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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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ARV Assisted Living, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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ARV ASSISTED LIVING, INC.
, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
ARV Assisted Living, Inc. (the "Company") to be held on Tuesday, October 14,
1997, at 9:00 a.m. local time, at The Doubletree Hotel, Suite , 3050 Bristol
Street, Costa Mesa, California.
As described in the accompanying Proxy Statement, the Company has entered
into a Stock Purchase Agreement with Lazard Freres Real Estate Investors L.L.C.
and its affiliate Prometheus Assisted Living LLC ("Prometheus"), providing for
an investment by Prometheus of up to $135.1 million in the Company (the
"Transaction"). The Board of Directors and management believe that the
Transaction represents an attractive opportunity to improve long-term
shareholder value by providing the Company with access to significant equity
capital at an attractive price and additionally provides the Company with
strategic resources not otherwise readily available to it, thereby enhancing the
Company's short-term and long-term growth prospects and better positioning it to
capitalize on assisted living facility opportunities in the United States.
At the Annual Meeting, you will be asked to approve the Transaction and a
related proposal to amend the Company's articles of incorporation to increase
the maximum number of authorized directors of the Company from nine to 11. In
addition, you will be asked to approve the following additional proposals: (i) a
proposal to reincorporate the Company as a Delaware corporation, which will also
be named ARV Assisted Living, Inc., pursuant to a merger of the Company into a
wholly-owned Delaware subsidiary, the approval of which shall constitute
approval of all the provisions set forth in the Certificate of Incorporation and
Bylaws of the Delaware corporation; and (ii) a proposal to elect seven members
to the Board of Directors of the Company. Details of the proposals are set forth
in the accompanying Proxy Statement, which I urge you to read carefully.
The matters to be considered and voted upon at the Annual Meeting are of
great importance to your investment and the future of the Company. Your Board of
Directors has carefully reviewed and considered the terms and conditions of the
Transaction. Your Board of Directors also has received the opinion of its
financial advisor, Salomon Brothers Inc, to the effect that the consideration to
be paid to the Company pursuant to the Transaction is fair to the Company and
its shareholders from a financial point of view. A copy of that opinion is
attached to the accompanying Proxy Statement.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSALS BEING
SUBMITTED FOR APPROVAL BY THE SHAREHOLDERS AT THE ANNUAL MEETING AND HAS
DETERMINED THAT THEY ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE PROPOSALS.
Your vote is important, as approval of the Transaction is conditioned upon
the affirmative vote of a majority of the votes cast by shareholders other than
Prometheus. I hope that you will be able to attend the meeting in person.
However, whether or not you plan to attend the meeting, please indicate your
vote, sign, date and return the enclosed proxy card promptly. A prepaid envelope
is provided for this purpose. Your shares will be voted at the meeting in
accordance with your proxy, if given.
I look forward to seeing you at the Annual Meeting.
Sincerely,
Gary L. Davidson
Chairman of the Board
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ARV ASSISTED LIVING, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 14, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of ARV Assisted Living, Inc., a California corporation (the
"Company"), will be held on Tuesday, October 14, 1997, at The Doubletree Hotel,
Suite , 3050 Bristol Street, Costa Mesa, California for the following
purposes:
To consider and vote upon four proposals (the "Proposals") described in the
accompanying Proxy Statement, which provide for:
1. Approval of the transactions (collectively, the "Transaction")
contemplated by a Stock Purchase Agreement (the "Stock Purchase Agreement")
dated July 14, 1997, as amended on July 20, 1997 and July 22, 1997, among
the Company, Lazard Freres Real Estate Investors L.L.C. and Prometheus
Assisted Living LLC, an affiliate of Lazard Freres Real Estate Investors
L.L.C. (together with Lazard Freres Real Estate Investors L.L.C.,
