senior Debt, or any agreement pursuant to which any Senior Debt
is issued, any default, which default shall not have been cured or waived
and which default shall have resulted in the full amount of such Senior
Debt being declared due and payable or (iii) if, at the time of such
payment, redemption, purchase or other acquisition, the Trustee shall have
received written notice from the Representative of the holders of
Designated Senior Debt (a "Payment Blockage Notice") that there exists
under such Designated Senior Debt, or any agreement pursuant to which such
Designated Senior Debt is issued, any default, which default shall not have
been cured or waived, permitting the holders thereof to declare any amounts
of such Designated Senior Debt due and payable, but only for the period
(the "Payment Blockage Period") commencing on the date of receipt of the
Payment Blockage Notice and ending (unless earlier terminated by notice
given to the Trustee by the Representative of the holders of such
Designated Senior Debt) on the earlier of (a) the date on which such event
of default shall have been cured or waived or (b) 179 days from the receipt
of the Payment Blockage Notice (unless the event of default relates to the
failure to pay when due, the principal, premium, if any or interest on such
Designated Senior Debt). Notwithstanding the provisions described in the
immediately preceding sentence (other than in clauses (i) and (ii)),
<PAGE>
unless the holders of such Designated Senior Debt or the Representative of
such holders shall have accelerated the maturity of such Designated Senior
Debt (unless the event of default relates to the failure to pay when due,
the principal, premium, if any or interest on such Designated Senior Debt),
the Company may resume payments on the Convertible Notes after the end of
such Payment Blockage Period. Not more than one Payment Blockage Notice may
be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to Senior Debt during such period.
In the event that, notwithstanding the provisions of this Section
6.2, payments are made by or on behalf of the Company in contravention of
the provisions of this Section 6.2, such payments shall be held by the
Trustee, any Paying Agent or the holders, as applicable, in trust for the
benefit of, and shall be paid over to and delivered to, the Representative
of the holders of Senior Debt or the trustee under the indenture or other
agreement (if any), pursuant to which any instruments evidencing any Senior
Debt may have been issued for application to the payment of all Senior Debt
ratably according to the aggregate amounts remaining unpaid to the extent
necessary to pay all Senior Debt in full in accordance with the terms of
such Senior Debt, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
The Company shall give prompt written notice to the Trustee and
any Paying Agent of any default or event of default under any Senior Debt
or under any agreement pursuant to which any Senior Debt may have been
issued.
Section 6.3. Distribution on Acceleration of Convertible Notes;
Dissolution and Reorganization; Subrogation of Convertible Notes.
(a) If the Convertible Notes are declared due and payable because of
the occurrence of an Event of Default, the Company shall give
prompt written notice to the holders of all Senior Debt or to the
trustee(s) for such Senior Debt of such acceleration. The Company
may not pay the principal of or interest on or any other amounts
due on the Convertible Notes until five days after such holders
or trustee(s) of Senior Debt receive such notice and, thereafter,
the Company may pay the principal of or interest on or any other
amounts due on the Convertible Notes only if the provisions of
this Article VI permit such payment.
(b) Upon (i) any acceleration of the principal amount due on the
Convertible Notes because of an Event of Default or (ii) any
distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or any other dissolution,
winding up, liquidation or reorganization of the Company):
(1) the holders of all Senior Debt shall first be entitled to receive
payment in full of the principal thereof, the interest thereon and any
other amounts due thereon before the holders are entitled to receive
payment on account of the principal of or interest on or any other amounts
due on the Convertible Notes;
<PAGE>
(2) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than securities
of the Company as reorganized or readjusted or securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article with respect to the Convertible Notes, to the
payment in full without diminution or modification by such plan of all
Senior Debt), to which the holders or the Trustee would be entitled except
for the provisions of this Article, shall be paid by the liquidating
trustee or agent or other person making such a payment or distribution,
directly to the holders of Senior Debt (or their representatives(s) or
trustee(s) acting on their behalf), ratably according to the aggregate
amounts remaining unpaid on account of the principal of or interest on and
other amounts due on the Senior Debt held or represented by each, to the
extent necessary to make payment in full of all Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to
the holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities (other than securities of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in this
Article with respect to the Convertible Notes, to the payment in full
without diminution or modification by such plan of Senior Debt), shall be
received by the Trustee or the holders before all Senior Debt is paid in
full, such payment or distribution shall be held in trust for the benefit
of, and be paid over to upon request by a holder of the Senior Debt, the
holders of the Senior Debt remaining unpaid (or their representatives) or
trustee(s) acting on their behalf, ratably as aforesaid, for application
to the payment of such Senior Debt until all such Senior Debt shall have
been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the holders
shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of
the Company applicable to the Senior Debt until the principal of and
interest on the Convertible Notes shall be paid in full and, for
purposes of such subrogation, no such payments or distributions to
the holders of Senior Debt of cash, property or securities which
otherwise would have been payable or distributable to holders shall,
as between the Company, its creditors other than the holders of Senior
Debt, and the holders, be deemed to be a payment by the Company to or
on account of the Senior Debt, it being understood that the
provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the holders, on the one hand, and
the holders of Senior Debt, on the other hand.
Nothing contained in this Article or elsewhere in this Indenture
or in the Convertible Notes is intended to or shall (i) impair, as
between the Company and its creditors other than the holders of Senior
Debt, the obligation of the Company, which is absolute and
unconditional, to pay to the holders the principal of and interest on
the Convertible Notes as and when the same shall become due and
payable in accordance with the terms of the Convertible Notes, (ii)
affect the relative rights of the holders and creditors of the Company
other than holders of Senior Debt or, as between the Company
<PAGE>
and the Trustee, the obligations of the Company to the Trustee, or
(iii) prevent the Trustee or the holders 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 Debt in respect of cash, property and securities of
the Company received upon the exercise of any such remedy.
Upon distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 9.1 hereof,
and the holders shall be entitled to rely upon a certificate of the
liquidating trustee or agent or other person making any distribution
to the Trustee or to the holders for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of
the Senior Debt 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. The
Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt. Nothing contained in this Article or elsewhere
in this Indenture, or in any of the Convertible Notes, shall prevent
the good faith application by the Trustee of any moneys which were
deposited with it hereunder, prior to its receipt of written notice of
facts which would prohibit such application, for the purpose of the
payment of or on account of the principal of or interest on, the
Convertible Notes unless, prior to the date on which such application
is made by the Trustee, the Trustee shall be charged with actual
notice under Section 6.3(d) hereof of the facts which would prohibit
the making of such application.
(c) The provisions of this Article shall not be applicable to any
cash, properties or securities received by the Trustee or by any
holder when received as a holder of Senior Debt and nothing in
Section 9.11 hereof or elsewhere in this Indenture shall deprive
the Trustee or such holder of any of its rights as such holder.
(d) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of
any payment of money to or by the Trustee in respect of the
Convertible Notes pursuant to the provisions of this Article. The
Trustee, subject to the provisions of Section 9.1 hereof, shall
be entitled to assume that no such fact exists unless the Company
or any holder of Senior Debt or any trustee therefor has given
written notice thereof to the Trustee. Notwithstanding the
provisions of this Article or any other provisions of this
Indenture, the Trustee shall not be charged with knowledge of the
existence of any fact which would prohibit the making of any
payment of moneys to or by the Trustee in respect of the
Convertible Notes pursuant to the provisions in this Article,
unless, and until three Business Days after the Trustee shall
have received written notice thereof from the Company or any
holder or holders of Senior Debt or from any trustee therefor;
and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1 hereof, shall
be entitled in all respects conclusively to assume that no such
facts exist; provided that if on a date not less than three
Business Days immediately preceding the date upon which, by the
terms hereof, any such moneys may become payable for any purpose
(including, without limitation, the principal of or interest on
any Convertible Note),
<PAGE>
the Trustee shall not have received with respect to such moneys
the written notice provided for in this Section 6.3(d), then
anything herein contained to the contrary notwithstanding, the
Trustee shall have 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 on or after such prior date.
The Trustee shall be entitled to conclusively rely on the
delivery to it of a written notice by a person representing himself to
be a holder of Senior Debt (or a trustee on behalf of such holder) to
establish that such notice has been given by a holder of Senior Debt
(or a trustee on behalf of any such holder or holders). 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
Debt 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
Debt 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; nor shall the Trustee be charged with
knowledge of the curing or waiving of any default of the character
specified in Section 6.2 hereof or that any event or any condition
preventing any payment in respect of the Convertible Notes shall have
ceased to exist, unless and until the Trustee shall have received
written notice to such effect.
(e) The provisions of this Section 6.3 applicable to the Trustee
shall (unless the context requires otherwise) also apply to any
Paying Agent for the Company.
Section 6.4. Reliance by Senior Debt on Subordination Provisions.
Each holder of any Convertible Note by his acceptance thereof acknowledges
and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration for each holder of any
Senior Debt, whether such Senior Debt was created or acquired before or
after the issuance of the Convertible Notes, to acquire and continue to
hold, or to continue to hold, such Senior Debt, and such holder of Senior
Debt shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold,
such Senior Debt. Notice of any default in the payment of any Senior Debt,
except as expressly stated in this Article, and notice of acceptance of the
provisions hereof are hereby expressly waived. Except as otherwise
expressly provided herein, no waiver, forbearance or release by any holder
of Senior Debt under such Senior Debt or under this Article shall
constitute a release of any of the obligations or liabilities of the
Trustee or holders of the Convertible Notes provided in this Article.
Section 6.5. No Waiver of Subordination Provisions. Except as
otherwise expressly provided herein, no right of any present or future
holder of any Senior Debt 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 or by any act or failure to act, in good
faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants
<PAGE>
of this Indenture, regardless of any knowledge thereof any such holder may
have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to
time, without the consent of, or notice to, the Trustee or the holders of
the Convertible Notes, without incurring responsibility to the holders of
the Convertible Notes and without impairing or releasing the subordination
provided in this Article VI or the obligations hereunder of the holders of
the Convertible Notes to the holders of Senior Debt, do any one or more of
the following: (i) change the manner, place or terms of payment of, or
renew or alter, Senior Debt, or otherwise amend or supplement in any manner
Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise
dispose of any property pledged, mortgaged or otherwise securing Senior
Debt; (iii) release any person liable in any manner for the collection of
Senior Debt; and (iv) exercise or refrain from exercising any rights
against the Company or any other person.