"Prometheus"), including (i) the investment of up to an aggregate of $135.1
million in the Company by Prometheus, to be effected through the sale by
the Company of 9,653,325 million shares of common stock, no par value, of
the Company (the "Common Stock"), at a purchase price of $14.00 per share,
such investment being comprised of (A) the sale by the Company to
Prometheus, completed on July 23, 1997, of 1,921,012 shares of Common
Stock, representing an aggregate investment of $26.9 million, (B) the sale
by the Company following shareholder approval of 3,078,988 shares of Common
Stock, representing an aggregate investment of $43.1 million and (C) the
sale by the Company from time to time following shareholder approval of an
additional 4,653,325 shares of Common Stock, representing an additional
aggregate investment of $65.1 million, as more fully described in the
attached Proxy Statement; (ii) the grant to Prometheus, under certain
circumstances, of a right to nominate for election by shareholders four
members of the Board of Directors of the Company (subject to decrease as a
result of a reduction in Prometheus' percentage ownership of Common Stock);
(iii) an increase in the authorized number of directors of the Company from
nine to 11; (iv) the implementation of a supermajority voting requirement
generally applicable to actions of the Board of Directors other than those
in the ordinary course of business; (v) provisions that limit the ability
of Prometheus in certain circumstances to acquire additional shares of the
Company's capital stock, exercise its voting rights in its own discretion
and engage in certain other actions during a three-year standstill period;
(vi) provisions that limit Prometheus' ability to transfer its shares of
the Company's capital stock during the standstill period; (vii) the grant
to Prometheus of rights to purchase, under certain circumstances, shares of
the Company's capital stock in connection with future issuances by the
Company; and (viii) the grant to Prometheus of certain registration rights
to enable Prometheus to resell its shares of the Company's capital stock to
the public under certain conditions (Proposal 1);
2. Approval of an amendment to the Restated Articles of Incorporation
of the Company increasing the maximum number of authorized directors of the
Company from nine to 11 (Proposal 2);
THE EFFECTIVENESS OF EACH OF PROPOSALS 1 AND 2 IS CONDITIONED UPON THE
APPROVAL OF BOTH OF THE PROPOSALS. ACCORDINGLY, FAILURE OF THE SHAREHOLDERS
TO APPROVE EITHER OF THE PROPOSALS MAY RESULT IN THE INEFFECTIVENESS OF
BOTH PROPOSALS.
3. Approval of the reincorporation of the Company as a Delaware
corporation, which will also be named ARV Assisted Living, Inc., pursuant
to a merger of the Company into a wholly-owned Delaware subsidiary and the
conversion of the Common Stock of the Company into the common stock, par
value $.01 per share, of the surviving corporation, which approval shall
constitute approval of all of the provisions set forth in the Certificate
of Incorporation and Bylaws of the Delaware corporation (Proposal 3);
4. Election of seven directors to the Company's Board of Directors
(Proposal 4); and
<PAGE> 4
5. Transacting such other business as may properly come before the
Annual Meeting.
Holders of record of Common Stock of the Company as of the close of
business on August 19, 1997 are entitled to receive notice of, and to vote at,
the Annual Meeting. The outstanding Common Stock constitutes the only class of
securities of the Company entitled to vote at the Annual Meeting, and each share
of Common Stock entitles the holder thereof to one vote. At the close of
business on August 19, 1997, there were 11,584,272 shares of Common Stock issued
and outstanding.
We urge you to review carefully the enclosed materials. Your vote is
important. All shareholders are urged to attend the meeting in person or by
proxy. If you receive more than one proxy card because your shares are
registered in different names or at different addresses, please indicate your
vote, sign, date and return each proxy card so that all of your shares will be
represented at the Annual Meeting.
By Order of the Board of Directors,
GARY L. DAVIDSON
Chairman of the Board
, 1997
IT IS IMPORTANT THAT ALL PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE INDICATE YOUR VOTE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU
WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED, INCLUDING BY
VOTING AT THE MEETING.
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ARV ASSISTED LIVING, INC.