Section 6.6. Trustee's Relation to Senior Debt. The Trustee in its
individual capacity shall be entitled to all the rights set forth in this
Article in respect of any Senior Debt at any time held by it, to the same
extent as any holder of Senior Debt, and nothing in Section 9.11 hereof or
elsewhere in this Indenture shall deprive the Trustee of any of its rights
as such holder.
With respect to the holders of Senior Debt, 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 Debt shall be read into
this Indenture against the Trustee. The Trustee shall not owe any fiduciary
duty to the holders of Senior Debt but shall have only such obligations to
such holders as are expressly set forth in this Article.
Each holder of a Convertible Note by his acceptance thereof
authorizes and directs the Trustee on his behalf to take such action as may
be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee his attorney-in-fact for any and all
such purposes, including, in the event of any dissolution, winding up or
liquidation or reorganization under any applicable bankruptcy law of the
Company (whether in bankruptcy, insolvency or receivership proceedings or
otherwise), the timely filing of a claim for the unpaid balance of such
holder's Convertible Notes in the form required in such proceedings and the
causing of such claim to be approved. If the Trustee does not file a claim
or proof of debt in the form required in such proceedings prior to 30 days
before the expiration of the time to file such claims or proofs, then any
holder or holders of Senior Debt or their representative or representatives
shall have the right to demand, sue for, collect, receive and receipt for
the payments and distributions in respect of the Convertible Notes which
are required to be paid or delivered to the holders of Senior Debt as
provided in this Article and to file and prove all claims therefor and to
take all such other action in the name of the holders or otherwise, as such
holders of Senior Debt or representative thereof may determine to be
necessary or appropriate for the enforcement of the provisions of this
Article.
<PAGE>
Section 6.7. Other Provisions Subject Hereto. Expect as expressly
stated in this Article, notwithstanding anything contained in this
Indenture to the contrary, all the provisions of this Indenture and the
Convertible Notes are subject to the provisions of this Article. However,
nothing in this Article shall apply to or adversely affect the claims of,
or payment to, the Trustee pursuant to Section 9.7. Notwithstanding the
foregoing, the failure to make a payment on account of principal of or
interest on the Convertible Notes by reason of any provision of this
Article VI shall not be construed as preventing the occurrence of an Event
of Default under Section 8.1.
ARTICLE VII.
Successors
Section 7.1. Merger, Consolidation or Sale of Assets. The Company
may not consolidate or merge with or into any person (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties
or assets unless:
(a) the Company is the surviving corporation or the entity or the
person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(b) the entity or person formed by or surviving any such
consolidation or merger (if other than the Company) assumes all
the Obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee,
under the Convertible Notes and the Indenture;
(c) such sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the Company's
properties or assets shall be as an entirety or virtually as an
entirety to one person and such person shall have assumed all the
Obligations of the Company, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, under the
Convertible Notes and the Indenture;
(d) immediately after such transaction no Default or Event of Default
exists; and
(e) the Company or such person shall have delivered to the Trustee an
Officers', Certificate and an Opinion of Counsel, each stating
that such transaction and the supplemental indenture comply with
the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
Section 7.2. Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 7.1 hereof, the successor
corporation formed by such consolidation or into or with which the Company
is merged or to
<PAGE>
which such sale, assignment, transfer, lease, conveyance or other
disposition 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 person has been named as the Company
herein; provided, however, that the predecessor Company in the case of a
sale, assignment, transfer, lease, conveyance or other disposition shall
not be released from the obligation to pay the principal of and interest on
the Convertible Notes.
ARTICLE VIII.
Defaults and Remedies
Section 8.1. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on any
Convertible Note when the same becomes due and payable, whether
or not such payments shall be prohibited by Article VI, and the
Default continues for a period of 30 days after the date due and
payable;
(b) the Company defaults in the payment of the principal of any
Convertible Note when the same becomes due and payable at
maturity, upon redemption or otherwise, whether or not such
payment shall be prohibited by Article VI;
(c) the Company fails to observe or perform any covenant or agreement
contained in Section 4.7 hereof, whether or not such purchase
shall be prohibited by Article VI;
(d) the Company fails to observe or perform any other covenant or
agreement contained in this Indenture or the Convertible Notes,
required by it to be performed and the Default continues for a
period of 60 days after the receipt of written notice from the
Trustee to the Company or from the holders of 25% in aggregate
principal amount of the then outstanding Convertible Notes to the
Company and the Trustee stating that such notice is a "Notice of
Default";
(e) there is a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company
or any Material Subsidiary of the Company (or the payment of
which is guaranteed by the Company or any Material Subsidiary of
the Company), whether such Indebtedness or guarantee now exists
or is created after the Issuance Date, which default (i) is
caused by a failure to pay when due principal of or interest on
such Indebtedness within the grace period provided for in such
Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there is a Payment Default or the maturity of which
has been so accelerated, aggregates $7 million or more;
<PAGE>
(f) a final, non-appealable judgment or final, non-appealable
judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company or any Material Subsidiary of the Company and
remain undischarged for a period (during which execution shall
not be effectively stayed) of 60 days, provided that the
aggregate of all such judgments exceeds $5 million;
(g) the Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law: (i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor, (iii) consents to
the appointment of a Custodian of it or for all or substantially
all of its property, (iv) makes a general assignment for the
benefit of its creditors, or (v) makes the admission in writing
that it generally is unable to pay its debts as the same become
due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (i) is for relief against the Company or
any Material Subsidiary of the Company in an involuntary case,
(ii) appoints a Custodian of the Company or any Material
Subsidiary of the Company or for all or substantially all of its
property, and the order or decree remains unstayed and in effect
for 60 days, or (iii) orders the liquidation of the Company or
any Material Subsidiary of the Company, and the order or decree
remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means
any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Section 8.2. Acceleration. If an Event of Default (other than an
Event of Default specified in clauses (g) and (h) of Section 8.1 hereof)
occurs and is continuing, the Trustee by written notice to the Company, or
the Noteholders of at least 25% in principal amount of the then outstanding
Convertible Notes by notice to the Company and the Trustee, may declare all
the Convertible Notes to be due and payable. Upon such declaration, the
principal of, premium, if any, and accrued and unpaid interest on the
Convertible Notes shall be due and payable immediately. If an Event of
Default specified in clause (g) or (h) of Section 8.1 hereof occurs, such
an amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
Noteholder. The Noteholders of a majority in aggregate principal amount of
the then outstanding Convertible Notes by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that
has become due solely because of the acceleration.
Section 8.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the
payment of principal or interest on the
<PAGE>
Convertible Notes or to enforce the performance of any provision of the
Convertible Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Convertible Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Noteholder 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. All remedies are cumulative to the extent permitted by
law.
Section 8.4. Waiver of Past Defaults. The Noteholders of a
majority in aggregate principal amount of the then outstanding Convertible
Notes by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of
Default in the payment of the Designated Event Payment or the principal of,
or interest on, any Convertible Note. When a Default or Event of Default is
waived, it is cured and ceases; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 8.5. Control by Majority. The Noteholders of a majority in
principal amount of the then outstanding Convertible Notes may direct 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.
However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture, is unduly prejudicial to the rights of other
Noteholders, or would involve the Trustee in personal liability.
Section 8.6. Limitation on Suits. A Noteholder may pursue a remedy
with respect to this Indenture or the Convertible Notes only if:
(a) the Noteholder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Noteholders of at least 25% in principal amount of the then
outstanding Convertible Notes make a request to the Trustee to
pursue the remedy;
(c) such Noteholder or Noteholders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Noteholders of a majority in
principal amount of the then outstanding Convertible Notes do not
give the Trustee a direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
<PAGE>
Section 8.7. Rights of Noteholders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Noteholder of a Convertible Note to receive payment of principal and
interest on the Convertible Note, on or after the respective due dates
expressed in the Convertible Note, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired
or affected without the consent of the Noteholder made pursuant to this
Section.
Section 8.8. Collection Suit by Trustee. If an Event of Default
specified in Section 8.1(a) or (b) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount of principal and interest
remaining unpaid on the Convertible Notes and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the
costs and, to the extent lawful, expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
Section 8.9. 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 and the Noteholders
allowed in any judicial proceedings relative to the Company, its creditors
or its property. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Convertible Notes or the rights of any Noteholder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
Section 8.10. Priorities. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following
order:
First: to the Trustee for amounts due under Section 9.7
hereof;
Second: to the holders of Senior Debt to the extent required
by Article VI;
Third: to Noteholders for amounts due and unpaid on the
Convertible Notes for principal and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Convertible Notes for principal and interest, respectively; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12 hereof, the Trustee
may fix a record date and payment date for any payment to Noteholders made
pursuant to this Section.
Section 8.11. 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 a 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 attorneys'
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
<PAGE>
does not apply to a suit by the Trustee, a suit by a holder pursuant to
Section 8.7 hereof, or a suit by Noteholders of more than 10% in principal
amount of the then outstanding Convertible Notes.
ARTICLE IX.
Trustee
Section 9.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it
by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee need perform only those duties that are specifically set
forth in this Indenture and no others and (ii) 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 certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture.
However, the Trustee 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: (i) this paragraph does not
limit the effect of paragraph (b) of this Section 9.1; (ii) the
Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts and
(iii) 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 8.5 hereof.
(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
9.1. 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.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against
any loss, liability or expense.
(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
<PAGE>
Trustee need not be segregated from other funds except to the
extent required by law.
Section 9.2. Rights of Trustee.
(a) The Trustee may rely on any document reasonably 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.
(b) Before the Trustee acts or refrains from acting, it (unless other
evidence be herein specifically prescribed) may require an
Officers' Certificate or an Opinion of Counsel, or both. 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.
(c) The Trustee may act through agents and nominees and shall not be
responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith, without negligence or willful
misconduct, and that it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee shall not be charged with knowledge of any Event of
Default under subsection (c), (d), (e) or (f) of Section 8.1 or
of the identity of any Material Subsidiary unless either (1) a
Trust Officer assigned to its Institutional Trust Administration
shall have actual knowledge thereof, or (2) the Trustee shall
have received notice thereof in accordance with Section 12.2
hereof from the Company or any holder.
Section 9.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Convertible Notes and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights. However, the Trustee is subject to Sections 9.10
and 9.11 hereof.
Section 9.4. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Convertible Notes, it shall not be accountable for the Company's use of the
proceeds from any Convertible Notes authenticated and delivered by the
Trustee in conformity with the provisions of this Indenture, and it shall
not be responsible for any statement of the Company in the Indenture or any
statement in the Convertible Notes other than its authentication.
Section 9.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if it is actually known to the Trustee, the
Trustee shall mail to Noteholders a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or
Event of Default in payment on any Convertible Note, 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
Noteholders.
<PAGE>
Section 9.6. Reports by Trustee to Noteholders. Within 60 days
after the reporting date stated in Section 12.10, the Trustee shall mail to
Noteholders a brief report dated as of such reporting date that complies
with TIA paragraph 313(a) if and to the extent required by such paragraph
313(a). The Trustee also shall comply with TIA paragraph 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA
paragraph 313(c).
A copy of each report at the time of its mailing to Noteholders
shall be filed with the SEC and each stock exchange on which the
Convertible Notes are listed. The Company shall notify the Trustee when the
Convertible Notes are listed on any stock exchange.
Section 9.7. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its services
hereunder. The Trustee's compensation shall not be limited by any law on
compensa tion of a trustee of an express trust. The Company shall reimburse
the Trustee upon request for all reasonable and duly documented
disbursements, expenses and advances incurred or made by it including
amounts payable to the Paying Agent pursuant to the second paragraph of
Section 4.1 hereunder. Such disbursements and expenses may include the
reasonable and duly documented disbursements, compensation and expenses of
the Trustee's agents and counsel but shall not include amounts to be paid
to any co-agents appointed by the Company.
The Company shall indemnify the Trustee and its officers,
directors, employees and all other agents against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
The Company shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company shall pay
the reasonable and duly documented fees, disbursements and expenses of such
counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against
any loss or liability incurred by the Trustee through negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Convertible Notes on all money or
property held or collected by the Trustee, except money or property held in
trust to pay principal and interest on particular Convertible Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 8.1(g) or (h) occurs, the expenses
and the compensation for the services are intended to constitute expenses
of administration under any Bankruptcy Law.
The provisions of this Section 9.7 shall survive the termination
of this Indenture, and removal or resignation of the Trustee, as provided
by Section 10.1 hereof.
Section 9.8. 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.
<PAGE>
The Trustee may resign by so notifying the Company. The
Noteholders of a majority in principal amount of the then outstanding
Convertible Notes may remove the Trustee by so notifying the Trustee and
the Company. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 9.10 hereof, unless the
Trustee's duty to resign is stayed as provided in TIA
paragraph 310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes
office, the Noteholders of a majority in principal amount of the then
outstanding Convertible Notes may appoint a successor Trustee to replace
the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Noteholders of at least 10% in principal amount of the then
outstanding Convertible Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 9.10 hereof, unless
the Trustee's duty to resign is stayed as provided in TIA paragraph 310(b),
any Noteholder who has been a bona fide holder of a Convertible Note for at
least six months may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, the
Company shall promptly pay all amounts due and payable to the retiring
Trustee pursuant to Section 9.7 hereof and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Noteholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee
to the successor Trustee, subject to the lien provided for in Section 9.7
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
9.8, the Company's obligations under Section 9.7 hereof shall continue for
the benefit of the retiring trustee with respect to expenses and
liabilities incurred by it prior to such replacement.
Section 9.9. Successor Trustee by Merger, Etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
<PAGE>
Section 9.10. Eligibility; Disqualification. This Indenture shall
always have a Trustee who satisfies the requirements of TIA paragraph
310(a)(1) and (5). The Trustee shall always have a combined capital and
surplus as stated in Section 12.10 hereof. The Trustee is subject to TIA
paragraph 310(b).
Section 9.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA paragraph 311(a), excluding any creditor
relationship listed in TIA paragraph 311(b). A Trustee who has resigned or
been removed shall be subject to TIA paragraph 311(a) to the extent
indicated therein.
Section 9.12. Sections Applicable to Registrar, Paying Agent and
Conversion Agent. The term "Trustee" as used in Sections 9.1, 9.2, 9.3, 9.4
and 9.7 hereof shall (unless the context requires otherwise) be construed
as extending to and including the Trustee acting in its capacity, if any,
as Registrar, Paying Agent and Conversion Agent.
ARTICLE X.
Discharge of Indenture
Section 10.1. Termination of Company's Obligations. This Indenture
shall cease to be of further effect (except that the Company's obligations
under Sections 9.7 and 10.2 hereof shall survive) when all outstanding
Convertible Notes theretofore authenticated and issued have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder.
Thereupon, the Trustee upon written request of the Company, shall
acknowledge in writing the discharge of the Company's obligations under
this Indenture, except for those surviving obligations specified above.
Section 10.2. Repayment to Company. The Trustee and the Paying
Agent shall promptly pay to the Company upon written request any excess
money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
written request any money held by them for the payment of principal or
interest that remains unclaimed for two years after the date upon which
such payment shall have become due; provided, however, that the Company
shall have first caused notice of such payment to the Company of such
unclaimed money to be mailed to each Noteholder entitled thereto no less
than 30 days prior to such payment. After payment to the Company, the
Trustee and the Paying Agent shall have no further liability with respect
to such money and Noteholders entitled to the money must look to the
Company for payment as general creditors unless any applicable abandoned
property law designates another person.
<PAGE>
ARTICLE XI.
Amendments, Supplements and Waivers
Section 11.1. Without Consent of Noteholders. The Company and the
Trustee may amend or supplement this Indenture or the Convertible Notes
without the consent of any Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Sections 5.13 and 7.1 hereof;
(c) to provide for uncertificated Convertible Notes in addition to
certificated Convertible Notes;
(d) to make any change that does not adversely affect the legal
rights hereunder of any Noteholder;
(e) to qualify this Indenture under the TIA or to comply with the
requirements of the SEC in order to maintain the qualification of
the Indenture under the TIA; or
(f) to make any change that provides any additional rights or
benefits to the holders of Convertible Notes or to reduce the
Conversion Price.
An amendment under this Section may not make any change that
adversely affects the rights under Article VI of any holder of Senior Debt
then outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consent to such
change.
Section 11.2. With Consent of Noteholders. Subject to Section 8.7
hereof, the Company and the Trustee may amend or supplement this Indenture
or the Convertible Notes with the written consent (including consents
obtained in connection with any tender offer or exchange offer for
Convertible Notes) of the Noteholders of at least a majority in principal
amount of the then outstanding Convertible Notes. Subject to Sections 8.4
and 8.7 hereof, the Noteholders of a majority in principal amount of the
Convertible Notes then outstanding may also by their written consent
(including consents obtained in connection with any tender offer or
exchange offer for Convertible Notes) waive any existing Default as
provided in Section 8.4 or waive compliance in a particular instance by the
Company with any provision of this Indenture or the Convertible Notes.
However, without the consent of each Noteholder affected, an amendment,
supplement or waiver under this Section may not (with respect to any
Convertible Notes held by a nonconsenting Noteholder):
(a) reduce the amount of Convertible Notes whose Noteholders must
consent to an amendment, supplement or waiver;
(b) reduce the rate of or change the time for payment of interest on
any Convertible Note;
<PAGE>
(c) reduce the principal of or change the fixed maturity of any
Convertible Note or alter the redemption provisions with respect
thereto;
(d) make any Convertible Note payable in money other than that stated
in the Convertible Note;
(e) make any change in Section 8.4, 8.7 or 11.2 hereof (this
sentence);
(f) waive a default in the payment of the Designated Event Payment or
the principal of, or interest on, any Convertible Note (other
than as provided in Section 8.4);
(g) waive a redemption payment payable on any Convertible Note;
(h) make any change that adversely affects the right of Noteholders
to convert Convertible Notes into Common Stock of the Company; or
(i) make any change in Articles V or VI hereof that adversely affects
the interests of the Noteholders.
To secure a consent of the Noteholders under this Section 11.2, it
shall not be necessary for the Noteholders to approve the particular form
of any proposed amendment, supplement or waiver, but it shall be sufficient
if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article VI of any holder of Senior Debt
then outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consent to such
change.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of Convertible Notes or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Convertible Notes unless such
consideration is offered to be paid or agreed to be paid to all holders of
the Convertible Notes that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to Noteholders a notice briefly
describing the amendment or waiver.
Section 11.3. Compliance with Trust Indenture Act. Every amendment
to this Indenture or the Convertible Notes shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 11.4. Revocation and Effect of Consents. Until an
amendment, supplement or waiver becomes effective, a consent to it by a
Noteholder of a Convertible Note is a continuing consent by the Noteholder
and every subsequent Noteholder of a Convertible Note or portion of a
Convertible Note that evidences the same debt as the consenting
Noteholder's
<PAGE>
Convertible Note, even if notation of the consent is not made on any
Convertible Note. However, any such Noteholder or subsequent Noteholder may
revoke the consent as to such Noteholder's Convertible Note or portion of a
Convertible Note if the Trustee receives the notice of revocation before
the date on which the Trustee receives an Officer's Certificate certifying
that the Noteholders of the requisite principal amount of Convertible Notes
have consented to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Noteholders 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 Noteholders at such record 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 Noteholders after such
record date. No consent shall be valid or effective for more than 90 days
after such record date unless consents from Noteholders of the principal
amount of Convertible Notes required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within such
90-day period.