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 14, 1997
This Proxy Statement is furnished to shareholders of ARV Assisted Living,
Inc., a California corporation (the "Company"), in connection with the
solicitation of proxies in the form enclosed herewith for use at the Annual
Meeting of Shareholders (the "Annual Meeting") of the Company to be held on
Tuesday, October 14, 1997, at The Doubletree Hotel, Suite , 3050 Bristol
Street, Costa Mesa, California. Such proxies will be used for the following
purposes:
To consider and vote upon four proposals (the "Proposals") described in
this Proxy Statement, which provide for:
1. Approval of the transactions (collectively, the "Transaction")
contemplated by a Stock Purchase Agreement (the "Stock Purchase Agreement")
dated July 14, 1997, as amended on July 20, 1997 and July 22, 1997, among
the Company, Lazard Freres Real Estate Investors L.L.C. ("LFREI") and
Prometheus Assisted Living LLC, an affiliate of LFREI (together with LFREI,
"Prometheus"), including (i) the investment of up to an aggregate of $135.1
million in the Company by Prometheus, to be effected through the sale by
the Company of 9,653,325 million shares of common stock, no par value, of
the Company (the "Common Stock"), at a purchase price of $14.00 per share,
such investment being comprised of (A) the sale by the Company to
Prometheus, completed on July 23, 1997, of 1,921,012 shares of Common
Stock, representing an aggregate investment of $26.9 million, (B) the sale
by the Company following shareholder approval of 3,078,988 shares of Common
Stock, representing an aggregate investment of $43.1 million and (C) the
sale by the Company from time to time following shareholder approval of an
additional 4,653,325 shares of Common Stock, representing an additional
aggregate investment of $65.1 million, as more fully described herein; (ii)
the grant to Prometheus, under certain circumstances, of a right to
nominate for election by shareholders four members of the Board of
Directors of the Company (subject to decrease as a result of a reduction in
Prometheus' percentage ownership of Common Stock); (iii) an increase in the
authorized number of directors of the Company from nine to 11; (iv) the
implementation of a supermajority voting requirement generally applicable
to actions of the Board of Directors other than those in the ordinary
course of business; (v) provisions that limit the ability of Prometheus in
certain circumstances to acquire additional shares of the Company's capital
stock, exercise its voting rights in its own discretion and engage in
certain other actions during a three-year standstill period; (vi)
provisions that limit Prometheus' ability to transfer its shares of the
Company's capital stock during the standstill period; (vii) the grant to
Prometheus of rights to purchase, under certain circumstances, shares of
the Company's capital stock in connection with future issuances by the
Company; and (viii) the grant to Prometheus of certain registration rights
to enable Prometheus to resell its shares of the Company's capital stock to
the public under certain conditions (Proposal 1);
2. Approval of an amendment to the Restated Articles of Incorporation
of the Company (the "Company Articles") increasing the maximum number of
authorized directors of the Company from nine to 11 (Proposal 2);
THE EFFECTIVENESS OF EACH OF PROPOSALS 1 AND 2 (COLLECTIVELY, THE
"TRANSACTION PROPOSALS") IS CONDITIONED UPON THE APPROVAL OF BOTH OF THE
TRANSACTIONS PROPOSALS. ACCORDINGLY, FAILURE OF THE SHAREHOLDERS TO APPROVE
EITHER OF THE TRANSACTIONS PROPOSALS MAY RESULT IN THE INEFFECTIVENESS OF
BOTH TRANSACTIONS PROPOSALS.
3. Approval of the reincorporation of the Company as a Delaware
corporation, which will also be named ARV Assisted Living, Inc., pursuant
to a merger of the Company into a wholly-owned Delaware subsidiary (the
"Delaware Company") and the conversion of the Common Stock of the Company
into the common stock, par value $.01 per share, of the Delaware Company
(the "Delaware Company Common Stock"), which approval shall constitute
approval of all of the provisions set forth in the
<PAGE> 6
Delaware Company's Certificate of Incorporation (the "Delaware Company
Certificate") and Bylaws (the "Delaware Company Bylaws") (the
"Reincorporation") (Proposal 3);
4. Election of seven directors to the Company's Board of Directors
(Proposal 4); and
5. Transacting such other business as may properly come before the
Annual Meeting.
The approximate date on which this Proxy Statement and accompanying form of
proxy will first be sent to the Company's shareholders is , 1997.