After an amendment, supplement or waiver becomes effective it
shall bind every Noteholder, unless it is of the type described in any of
clauses (a) through (i) of Section 11.2 hereof. In such case, the amendment
or waiver shall bind each Noteholder who has consented to it and every
subsequent Noteholder that evidences the same debt as the consenting
Noteholder's Convertible Note.
Section 11.5. Notation on or Exchange of Convertible Notes. The
Trustee may place an appropriate notation about an amendment or waiver on
any Convertible Note thereafter authenticated. The Company in exchange for
all Convertible Notes may issue and the Trustee shall authenticate new
Convertible Notes that reflect the amendment or waiver.
Section 11.6. Trustee Protected. The Trustee shall sign all
supplemental indentures, except that the Trustee may, but need not, sign
any supplemental indenture that adversely affects its rights.
ARTICLE XII.
Miscellaneous
Section 12.1. Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies, or conflicts with another provision which
is automatically deemed to be incorporated in this Indenture by the TIA,
the incorporated provision shall control.
Section 12.2. Notices. Any notice or communication by the Company
or the Trustee to the other is duly given if in writing and delivered in
person or mailed by first-class mail to the other's address stated in
Section 12.10 hereof. The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
<PAGE>
Any notice or communication to a Noteholder shall be mailed by
first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Noteholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
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 the Indenture, then such method of notification as shall be
made with the approval of the Trustee shall constitute a sufficient mailing
of such notice.
Section 12.3. Communication by Noteholders with Other Noteholders.
Noteholders may communicate pursuant to TIA paragraph 312(b) with other
Noteholders with respect to their rights under this Indenture or the
Convertible Notes. The Company, the Trustee, the Registrar and anyone else
shall have the protection of TIA paragraph 312(c).
Section 12.4. 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:
(a) an Officers' Certificate 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
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than pursuant to Section
4.3) shall include:
(a) a statement that the person signing such certificate or rendering
such opinion has read such covenant or condition;
(b) 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;
(c) a statement that, in the opinion of such person, such person has
made such examination or investigation as is necessary to enable
such person to express an
<PAGE>
informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 12.6. Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by, or a meeting of, Noteholders. The Registrar
or Paying Agent may make reasonable rules and set reasonable requirements
for its functions.
Section 12.7. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions in the State of New York 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. If any other operative date for purposes of this Indenture shall
occur on a Legal Holiday then for all purposes the next succeeding day that
is not a Legal Holiday shall be such operative date.
Section 12.8. No Recourse Against Others. A director, officer,
employee or shareholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Convertible Notes or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Noteholder by accepting a Convertible
Note waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Convertible Notes.
Section 12.9. Counterparts. This Indenture may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 12.10. Variable Provisions. "Officer" means the Chairman
of the Board, the President, any Vice-President, the Treasurer, the
Secretary, any Assistant Treasurer or any Assistant Secretary of the
Company.
The Company initially appoints the Trustee as Paying Agent,
Registrar, Conversion Agent and authenticating agent and the Trustee hereby
accepts such appointments.
The first certificate pursuant to Section 4.3 hereof shall be for
the fiscal year ending on March 31, 1998.
The reporting date for Section 9.6 hereof is April 1 of each year.
The first reporting date is April 1, 1998.
The Trustee shall always have a combined capital and surplus of at
least $100,000,000 as set forth in its most recent published annual report
of condition.
<PAGE>
The Company's address is: ARV Assisted Living, Inc.
245 Fischer
Avenue, Suite D-1
Costa Mesa, California 92626
Telephone number: (714) 751-7400
Telefax number: (714) 751-1743
The Trustee's address is: The Chase Manhattan Bank
450 W. 33rd Street, 15th Floor
Attention: Kevin Binney, Vice President
New York, NY 10001-2697
Telefax number: (212) 946-8177/8178
Section 12.11. Governing Law. The internal laws of the state of
New York shall govern this indenture and the securities, without regard to
the conflict of laws provisions thereof.
Section 12.12. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or an Affiliate. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.13. Successors. All agreements of the Company in this
Indenture and the Convertible Notes shall bind its successor. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 12.14. Severability. In case any provision in this
Indenture or in the Convertible Notes 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.
Section 12.15. Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table, 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, all as of the date first written above.
ARV ASSISTED LIVING, INC.
as Company,
By: /s/ Sheila M. Muldoon
--------------------------------
Name: Sheila M. Muldoon
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.,
as Trustee,
By: /s/ Kevin Binnie
--------------------------------
Name: Kevin Binnie
Title: Vice President
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On October 30, 1997, before me, Patricia Johnson, personally
appeared Shelia M. Muldoon, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that she
executed the same in her authorized capacity, and that by her signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Patricia Johnson
-------------------------------
Signature of Notary
SEAL
<PAGE>
Exhibit 6
EXHIBIT A
[FORM OF FACE OF NOTE]
"THE SECURITIES REPRESENTED BY THIS NOTE (AND ANY INTEREST
THEREIN) MAY NOT BE TRANSFERRED, OFFERED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND ANY APPLICABLE STATE SECURITIES AND "BLUE SKY"
LAWS OR (B) IN A TRANSACTION EXEMPT FROM THE REGISTRATION PROVISIONS OF
SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER
AND ANY SIMILAR REGISTRATION REQUIREMENTS UNDER SUCH STATE SECURITIES OR
"BLUE SKY" LAWS."
<PAGE>
No. ________
ARV ASSISTED LIVING, INC.
6 3/4% CONVERTIBLE SUBORDINATED NOTE
DUE 2007
ARV ASSISTED LIVING, INC.
ARV Assisted Living, Inc., a California corporation (the
"Company") promises to pay to Prometheus Assisted Living LLC or registered
assigns, the principal sum of Sixty Million Dollars on October 1, 2007, and
to pay interest thereon beginning April 1, 1998 at the rate of 6 3/4% per
annum.
Interest Payment Dates: April 1 and October 1,
commencing April 1, 1998
Record Dates: March 15 and September 15
Reference is hereby made to the further provisions of this
Convertible Note set forth on the reverse hereof which further provisions
shall for all purposes have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, ARV Assisted Living, Inc. has caused this
Convertible Note to be signed manually or by facsimile by its duly
authorized officers and a facsimile of its corporate seal to be affixed
hereto or imprinted hereon.
Dated: October 30, 1997
ARV ASSISTED LIVING, INC.
By /s/ Sheila M.Muldoon
----------------------------
Title: Vice President
By /s/ Graham P. Espley-Jones
----------------------------
Title: Chief Financial
Officer and Secretary
[Seal]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the 6 3/4%
Convertible Subordinated Notes
due 2007 described in the
within-mentioned Indenture.
The Chase Manhattan Bank,
N.A., as Trustee,
By
------------------------------
Authorized Officer
<PAGE>
ARV ASSISTED LIVING, INC.
6 3/4% Convertible Subordinated Note Due 2007
1. Interest. ARV ASSISTED LIVING, INC., a California corporation
(the "Company"), is the issuer of this 6 3/4% Convertible Subordinated Note
due 2007 (the "Convertible Note"). The Company promises to pay interest on
the Convertible Notes in cash semiannually on each April 1 and October 1,
commencing on April 1, 1998, to holders of record on the immediately
preceding March 15 and September 15.
Interest on the Convertible Notes will accrue from the most recent
date to which interest has been paid, or if no interest has been paid, from
October 30, 1997. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. To the extent lawful, the Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the rate borne by the Convertible Notes,
compounded annually.
2. Method of Payment. The Company will pay interest on the
Convertible Notes (except defaulted interest) to the persons who are
registered holders of the Convertible Notes at the close of business on the
record date for the next interest payment date even though Convertible
Notes are canceled after the record date and on or before the interest
payment date. The Noteholder hereof must surrender Convertible Notes to a
Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company
may pay principal and interest by check payable in such money. It may mail
by first class mail an interest check to a holder's registered address.
3. Paying Agent, Registrar and Trustee. The Company will initially
act as Paying Agent, Registrar and Conversion Agent. The Company may change
any Paying Agent, Registrar, co-registrar or Conversion Agent without prior
notice.
As promptly as possible and in any event prior to December 1,
1997, the Company shall seek to appoint a Trustee to represent the
interests of all the holders pursuant to the Indenture attached hereto as
Exhibit A. Upon acceptance of such appointment by the Trustee, the
operation of the Indenture shall commence and the power and rights of the
Trustee thereunder shall begin. Pending such appointment, the holders of
Convertible Notes shall nevertheless be entitled to the benefits of such
Indenture as set forth below.
4. Indenture. The Company issued the Convertible Notes under an
indenture, dated as of October 30, 1997 (the "Indenture"), between the
Company and The Chase Manhattan Bank, as Trustee. The terms of the
Convertible Notes include those stated in the Indenture and those made part
of the Indenture by the Trust Indenture Act of
<PAGE>
1939 (15 U.S. Code paragraphs 77aaa-77bbbb) as in effect on the date of the
Indenture. The Convertible Notes are subject to, and qualified by, all such
terms, certain of which are summarized hereon, and Noteholders are referred
to the Indenture and such Act for a statement of such terms. The
Convertible Notes are unsecured obligations of the Company limited to
(except as otherwise provided in the Indenture) up to an aggregate
principal amount of $60,000,000 and are subordinated in right of payment to
all existing and future Senior Debt of the Company as provided in the
Indenture. Any holder of this Convertible Note shall be deemed to have
agreed to and be bound by all the terms and conditions contained in the
Indenture applicable to a holder of a Convertible Note.
5. Optional Redemption. The Convertible Notes are subject to
redemption at the option of the Company at any time following the date of
original issuance thereof, in whole or in part (in any integral multiple of
$1,000), upon not less than 20 nor more than 60 days' prior notice by first
class mail at the following redemption prices (expressed as percentages of
the principal amount set forth below), together with accrued interest up to
but not including the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on an interest
payment date), if redeemed during the 12-month period beginning April 1 of
the years indicated:
Redemption
Year Price
-----------------------------------------------------
1997* .......................................123.214%
1998* .......................................123.214%
1999* .......................................123.214%
2000 ........................................104.725%
2001 ........................................104.050%
2002 ........................................103.375%
2003 ........................................102.700%
2004 ........................................102.025%
2005 ........................................101.350%
2006 ........................................100.675%
* The Redemption Price for 1997, 1998 and 1999 is less cumulative
interest paid since the issuance of the Convertible Note and, if
redemption occurs after any interest payment record date, accrued
interest earned to, but not including, the redemption date.
On or after the redemption date, interest will cease to accrue on the
Convertible Notes, or portion thereof, called for redemption. Any
Convertible Notes called for redemption on or before October 31, 2000 shall
be redeemed only for Common Stock (valued at $17.25 per share). At its sole
discretion, the Company may elect at any time after October 31, 2000 to pay
cash or issue Common Stock for all or any portion of the Convertible Notes
to be redeemed. Any Common Stock so issued shall be valued at $17.25 per
share.
6. Notice of Redemption. Notice of redemption will be mailed by
first class mail at least 20 days but not more than 60 days before the
redemption date to each
<PAGE>
holder of the Convertible Notes to be redeemed at his address of record.
The Convertible Notes in denominations larger than $1,000 may be redeemed
in part but only in integral multiples of $1,000. In the event of a
redemption of less than all of the Convertible Notes, the Convertible Notes
will be chosen for redemption by the Trustee in accordance with the Inden-
ture. Unless the Company defaults in making such redemption payment, or the
Paying Agent is prohibited from making such payment pursuant to the
Indenture, interest ceases to accrue on the Convertible Notes or portions
of them called for redemption on and after the redemption date.
If this Convertible Note is redeemed subsequent to a record date
with respect to any interest payment date specified above and on or prior
to such interest payment date, then any accrued interest will be paid to
the person in whose name this Convertible Note is registered at the close
of business on such record date.
7. Mandatory Redemption. The Company will not be required to make
mandatory redemption payments with respect to the Convertible Notes. There
are no sinking fund payments with respect to the Convertible Notes.
8. Repurchase at Option of Holder. If there is a Designated Event,
the Company shall, at the request of the holder, (i) offer to purchase on
the Designated Event Payment Date all outstanding Convertible Notes at a
purchase price equal to 101% of the principal amount thereof on the date of
purchase, plus accrued and unpaid interest to the Designated Event Payment
Date or (ii) convert the holder's Convertible Notes to common stock of the
Company at a conversion price of $16.25 per share, as set forth in Section
4.7 of the Indenture. Holders of Convertible Notes that are subject to an
offer to purchase will receive a Designated Event Offer from the Company
prior to any related Designated Event Payment Date and may elect to have
such Convertible Notes or portions thereof in authorized denominations
purchased or converted by completing the form entitled "Option of
Noteholder To Elect Purchase" appearing below. Noteholders have the right
to withdraw their election by delivering a written notice of withdrawal or
the Paying Agent in accordance with the terms of the Indenture.
9. Subordination. The payment of the principal of, interest on or
any other amounts due on the Convertible Notes is subordinated in right of
payment to all existing and future Senior Debt of the Company, as described
in the Indenture. Each Noteholder, by accepting a Convertible Note, agrees
to such subordination and authorizes and directs the Trustee on its behalf
to take such action as may be necessary or appropriate to effectuate the
subordination so provided and appoints the Trustee as its attorney-in-fact
for such purpose.
10. Conversion. The holder of any Convertible Note has the right,
exercisable at any time after 90 days following the date of original
issuance thereof and prior to the close of business (New York City time) on
the date of the Convertible Note's maturity, to convert the principal
amount thereof (or any portion thereof that is an integral multiple of
$1,000) into shares of Common Stock at the initial Conversion Price of
$17.25 per share, subject to adjustment under certain circumstances, except
that if a Convertible
<PAGE>
Note is called for redemption, the conversion right will terminate at the
close of business on the third Business Day immediately preceding the date
fixed for redemption.
To convert a Convertible Note, a holder must (1) complete and sign
a notice of election to convert substantially in the form set forth below
and deliver such notice to the Company and the Conversion Agent, (2)
surrender the Convertible Note to a Conversion Agent, (3) furnish appropri-
ate endorsements or transfer documents if required by the Registrar or
Conversion Agent and (4) pay any transfer or similar tax, if required. Upon
conversion, no adjustment or payment will be made for interest or
dividends, but if any Noteholder surrenders a Convertible Note for
conversion after the close of business on the record date for the payment
of an installment of interest and prior to the opening of business on the
next interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date will be paid to the
registered holder of such Convertible Note on such record date. In such
event, such Convertible Note not called for redemption when surrendered for
conversion, must be accompanied by payment in funds acceptable to the
Company of an amount equal to the interest payable on such interest payment
date on the portion so converted. The number of shares of Common Stock
issuable upon conversion of a Convertible Note is determined by dividing
the principal amount of the Convertible Note converted by the Conversion
Price in effect on the Conversion Date. No fractional shares will be issued
upon conversion but a cash adjustment will be made for any fractional
interest.
A Note in respect of which a holder has delivered an "Option of
Noteholder to Elect Purchase" form appearing below exercising the option of
such holder to require the Company to purchase such Note may be converted
only if the notice of exercise is withdrawn as provided above and in
accordance with the terms of the Indenture. The above description of
conversion of the Convertible Notes is qualified by reference to, and is
subject in its entirety by, the more complete description thereof contained
in the Indenture.
11. Registration Rights. Transferees, other than Affiliates of
Purchaser, who acquire at least $10,000,000 principal amount of Convertible
Notes from the Purchaser ("Qualified Transferees") shall be entitled to the
benefits of the Statement of Registration Rights, attached as Exhibit B to
the Indenture (the "Statement of Registration Rights"). Pursuant to the
Statement of Registration Rights, the Company has agreed for the benefit of
the Qualified Transferees, that (i) it will, at its cost, within 60 days
after it receives notice (the "QT Notice") from a Qualified Transferee that
such person has become a Qualified Transferee, file a shelf registration
statement (the "Shelf Registration Statement") with the Securities and
Exchange Commission (the "Commission") with respect to resales of the
Convertible Notes and the Common Stock issuable upon conversion of the
Convertible Notes acquired by such Qualified Transferee ("Transferred
Notes"), (ii) within 60 days after the date such Shelf Registration
Statement is filed with the Commission, such Shelf Registration Statement
shall be declared effective by the Commission and (iii) the Company will
maintain such Shelf Registration Statement continuously effective under the
Securities Act until the second anniversary (or such shorter period as may
then be applicable under the Securities Act regarding the holding period
for securities under Rule 144(k) of the Securities Act or any successor
rule) of the
<PAGE>
date of the QT Notice, or such earlier date as of which all the Transferred
Notes or the Common Stock issuable upon conversion thereof have been sold
pursuant to such Shelf Registration Statement. If the Company fails to
comply with clause (i) above then, at such time, the Company will become
obligated to pay liquidated damages ("Liquidated Damages") to the Qualified
Transferee of the Transferred Notes in an amount equal to $.05 per week per
$1,000 in principal amount until the date on which such Shelf Registration
Statement is filed. If the Shelf Registration Statement is not declared
effective as provided in clause (ii) above, then, at such time and on each
date that would have been the successive 30th day following such time, the
Company will become obligated to pay Liquidated Damages to the Qualified
Transferee of the Transferred Notes in an amount equal to an additional
$.05 per week per $1,000 in principal amount until the date on which such
Shelf Registration Statement is declared effective; provided that the
Company shall not become obligated to pay Liquidated Damages in an amount
exceeding $.15 per week per $1,000 in principal amount pursuant to this
sentence and the preceding sentence. Pursuant to clause (iii) above,
however, if the Company fails to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time
as the Shelf Registration Statement is no longer effective and on each date
thereafter that is the successive 30th day subsequent to such time and
until the earlier of (i) the date that the Shelf Registration Statement is
again deemed effective or (ii) the date that is the second anniversary (or
such shorter period as may then be applicable under the Securities Act
regarding the holding period for securities under Rule 144(k) of the
Securities Act or any successor rule) of the QT Notice or (iii) the date as
of which all of the Transferred Notes and/or the Common Stock issuable upon
conversion thereof are sold pursuant to the Shelf Registration Statement,
the Company will become obligated to pay Liquidated Damages to the holder
of the Transferred Notes in an amount equal to an additional $.05 per week
per $1,000 in principal amount; provided that the Company shall not pay
Liquidated Damages in an amount exceeding $.10 per week per $1,000 in
principal amount pursuant to this sentence. The Company shall become
obligated to pay any such weekly Liquidated Damages on the first day of any
such week and any such Liquidated Damages will be paid on each Interest
Payment Date related to the period during which such Liquidated Damages
accrued, and shall be paid to the registered holder of the Transferred
Notes on the related record date.
Pursuant to the Statement of Registration Rights, the Company may
suspend the use of the prospectus which is a part of the Shelf Registration
Statement for a period not to exceed 45 days in any three month period or
two periods not to exceed an aggregate of 75 days in any twelve month
period under certain circumstances. The holders of the Transferred Notes
will not be entitled to Liquidated Damages as set forth in the preceding
paragraph solely because of such permitted suspensions.
12. Denominations, Transfer, Exchange. The Convertible Notes are
in registered form, without coupons, in denominations of $1,000 and
integral multiples of $1,000. The transfer of Convertible Notes may be
registered, and Convertible Notes may be exchanged, as provided in the
Indenture. The Registrar may require a Noteholder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture. The Registrar
need
<PAGE>
not exchange or register the transfer of any Convertible Note or portion of
a Convertible Note selected for redemption (except the unredeemed portion
of any Convertible Note being redeemed in part). Also, it need not exchange
or register the transfer of any Convertible Note for a period of 15 days
before a selection of Convertible Notes to be redeemed.
13. Persons Deemed Owners. Except as provided in paragraph 2 of
this Convertible Note, the registered Noteholder of a Convertible Note may
be treated as its owner for all purposes.
14. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent
shall pay the money back to the Company. After that, Noteholders of
Convertible Notes entitled to the money must look to the Company for
payment unless an abandoned property law designates another person and all
liability of the Trustee and such Paying Agent with respect to such money
shall cease.