This solicitation is made on behalf of the Board of Directors of the
Company. Costs of the solicitation will be borne by the Company. Directors,
officers and employees of the Company and its affiliates may also solicit
proxies by telephone, telegraph, fax or personal interview. The Company has
retained the services of for a fee estimated at $ plus
out-of-pocket expenses, to assist in the solicitation of proxies. The Company
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to shareholders.
Holders of record of Common Stock of the Company as of the close of
business on August 19, 1997 are entitled to receive notice of, and to vote at,
the Annual Meeting. The outstanding Common Stock constitutes the only class of
securities of the Company entitled to vote at the Annual Meeting, and each share
of Common Stock entitles the holder thereof to one vote. At the close of
business on August 19, 1997, there were 11,584,272 shares of Common Stock issued
and outstanding.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted at the Annual Meeting FOR the
Proposals. With respect to any other business which may properly come before the
Annual Meeting and be submitted to a vote of shareholders, proxies received by
the Board of Directors will be voted in accordance with the best judgment of the
designated proxy holders. A shareholder may revoke his or her proxy at any time
before exercise by delivering to the Secretary of the Company a written notice
of such revocation, by filing with the Secretary of the Company a duly executed
proxy bearing a later date, or by voting in person at the Annual Meeting.
Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Proposal 1 requires the approval of a majority of the non-Prometheus
shares cast at the Annual Meeting, providing that a quorum is present.
Therefore, as to Proposal 1, abstentions will have the same effect as a vote
against that proposal, and broker non-votes will not be counted as votes for or
against the proposal and will not be included in counting the number of votes
necessary for approval of the proposal. Proposals 2 and 3 require the approval
of a majority of the shares entitled to vote at the Annual Meeting, including
shares held by Prometheus. Therefore, as to Proposals 2 and 3, abstentions and
broker non-votes will have the same effect as a vote against such proposals. The
election of directors of the Company (Proposal 4) will be decided by a plurality
of the shares of Common Stock present and entitled to vote. Accordingly,
abstentions or broker non-votes as to the election of directors will not affect
the election of directors. See "The Annual Meeting."
The principal executive offices of the Company are located at 245 Fischer
Avenue, D-1, Costa Mesa, California 92626. The Company's telephone number is
(714) 751-7400.
------------------------
IN DETERMINING WHETHER TO APPROVE THE PROPOSALS, SHAREHOLDERS SHOULD
CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT.
------------------------
The date of this Proxy Statement is , 1997.
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TABLE OF CONTENTS
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SUMMARY............................................................................... 1
The Annual Meeting.................................................................. 1
General.......................................................................... 1
Vote by Proxy.................................................................... 2
Voting of Shares; Quorum; Appraisal Rights....................................... 2
Votes Required................................................................... 2
The Transaction..................................................................... 3
Background of the Transaction.................................................... 3
Background of the Company........................................................ 4
Background of LFREI.............................................................. 4
Terms of the Transaction......................................................... 4
Potential Beneficial Effects of the Transaction.................................. 7
Potential Adverse Effects of the Transaction..................................... 8
Potential Effects of Shareholder Approval of the Transaction..................... 9
Opinion of Financial Advisor..................................................... 9
Recommendation of the Board; Factors and Conclusions of the Board Involved in Its
Determination................................................................... 9
Amendment to the Company's Articles of Incorporation................................ 10
Reincorporation of the Company in Delaware.......................................... 10
Election of the Company's Directors................................................. 10
THE ANNUAL MEETING.................................................................... 11
Outstanding Shares and Voting Rights................................................ 11
Record Date...................................................................... 11
Quorum........................................................................... 11
Voting Rights.................................................................... 11
No Appraisal Rights.............................................................. 11
Reasons for Seeking Shareholder Approval......................................... 11
Vote Required....................................................................... 11
Vote Required to Approve Proposal 1.............................................. 11
Vote Required to Approve Proposals 2 and 3....................................... 11
Vote Required For Election of Directors (Proposal 4)............................. 11
Proxies............................................................................. 12
APPROVAL OF THE TRANSACTION........................................................... 12
Information About the Company....................................................... 12
Information About LFREI............................................................. 13
Background of the Transaction....................................................... 13
Terms of the Transaction............................................................ 15
Parties.......................................................................... 15
Prometheus Investment............................................................ 16
Use of Proceeds.................................................................. 16
Stockholders Agreement........................................................... 16
Registration Rights Agreement.................................................... 18
Conditions to Closing............................................................ 19
No Solicitation of Competing Transactions........................................ 19
Expenses; Break-Up Fee........................................................... 20
Amendment or Termination of the Stock Purchase Agreement......................... 20
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Stockholders' Voting Agreement................................................... 20
Potential Beneficial Effects of the Transaction..................................... 20
Large, Timely Infusion of Capital at a Premium to Market......................... 20
Indirect Affiliation with Prometheus............................................. 21
Improved Future Access to Capital................................................ 21
Potential Enhancement of Shareholder Value....................................... 21
Potential Adverse Effects of the Transaction........................................ 21
Concentration of Ownership of Common Stock....................................... 21
Anti-Takeover Effect of the Transaction.......................................... 22
Potential Dilution............................................................... 22
Potential Effects of Shareholder Approval of the Transaction........................ 22
Certain Federal Income Tax Considerations........................................... 22
Opinion of the Company's Financial Advisor.......................................... 22
Comparable Transaction Analysis.................................................. 24
Comparable Company Analysis...................................................... 24
Discounted Cash Flow Analysis.................................................... 24
Recommendation of the Board; Factors and Conclusions of the Board Involved in Its
Determination.................................................................... 26
Substantial Shareholder.......................................................... 26
Impact on Other Investments...................................................... 26
Beneficial Ownership of Common Stock Prior to and After the Transaction............. 27
Required Vote and Related Matters................................................... 29
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION.................................. 30
REINCORPORATION OF THE COMPANY IN DELAWARE............................................ 31
General............................................................................. 31
Merger of ARV Assisted Living, Inc. into Newly Formed Delaware Subsidiary........... 31
Certain Consequences of the Merger.................................................. 31
Effective Time................................................................... 31
Management After the Merger...................................................... 31
Shareholder Rights............................................................... 31
Conversion of Common Stock....................................................... 32
Number of Shares of Common Stock Outstanding..................................... 32
Employee Plans................................................................... 32
Outstanding Options.............................................................. 32
Federal Income Tax Consequences.................................................. 32
Accounting Treatment of the Merger.................................................. 32
Appraisal Rights.................................................................... 32
Approval Required for Reincorporation............................................... 33
Comparison of Rights of Shareholders of the Company and Stockholders of the Delaware
Company.......................................................................... 33
General.......................................................................... 33
Directors; Classified Board; Cumulative Voting................................... 33
Removal of Directors; Filling Vacancies on the Board of Directors................ 34
Stockholder Action by Written Consent; Special Meetings; Stockholder Proposals... 34
Limitation on Directors' Liability............................................... 34
Authorized Capital Stock......................................................... 35
Dissenters' Rights............................................................... 35
Loans to Directors, Officers and Employees....................................... 35
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Dividends and Repurchases of Shares; Par Value, Capital and Surplus.............. 35
Vote Required; Board Recommendation................................................. 36
ELECTION OF DIRECTORS................................................................. 36
General............................................................................. 36