15. Defaults and Remedies. The Convertible Notes shall have the
Events of Default as set forth in Section 8.1 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Company or the Noteholders of at
least 25% in aggregate principal amount of the then outstanding Convertible
Notes by notice to the Company and the Trustee may declare all the
Convertible Notes to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all unpaid principal and interest accrued on the Convertible
Notes shall become due and payable immediately without further action or
notice. Upon acceleration as described in either of the preceding
sentences, the subordination provisions of the Indenture preclude any
payment being made to Noteholders for at least 5 days except as otherwise
provided in the Indenture.
The Noteholders of a majority in principal amount of the
Convertible Notes then outstanding by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that
has become due solely because of the acceleration. Noteholders may not
enforce the Indenture or the Convertible Notes except as provided in the
Indenture. Subject to certain limitations, Noteholders of a majority in
principal amount of the then outstanding Convertible Notes issued under the
Indenture may direct the Trustee in its exercise of any trust or power. The
Company must furnish compliance certificates to the Trustee annually. The
above description of Events of Default and remedies is qualified by
reference to, and subject in its entirety by, the more complete description
thereof contained in the Indenture.
16. Amendments, Supplements and Waivers. Subject to certain
exceptions, the Indenture or the Convertible Notes may be amended or
supplemented with the consent of the Noteholders of at least a majority in
principal amount of the then outstanding Convertible Notes (including
consents obtained in connection with a tender
<PAGE>
offer or exchange offer for Convertible Notes), and any existing default
may be waived with the consent of the Noteholders of a majority in
principal amount of the then outstanding Convertible Notes including
consents obtained in connection with a tender offer or exchange offer for
Convertible Notes. Without the consent of any Noteholder, the Indenture or
the Convertible Notes may be amended, among other things, to cure any
ambiguity, defect or inconsistency, to provide for assumption of the
Company's obligations to Noteholders, to make any change that does not
adversely affect the rights of any Noteholder, to qualify the Indenture
under the TIA, and to comply with the requirements of the SEC in order to
maintain the qualification of the Indenture under the TIA.
17. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of
Convertible Notes and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee, subject to
certain limitations provided for in the Indenture and in the TIA. Any Agent
may do the same with like rights.
18. No Recourse Against Others. A director, officer, employee or
shareholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Convertible Notes or the Indenture or
for any claim based on, in respect of or by reason of such obligations or
their creation. Each Noteholder, by accepting a Convertible Note, waives
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Convertible Notes.
19. Governing Law. The internal laws of the State of New York
shall govern the Indenture and the Convertible Notes without regard to
conflict of law provisions thereof.
20. Authentication. The Convertible Notes shall not be valid until
authenticated by the manual signature of an authorized officer of the
Trustee or an authenticating agent.
21. Abbreviations. Customary abbreviations may be used in the name
of a Noteholder or an assignee, such as: TEN COM (for tenants in common),
TEN ENT (for tenants by the entireties), JT TEN (for joint tenants with
right of survivorship and not as tenants in common), CUST (for Custodian),
and U/G/M/A (for Uniform Gifts to Minors Act).
22. Definitions. Capitalized terms not defined in this Convertible
Note have the meaning given to them in the Indenture.
<PAGE>
The Company will furnish to any Noteholder of the Convertible
Notes upon written request and without charge a copy of the Indenture.
Request may be made to:
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention of: Investor Relations Department
The Company's stock transfer agent is:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
<PAGE>
ASSIGNMENT FORM
To assign this Convertible Note, fill in the form below:
(I) or (we) assign and transfer this Convertible Note to
- ---------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________ agent to
transfer this Convertible Note on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the other side of this
Convertible Note)
Date: Signature Guarantee: ***
-------- ------------------------
In connection with any transfer of any of the Convertible Notes
evidenced by this certificate occurring prior to the date that is three
years (or such shorter period as may then be applicable under the
Securities Act) after the later of the date of original issuance of such
Convertible Notes and the last date, if any, on which such Convertible
Notes were owned by the Company or any Affiliate of the Company, the under-
signed confirms that such Convertible Notes are being transferred:
- ---------------------
*** Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
CHECK ONE BOX BELOW
(1) to the Company; or
(2) pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
(3) pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
(4) to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933 that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form
of which letter can be obtained from the Trustee); or
(5) pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Convertible Notes evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however, that if
box (3), (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Convertible Notes such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided
by Rule 144 under such Act.
--------------------------------
Signature
Signature Guarantee:*
- -------------------------------- --------------------------------
Signature must be guaranteed Signature
- ---------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Convertible Note for its own account or an account with respect to which it
exercises sole investment
- ---------------
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
discretion and that it and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act of 1933,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim
the exemption from registration provided by Rule 144A.
Dated:
----------------- -----------------------------------------------
NOTICE: To be executed by an executive officer
<PAGE>
OPTION OF NOTEHOLDER TO ELECT PURCHASE OR CONVERSION
If you want to elect to have this Convertible Note or a portion
thereof repurchased or converted by the Company pursuant to Section 3.8 or
4.7 of the Indenture, check the box: [ ] Repurchase [ ] Converted at $16.25
per share
If the purchase or conversion is in part, indicate the portion (in
denominations of $1,000 or any integral multiple thereof) to be purchased
or converted:
- ----------------
Your Signature:
-------------------------------------------
(Sign exactly as your name appears on the
other side of this Convertible Note)
Date:
---------------------
Signature Guarantee:*
--------------------------------------
Any Noteholder, upon the exercise of its conversion rights in
accordance with the terms of the Indenture and the Convertible Note, agrees
to be bound by the terms of the Statement of Registration Rights relating
to the Common Stock issuable upon conversion of the Convertible Note.
ELECTION TO CONVERT
To ARV Assisted Living, Inc.:
The undersigned owner of this Convertible Note hereby irrevocably
exercises the option to convert this Convertible Note, or the portion below
designated, into Common Stock of ARV ASSISTED LIVING, INC. in accordance
with the terms of the Indenture referred to in this Convertible Note, and
directs that the shares issuable and deliverable upon conversion, together
with any check in payment for fractional shares, be issued in the name of
and delivered to the undersigned, unless a different name has been
indicated in the assignment below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
- --------------
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
<PAGE>
Any Noteholder, upon the exercise of its conversion rights in
accordance with the terms of the Indenture and the Convertible Note, agrees
to be bound by the terms of the Statement of Registration Rights relating
to the Common Stock issuable upon conversion of the Convertible Note.
Date:
in whole [ ]
Portions of Convertible Note to be
converted ($1,000 or integral multiples
thereof): $
-----------------------
--------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number
Signature Guarantee: *
----------------------
- -------------------
* Signature must be guaranteed by a commercial bank, trust company
or member firm of the New York Stock Exchange.
<PAGE>
EXHIBIT B
STATEMENT OF REGISTRATION RIGHTS
<PAGE>
EXHIBIT B
ARV Assisted Living, Inc.
$60,000,000
6 3/4% Convertible Subordinated Notes Due 2007
STATEMENT OF REGISTRATION RIGHTS
The following registration rights will be for the benefit of any
person, other than an Affiliate of Purchaser, who acquires from Purchaser
in excess of $10 million of the 6 3/4% Convertible Subordinated Notes due
2007 (the "Securities") issued by ARV Assisted Living, Inc., a California
corporation (the "Company").
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Indenture. As used in
this Statement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the commission promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Holder" means any person other than an Affiliate of Purchaser
holding in excess of $10 million of Securities who acquired the Securities
subsequent to the original issuance.
"Indenture" means the indenture relating to the Securities, to be
entered into by the Company and The Chase Manhattan Bank, N.A., as trustee,
as the same may be amended from time to time in accordance with the terms
thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
<PAGE>
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of Securities registered under a Shelf
Registration Statement provided that Holders of Common Stock issued upon
conversion of Securities shall be deemed to be Holders of the aggregate
principal amount of Securities from which such Common Stock was converted.
"Managing Underwriters" means the investment bank or investment
bankers and manager or managers that shall administer an underwritten
offering of the securities covered by the Shelf Registration Statement.
"Prospectus" means the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A under the
Act), as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Securities or Common
Stock issuable upon conversion thereof, covered by such Shelf Registration
Statement, and all amendments and supplements to the Prospectus, including
post-effective amendments.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Period" has the meaning set forth in Section
2(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2 hereof
which covers some or all of the Securities and the Common Stock issuable
upon conversion thereof, as applicable, on an appropriate form under Rule
415 under the Act or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" means the trustee with respect to the Securities under
the Indenture.
"Underwriter" means any underwriter of Securities or Common Stock
issuable upon conversion thereof in
<PAGE>
connection with an offering thereof under a Shelf Registration Statement.
2. Shelf Registration; Suspension of Use of Prospectus. (a) Upon
receipt of notice from a Holder that such Person has become a Holder, the
Company shall prepare and file with the Commission within 60 days of such
notice and thereafter shall cause to be declared effective under the Act
within 60 days of such filing a Shelf Registration Statement relating to
the offer and sale of the Securities and the Common Stock issuable upon
conversion thereof by the Holder from time to time in accordance with the
methods of distribution elected by such Holder and set forth in such Shelf
Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holder for a Period of two
years (or such shorter period relating to resales of restricted securities
as shall be permitted under the Act) from the date the Shelf Registration
Statement is declared effective by the Commission or such shorter period
that will terminate when all the Securities or Common Stock issuable upon
conversion thereof covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement (in any such case, such
period being called the "Shelf Registration Period"). The Company shall be
deemed not to have used its best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily takes any
action that would result in Holders of securities covered thereby not being
able to offer and sell such securities during that period, unless such
action is (i) required by applicable law or (ii) pursuant to Section 2(c)
hereof, and, in either case, so long as the Company promptly thereafter
complies with the requirements of Section 3(i) hereof, if applicable.
(c) The Company may suspend the use of the Prospectus for a
period not to exceed 45 days in any three-month period or two periods not
to exceed an aggregate of 75 days in any 12-month period for valid business
reasons (not including avoidance of the Company's obligations hereunder),
including the acquisition or divestiture of assets, public filings with the
Commission, pending corporate developments and similar events.
3. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
<PAGE>
(a) The Company shall furnish to the Holders, prior to the filing
thereof with the Commission, a copy of any Shelf Registration
Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall use
its best efforts to reflect in each such document, when so filed with
the Commission, such comments as the Holders reasonably may propose.
(b) The Company shall ensure that (i) any Shelf Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all
material respects with Act and the rules and regulations thereunder,
(ii) any Shelf Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) (1) The Company shall advise the Holders and, if requested by
such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise the Holders and, if requested by
such Holder, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement
or the initiation of any proceedings for that purpose;
<PAGE>
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included in any Shelf Registration Statement for sale in any
jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(iii) of the suspension of the use of the Prospectus
pursuant to Section 2(c) hereof or of the happening of any event
that requires the making of any changes in the Shelf Registration
Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not
misleading (which advice shall be accompanied by an instruction
to suspend the use of the Prospectus until the requisite changes
have been made); provided that such notice shall not be required
to specify the nature of the event giving rise to the notice
shall not be required to specify the nature of the event giving
rise to the notice requirement hereunder.
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Shelf
Registration Statement at the earliest possible time.
(e) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of
the Prospectus (including each preliminary Prospectus) included in
such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of securities in connection
with the offering and sale of the securities covered by the Prospectus
or any amendment or supplement thereto.
(f) Prior to any offering of securities pursuant to any Shelf
Registration Statement, the Company shall register or qualify or
cooperate with the holders of securities included therein and their
respective counsel in connection with the registration or
<PAGE>
qualification of such securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holders
reasonably request in writing and do any and all other acts or things
reasonably necessary or advisable to enable the offer and sale in such
jurisdictions of the securities covered by such Shelf Registration
Statement; provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject it to
general service of process or to taxation in any such jurisdiction
where it is not then so subject.
(g) There Company shall cooperate with the Holders of the
Securities or the Common Stock issued upon conversion thereof to
facilitate the timely preparation and delivery of certificates
representing the Securities or the Common Stock issued upon conversion
thereof to be sold pursuant to any shelf Registration Statement free
of any restrictive legends and in such denominations and registered in
such names as the Holders may request prior to sales of securities
pursuant to such Shelf Registration Statement.
(h) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall, if required pursuant to the Act
of paragraph (c)(2)(iii) above, promptly prepare a post-effective
amendment to any Shelf Registration Statement or an amendment or
supplement to the related Prospectus or file any other required
document so that, as thereafter delivered to purchaser of the
securities included therein, the Prospectus will not include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(i) Not later than the effective date of any Shelf Registration
Statement hereunder the Company shall (i) use its commercially
reasonable best efforts to arrange for the assignment of a CUSIP
number for the Securities registered under such Shelf Registration
Statement that will be of the type of CUSIP numbers commonly assigned
to unrestricted securities and to cause The Depositary Trust Company
("DTC") to reflect the assignment of such new CUSIP number in its
electronic records with respect to such Securities and (ii) provide
the Trustee with printed certificates for
<PAGE>
such Securities, in a form eligible for deposit with DTC.
(j) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act in a timely manner.
(k) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of such
securities as the Company may from time to time reasonably require for
inclusion in such Shelf Registration Statement. Any Holder who fails
to provide such information shall not be entitled to use the
Prospectus and may not require any Liquidated Damages (as specified in
Section 11 of the Securities) to be paid until such time as the
information is provided.
(l) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such Prospectus supplement of
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment.
(m) The Company shall enter into such agreements (including
underwriting agreements) and take al other appropriate actions in
order to expedite or facilitate the registration or the disposition of
the Securities or the Common Stock issuable upon conversion thereof,
and in connection therewith, if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 5 (or
such other provisions and procedures acceptable to the Majority
Holders and the Managing Underwriters, if any), with respect to all
parties to be indemnified pursuant to Section 5 from Holders of the
Securities or the Common Stock issuable upon conversion thereof to the
Company.
(n) The Company shall (i) make reasonably available for
inspection by the Holders of securities to be registered thereunder,
any underwriter participating in any disposition pursuant to such
Shelf
<PAGE>
Registration Statement, and any attorney, accountant or other agent
retained by the Holders or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Company and its subsidiaries; (ii) cause the Company's officers,
directors and employees to supply all relevant information reasonably
requested by the Holders or any such underwriter, attorney, accountant
or agent in connection with such Shelf Registration Statement as is
customary for similar due diligence examinations; provided, however,
that any information that is designated in writing by the Company, in
good faith, as confidential at the time of delivery of such
information shall be kept confidential by the Holders or any such
underwriter, attorney, accountant or agent, unless disclosure thereof
is made in connection with a court proceeding or required by law, or
such information has become available (not in violation of this
Statement) to the public generally or through a third party without an
accompanying obligation of confidentiality; (iii) if requested to do
so in writing by a Holder, make such representations and warranties to
the Holders of securities registered thereunder and the underwriters,
if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings; (iv) if
requested to do so in writing by a Holder, obtain opinions of counsel
to the Company and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and
the underwriters, if any, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Holders and
underwriters; (v) if requested to do so in writing by a Holder, obtain
"cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be,
included in the Shelf Registration Statement), addressed to each
selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders
and the
<PAGE>
Managing Underwriters, if any, including those to evidence compliance
with Section 3(i) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 3(p) shall be performed at (A) the effectiveness of
such Shelf Registration Statement and each post-effective amendment
thereto and (B) each closing under any underwriting or similar
agreement as and to the extent required thereunder.
4. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under
Sections 2 and 3 hereof and shall reimburse the Holders of the reasonable
and duly documented fees and disbursements of one firm or counsel
designated by the Majority Holders to act as counsel for the Holders in
connection therewith.
5. Indemnification and Contribution. (a) In connection with any
Shelf Registration Statement, the Company agrees to indemnify and hold
harmless each Holder of securities covered thereby (including the
Purchaser), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of
either the Act or the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Shelf Registration Statement
as originally filed or in any amendment thereof, or in any preliminary
Prospectus or Prospectus, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state in (i) the Shelf Registration Statement as originally filed or in
any amendment thereof a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the
Prospectus or in any amendment thereof or supplement thereto a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
<PAGE>
liability or action; provided, however, that (i) the Company will not be
liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder or underwriter or Managing
Underwriter specifically for inclusion therein, (ii) the Company shall not
be liable to any indemnified party under this indemnity agreement with
respect to any Shelf Registration Statement or Prospectus to the extent
that any such loss, claim, damage or liability of such indemnified party
results solely from an untrue statement of a material fact contained in, or
the omission of a material fact from, the Shelf Registration Statement or
Prospectus which untrue statement or omission was corrected in an amended
or supplemented Shelf Registration Statement or Prospectus, if the person
alleging such loss, claim, damage or liability was not sent or given, at or
prior to the written confirmation of such sale, a copy of the amended or
supplemented Shelf Registration Statement or Prospectus if the Company had
previously furnished copies thereof to such indemnified party and if such
delivery of a Prospectus is finally judicially determined to be required by
the Act and was not so made and (iii) the Company will not be liable to any
indemnified party under this indemnity agreement with respect to any Shelf
Registration Statement or Prospectus to the extent that any such loss,
claim, damage or liability of such indemnified party results (A) from the
use of a Shelf Registration Statement during a period when a stop order has
been issued in respect thereof or any proceedings for that purpose have
been initiated or (B) from the use of the Prospectus during a period when
the use of the Prospectus has been suspended in accordance with Section
2(c) hereof, provided, in each case, that Holders received prior notice of
such stop order, initiation of proceedings or suspension. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
The Company also agrees to indemnify or contribute to Losses, as
provided in Section 5(d), of any underwriters of the Securities or the
Common Stock issued upon conversion thereof registered under a Shelf
Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Purchaser and the selling Holders provided in this
Section 5(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section
3(o) hereof.
<PAGE>
(b) Each Holder of securities covered by a Shelf Registration
Statement (including the Purchaser) severally agrees to indemnify and hold
harmless (i) the Company, (ii) each of its directors, (iii) each of its
officers who signs such Shelf Registration Statement and (iv) each person
who controls the Company within the meaning of either the Act or the
Exchange Act to the same extent as the foregoing indemnity from the Company
to each such Holder, but only with reference to written information
relating to such Holder furnished to the Company by or on behalf of such
Holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 5, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
(a) or (b) above unless and to the extent it did not otherwise learn of
such action and such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a)
or (b) above. The indemnifying party shall be entitled to appoint counsel
of the indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by
the indemnified party or parties except as set forth below); provided,
however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal
<PAGE>
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party
will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising,
out of such claim, action, suit or proceeding. An indemnified party will
not, without the prior written consent of the indemnifying parties, settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 5 is unavailable to or insufficient to hold harmless an
indemnified party each of the indemnifying parties jointly and severally
shall be obligated to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending the same) (collectively
"Losses") to which such indemnified party may be subject in such proportion
as is appropriate to reflect the relative benefits received by such
indemnifying party, on the one hand, and such indemnified party, on the
other hand, from the Initial Placement and the Shelf Registration Statement
which resulted in such Losses; provided, however, that in no case shall the
Purchaser or any subsequent Holder of any Security or the Common Stock
issued upon conversion thereof be responsible, in the aggregate, for any
amount in excess of the purchase discount or commission applicable to such
Security, as set forth on the cover page of the Final Memorandum, nor shall
any underwriter be responsible for any
<PAGE>
amount in excess of the underwriting discount or commission applicable to
the securities purchased by such underwriter under the Shelf Registration
Statement which resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and
such indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the sum of (x) the total net proceeds from the
Initial Placement (before deducting expenses) as set forth on the cover
page of the Final Memorandum and (y) the total amount of additional
interest which the Company was not required to pay as a result of
registering the securities covered by the Shelf Registration Statement
which resulted in such Losses. Benefits received by the Purchaser shall be
deemed to be equal to the total purchase discounts and commissions as set
forth on the cover page of the Final Memorandum. Benefits received by any
other Holders shall be deemed to be equal to the market price obtained by
such Holder on the resale of the Securities or Common Stock issued on
conversion of Securities held thereby that were registered under the Act,
less any underwriting discounts, commissions or expenses paid thereby in
connection with such resale and less the price paid by such Holder in
acquiring such Securities. Benefits received by any underwriter shall be
deemed to be equal to the total underwriting discounts and commissions, as
set forth on the cover page of the Prospectus forming a part of the Shelf
Registration Statement which resulted in such Losses. Relative fault shall
be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on the
one had, or by the indemnified party, on the other hand. The parties agree
that it would not be just and equitable if contribution were determined by
pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding
the provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section II(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5, each person
who controls a Holder within the meaning of either the Act or the Exchange
Act and each director, officer, employee and agent of such Holder shall
have the same rights to contribution as such Holder, and
<PAGE>
each person who controls the Company within the meaning of either the Act
or the Exchange Act, each officer of the Company who shall have signed the
Shelf Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full force
and effect, regardless of any investigation made by or on behalf of any
Holder or the Company or any of the officers, directors or controlling
persons referred to in Section 5 hereof, and will survive the sale by a
Holder of securities covered by a Shelf Registration Statement.
6. Miscellaneous. (a) No Inconsistent Agreement. The Company has
not, as of the date hereof, entered into, nor shall it, on or after the
date hereof, enter into, any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Statement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Majority Holders of the then outstanding aggregate
principal amount of Securities and the Common Stock issued upon conversion
thereof; provided that, with respect to any matter that directly or
indirectly affects the rights of the Purchaser hereunder, the Company shall
obtain the written consent of the Purchaser. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Shelf
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by the Majority Holders, determined on
the basis of securities being sold rather than registered under such Shelf
Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with
<PAGE>
the provisions of this Section 6(c), which address initially is, with
respect to each Holder, the address of such Holder maintained by the
Registrar under the Indenture; and
(2) if to the Company, initially at its address set forth in the
Indenture.
All such notices and communications shall be deemed to have been
duly given when received.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Statement shall inure to the
benefit of and be binding upon the successors and assigns of the Company
and the Holders (if such successors or assignees would be Holders),
including, without the need for an express assignment or any consent by the
Company thereto, subsequent Holders of Securities or the Common Stock
issuable upon conversion thereof. The Company hereby agrees to extend the
benefits of this Statement to any Holder of Securities and any such Holder
may specifically enforce the provisions of this Statement as if an original
party hereto.
(e) Headings. The headings in this Statement are for convenience
of reference only and shall not limit or otherwise affect the meaning
hereof.
(f) Governing Law. This Statement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
(g) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be
in any way impaired or affected thereby, it being intended that all of the
rights and privileges of the parties shall be enforceable to the fullest
extent permitted by law.
(h) Securities Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of
Securities or the Common
<PAGE>
Stock issued upon conversion thereof is required hereunder, Securities or
the Common Stock issued upon conversion thereof held by the Company or its
Affiliates (other than subsequent Holders of Securities or the Common Stock
issuable upon conversion thereof if such subsequent Holders are deemed to
be Affiliates solely by reason of their holdings of such Securities) shall
not be counted in determining whether such consent or approval was given by
the Holders of such required percentage.
Exhibit 7
LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
30 Rockefeller Center, 63rd Floor
New York, N.Y. 10020
----------
Telephone (212) 632-6017
October 29, 1997
The Board of Directors
ARV Assisted Living, Inc.
245 Fischer Avenue D-1
Costa Mesa, CA 92626
Gentlemen:
Lazard Freres Real Estate Investors, L.L.C. ("LFREI") and Prometheus
Assisted Living LLC ("Prometheus") are parties to a Stockholders Agreement
(the "Stockholders Agreement") with ARV Assisted Living, Inc. (the
"Company") dated as of July 14, 1997, pursuant to which, among other
matters, LFREI agreed not to own any equity interest in any public or
private company, the principal business of which is the ownership,
management, operation and development of assisted living facilities (the
"Non-Compete Covenant"), unless 75% of the members of the Board of
Directors of the Company (other than the Investor Nominees (as such term is
defined in the Stockholder Agreement)) have consented to such ownership
(the "Required Board Approval").
Based on a letter agreement dated September 30, 1997 (the "Original Letter
Agreement"), the Company consented (with the Required Board Approval) to a
one-time waiver to the Non-Compete Covenant to permit an investment by an
affiliate of LFREI (the "Kapson Investment") in Kapson Senior Quarters,
Corp. ("Kapson"). Subsequent to that date and the announcement of the
proposed Kapson Investment, the parties have agreed, among other things, to
amend the Original Letter Agreement as set forth herein.
The substantive terms of the Original Letter Agreement are hereby amended
and restated as follows:
Subject to the consummation of the Kapson Investment, LFREI and Prometheus
agree to the following (each of which shall terminate at (i) the time of a
Termination Event (as defined in the Stockholders Agreement as amended and
restated on October 29, 1997 (the "Amended Stockholders Agreement")) or
(ii) the time, after the consummation of the Kapson Investment, LFREI or
its affiliates owns less than 10% of the stock of Kapson);
1) Consent Rights. After the closing of the Kapson Investment, LFREI will
not permit Kapson to and will cause Kapson to enter into an agreement with
ARV under which Kapson will agree not to enter into any new developments or
acquisitions (other than those in its pipeline at the closing of the Kapson
Investment as disclosed in a schedule to be delivered at that time) without
the written consent of a majority of the independent non-LFREI affiliated
or appointed members of the ARV Board of Directors, which consent may
be withheld at the sole discretion of those directors; provided that upon
the funding of that certain $60,000,000 6 3/4% Convertible Subordinated
Note due 2007 by LFREI or an affiliate this paragraph shall terminate and
be of no further effect.
2) Right of First Offer. After the closing of the Kapson Investment, ARV
will have a first right to negotiate management, lease and/or purchase
arrangements on terms commercially reasonable to both parties on any new
developments or acquisitions by Kapson, each right to be exercised by ARV,
upon commercially reasonable notice, before Kapson enters into binding site
contracts.
<PAGE>
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 2
3) Existing Facilities and Developments. LFREI and Prometheus will seek in
good faith to negotiate with ARV for the leasing or management agreements,
on commercially reasonable and customary terms, of all existing or planned
facilities of Kapson including those in the above-described "pipeline."
LFREI and Prometheus will agree not to enter into or permit Kapson or any
of their respective affiliates to enter into leasing or management
arrangements on the existing facilities (excluding sale leasebacks, so long
as such sale leasebacks would permit ARV to sublease or manage such
facilities) other than with ARV or controlled affiliates of Kapson.
ARV will have the option to sell development assets to Kapson at fair
market value with the right to leaseback the assets on commercially
reasonable and customary terms.
4) Option. LFREI hereby grants to ARV (or its shareholders, the selection
to be made at ARV's option provided mutual agreement of ARV and LFREI that
such purchase by ARV directly will not adversely affect Kapson's tax and
accounting status) the right to acquire from LFREI shares representing up
to 19.9% of the stock of Kapson at the pro rata amount of LFREI's all-in
cost (defined at LFREI's total equity investment in Kapson at the close of
the Kapson Investment including reasonable capital carrying costs relating
to the Kapson Investment) for a period of 30 days after the completion of
the Kapson Investment (or, if ARV elects to have its shareholders exercise
this option, 30 days after a registration statement is declared effective
with respect to the option). The term of this option will not extend beyond
the timing described in this paragraph despite LFREI's ongoing ownership of
Kapson.
5) Joint Venture. LFREI will explore a joint venture arrangement, on
commercially reasonable terms, between the Company and Kapson which would
house top corporate management of both firms to achieve economies of scale.
The management company would be jointly owned by the Company and Kapson.
Development personnel and activities would in all likelihood remain at
Kapson. Operating personnel and home health care would in all likelihood
remain at ARV. Savings resulting from this alliance will be shared by the
two companies.
6) Press Releases. The Company and LFREI will have the right to review and
comment on all press releases regarding the foregoing arrangements for a
period from the date hereof through October 29, 1998. No such press
releases regarding the foregoing arrangements shall be made without the
written consent of the Company and LFREI.
7) Public Disclosures. The Company will have the right to review and
comment on all public disclosures (e.g. proxy material, 10-K) of Kapson
regarding the foregoing arrangements for a period from the date hereof
through six months following the close of the Kapson Investment. No such
statement in the public disclosures regarding the foregoing arrangements
shall be made without the written consent of the Company, such consent not
to be unreasonably withheld or delayed.
LFREI hereby represents that, upon completion of the Kapson Investment, it
shall have the authority to cause Kapson to enter into all of the foregoing
arrangements. With respect to the foregoing arrangements, it is agreed that
all negotiations, determinations, consents and elections by ARV shall be
made by a majority of the Non-Investor Nominee (as defined in the Amended
Stockholders Agreement) directors of ARV.
The parties hereby agree that if mutually agreeable arrangements regarding
the matters set forth in paragraph 3 above are not entered into by the
later of three months following the closing of the Kapson Investment or May
1, 1998, then this letter agreement shall terminate without further
obligation of any party.
<PAGE>
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 3
LFREI believes strongly that a strong alignment of interests between LFREI,
Kapson and ARV and the synergies that could be created by a strategic
alliance between these two industry players, will significantly benefit all
shareholders of ARV and Kapson, including LFREI as their largest
shareholder.
<PAGE>
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 4
Very truly yours,
LAZARD FRERES REAL ESTATE INVESTORS, L.L.C.
By: /s/ Robert P. Freeman
------------------------------
Robert P. Freeman
President
PROMETHEUS ASSISTED LIVING L.L.C.,
By: LAZARD FRERES REAL ESTATE INVESTORS, L.L.C.
By: /s/ Robert P. Freeman
------------------------------
Robert P. Freeman
President
ACKNOWLEDGED AND AGREED:
ARV ASSISTED LIVING, INC.
By: /s/ Shiela M. Muldoon
-------------------------
Shiela M. Muldoon
Authorized Signatory