Information Concerning Nominees to the Board........................................ 37
Nominees for Election to Serve Until 1998 (Class A Nominees)........................ 37
Nominees for Election to Serve Until 1999 (Class B Nominees)........................ 37
Vote................................................................................ 38
Change in Board Structure Upon Approval of the Transaction Proposals................ 38
Information on Committees of the Board and Meetings................................. 38
Compensation of Directors........................................................... 39
The Company's Executive Officers.................................................... 39
Executive Compensation.............................................................. 40
Summary Compensation Table....................................................... 40
Option Grants in Last Fiscal Year................................................ 41
Fiscal Year-End Option Values.................................................... 42
Employment Agreements............................................................ 42
Change in Control Arrangements................................................... 43
Compensation Committee Report on Executive Compensation............................. 43
1997 Executive Compensation Components........................................... 44
Policy with Respect to Section 162(m)............................................ 44
Performance Graph................................................................... 46
Security Ownership of Directors and Named Executive Officers........................ 47
Security Ownership of Certain Beneficial Owners..................................... 48
Compensation Committee Interlocks and Insider Participation......................... 49
Certain Relationships and Related Transactions...................................... 49
Section 16(a) Beneficial Ownership Reporting Compliance............................. 50
ANNUAL REPORT......................................................................... 51
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING.............. 51
OTHER MATTERS......................................................................... 51
APPENDICES
Appendix A Stock Purchase Agreement................................................... A-1
Appendix B Stockholders Agreement..................................................... B-1
Appendix C Registration Rights Agreement.............................................. C-1
Appendix D Amendment to Restated Articles of Incorporation of ARV Assisted Living,
Inc. ............................................................................... D-1
Appendix E Agreement and Plan of Merger............................................... E-1
Appendix F ARV Delaware, Inc. Certificate of Incorporation............................ F-1
Appendix G Bylaws of ARV Delaware, Inc................................................ G-1
Appendix I Opinion of Salomon Brothers Inc............................................ I-1
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SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. The summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information set forth elsewhere in
this Proxy Statement and the appendices attached hereto. Shareholders are urged
to read this Proxy Statement in its entirety. As used herein, the term "Company"
means ARV Assisted Living, Inc. and/or its subsidiaries and the term
"Prometheus" means Lazard Freres Real Estate Investors L.L.C. and Prometheus
Assisted Living LLC, collectively or individually, as the context requires.
Certain capitalized terms used in this Summary are defined elsewhere in this
Proxy Statement.
THE ANNUAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board"). The proxies will
be used at the Annual Meeting to be held on Tuesday, October 14, 1997, at 9:00
a.m. local time, at The Doubletree Hotel, Suite , 3050 Bristol Street, Costa
Mesa, California, and at any adjournment thereof.
At the Annual Meeting, and at any adjournment thereof, shareholders of the
Company will be asked to consider and vote upon the transactions contemplated by
the Stock Purchase Agreement, including the investment of up to an aggregate of
$135.1 million in the Company by Prometheus, to be effected through the sale by
the Company of up to 9,653,325 shares of Common Stock at a purchase price of
$14.00 per share (Proposal 1). See "Approval of the Transaction." The investment
of $135.1 million is comprised of (i) the sale by the Company to Prometheus,
completed on July 23, 1997, of 1,921,012 shares of Common Stock, representing an
aggregate investment of $26.9 million (the "Initial Closing"), (ii) the sale by
the Company following shareholder approval of 3,078,988 shares of Common Stock,
representing an aggregate investment of $43.1 million (the "Second Closing") and
(iii) the sale by the Company from time to time following shareholder approval
of up to an additional 4,653,325 shares of Common Stock, representing an
additional aggregate investment of $65.1 million (the "Subsequent Closings"), as
more fully described herein. As of August 19, 1997, the record date for the
Annual Meeting (the "Record Date"), Prometheus owned 16.6% of the outstanding
Common Stock (13.1% after giving effect to the conversion of all of the
securities outstanding that are convertible into Common Stock, which is defined
herein as a "Fully Diluted Basis"). After the last Subsequent Closing (assuming
no other changes in the number of outstanding shares and that Prometheus
purchases all of the 7,732,313 shares that may be purchased at the Second
Closing and the Subsequent Closings), Prometheus will own 49.9% of the
outstanding Common Stock and 41% of the outstanding Common Stock on a Fully
Diluted Basis.
The Transaction also involves a number of additional terms established
pursuant to the Stock Purchase Agreement and the related Stockholders Agreement,
dated as of July 14, 1997, by and among the Company and Prometheus (the
"Stockholders Agreement") and Registration Rights Agreement, dated as of July
14, 1997, by and among the Company and Prometheus (the "Registration Rights
Agreement"), including, among others: (i) the grant to Prometheus, under certain
circumstances, of a right to nominate for election by shareholders four members
of the Board (subject to decrease as a result of a reduction in Prometheus'
percentage ownership of the Common Stock); (ii) an increase in the authorized
number of directors of the Company from nine to 11; (iii) the implementation of
a supermajority voting requirement generally applicable to actions of the Board
other than those in the ordinary course of business; (iv) provisions that limit
the ability of Prometheus in certain circumstances to acquire additional shares
of the Company's capital stock, exercise its voting rights in its own discretion
and engage in certain other actions during a three-year standstill period; (v)
provisions that restrict Prometheus from transferring its shares of the
Company's capital stock to other assisted living companies; (vi) the grant to
Prometheus of rights to purchase, under certain circumstances, shares of the
Company's capital stock in connection with future issuances by the Company; and
(vii) the grant to Prometheus of certain registration rights to enable
Prometheus to resell its shares of Company capital stock to the public under
certain conditions. Copies of the Stock Purchase Agreement, the Stockholders
Agreement and the Registration Rights Agreement are attached hereto as Appendix
A, Appendix B and Appendix C, respectively.
1
<PAGE> 11
In addition to voting on the Transaction, shareholders will also be asked
to approve an amendment to the Company Articles to increase the authorized
directors of the Company from nine to 11 (Proposal 2).
Shareholders will also be asked to vote on a proposal to reincorporate the
Company as a Delaware corporation, which will also be named ARV Assisted Living,
Inc., pursuant to a merger of the Company into the Delaware Company, and the
conversion of the Common Stock of the Company into Delaware Company Common Stock
which approval shall constitute approval of all of the provisions set forth in
the Delaware Company Certificate and the Delaware Company Bylaws (Proposal 3).
In addition, shareholders will be asked to approve the election of seven
directors to the Board (Proposal 4).
THE BOARD HAS UNANIMOUSLY APPROVED ALL OF THE PROPOSALS AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF ALL OF THE PROPOSALS.
VOTE BY PROXY
A proxy card is enclosed for use at the Annual Meeting. Unless otherwise
instructed, shares represented by proxy will be voted FOR all of the proposals
described herein. The proxy may be revoked at any time before it is voted by (i)
filing prior to the Annual Meeting a written notice of revocation bearing a
later date with Sheila M. Muldoon, Vice President and General Counsel, ARV
Assisted Living, Inc., 245 Fischer Avenue, D-1, Costa Mesa, California 92626,
(ii) delivering to the Company a duly executed proxy bearing a later date, or
(iii) attending the Annual Meeting and voting in person.
VOTING OF SHARES; QUORUM; APPRAISAL RIGHTS
Only shareholders of record of the Common Stock at the close of business on
August 19, 1997, are entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof. At the close of business on the Record Date, the
Company had outstanding 11,584,272 shares of Common Stock. The securities that
can be voted at the Annual Meeting consist of 11,584,272 shares of issued and
outstanding Common Stock, with each share entitling its owner to one vote on all
matters. The presence, in person or by proxy, at the Annual Meeting of
shareholders entitled to cast a majority of all votes entitled to be cast at
such meeting, shall constitute a quorum.
Shareholders are not entitled under California law to appraisal rights with
respect to the Transaction.
VOTES REQUIRED
Proposal 1 requires the approval of a majority of the non-Prometheus shares
cast at the Annual Meeting, providing that a quorum is present. Therefore, as to
Proposal 1, abstentions will have the same effect as a vote against that
proposal, and broker non-votes will not be counted as votes for or against the
proposal and will not be included in counting the number of votes necessary for
approval of the proposal. Proposals 2 and 3 require the approval of a majority
of the shares entitled to vote at the Annual Meeting, including shares held by
Prometheus. Therefore, as to Proposals 2 and 3, abstentions and broker non-votes
will have the same effect as a vote against such proposals. The election of
directors of the Company (Proposal 4) will be decided by a plurality of the
shares of Common Stock present and entitled to vote. Accordingly, abstentions or
broker non-votes as to the election of directors will not affect the election of
directors. See "The Annual Meeting." EACH OF THE PROPOSALS WILL BE VOTED UPON
SEPARATELY. HOWEVER, APPROVAL OF EACH OF THE TRANSACTION PROPOSALS IS
CONDITIONED UPON APPROVAL OF THE OTHER TRANSACTION PROPOSAL. ACCORDINGLY, A VOTE
AGAINST EITHER OF THE TRANSACTION PROPOSALS MAY HAVE THE SAME EFFECT AS A VOTE
AGAINST BOTH OF THE TRANSACTION PROPOSALS. THE APPROVAL OF EACH OF PROPOSALS 3
AND 4 IS NOT CONDITIONED UPON APPROVAL OF ANY OTHER PROPOSAL.
Gary L. Davidson, Chairman of the Board of the Company, John A. Booty, Vice
Chairman of the Board of the Company, David P. Collins, Senior Executive Vice
President of the Company, Graham P. Espley-Jones, Chief Financial Officer of the
Company and certain other shareholders of the Company who are related to them
(the "Affiliated Shareholders"), who as of the Record Date collectively owned
20.6% of the
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outstanding shares of Common Stock, have each executed a Stockholders' Voting
Agreement with Prometheus, pursuant to which they have agreed to vote all of
their shares in favor of the transactions contemplated by the Stock Purchase
Agreement, and they intend to vote in favor of each of Proposals 1, 2, 3 and 4.
Prometheus, which as of the Record Date held 1,921,012 shares of Common Stock,
representing 16.6% of the total outstanding Common Stock, is expected to vote
its shares in favor of all Proposals; however, the shares voted by Prometheus
will not be considered in determining the outcome of Proposal 1, other than in
determining the presence of a quorum.
THE TRANSACTION
(PROPOSAL 1)
BACKGROUND OF THE TRANSACTION
At various times in 1997, the Company considered alternative means of
obtaining an infusion of capital for purposes of continuing its acquisition and
development plans and repaying debt. Among the alternatives that were considered
by the Company were obtaining a strategic investment in the Company, a public
offering of Common Stock or debt, continuing to operate without a capital
infusion and a sale of the Company. After consideration of these alternatives,
the Company preliminarily concluded that pursuing a strategic investment in the
Company was the most attractive means of meeting the Company's capital
requirements.
Prior to June 1997, the Company's investment bankers and advisors held
informal meetings with representatives of Prometheus to discuss Prometheus'
interest in making an investment in the Company. On June 2, 1997, Salomon
Brothers Inc ("Salomon Brothers") arranged a meeting between representatives of
the Company and Prometheus to discuss such a transaction. The Company was aware
of Prometheus', and specifically LFREI's, reputation in the real estate industry
and was receptive to Prometheus' expression of interest in exploring an
affiliation between the Company and Prometheus. At the time of the Company's
initial meetings with Prometheus, the Company was in negotiations with another
potential investor (the "Potential Investor"), which had been performing due
diligence on the Company since February 1997.
On June 12, 1997, representatives of Prometheus, the Company and Salomon
Brothers met to discuss in greater detail the proposed terms of Prometheus'
potential investment in the Company. On June 13, 1997, the Potential Investor
sent a letter to the Company outlining the terms of a potential transaction
between the Company and the Potential Investor.
Over the next two weeks, representatives of the Company met with each of
Prometheus and the Potential Investor to discuss their respective proposals. On
June 27, 1997, the Company entered into an exclusivity agreement with Prometheus
pursuant to which the Company agreed not to pursue a transaction with any other
investor prior to August 8, 1997 while negotiations on definitive agreements
with Prometheus were in process. The Company also engaged Salomon Brothers as
its financial advisor on that date with respect to the potential Prometheus
transaction.
Between June 27, 1997 and July 13, 1997, the Company and Prometheus
negotiated the specific terms of the proposed transaction and reached agreement
on the form of the definitive agreements pertaining to the transaction.
On July 13, 1997, a special meeting of the Board was called to discuss the
proposed transaction with Prometheus and a joint letter received from the
Potential Investor and a new party on July 10, 1997 expressing an interest in
entering negotiations with the Company regarding an acquisition of, or entering
into a merger with, the Company. At such meeting, the Board concluded that the
Transaction was more attractive, and more definitive, for the shareholders of
the Company than the expression of interest from the Potential Investor and the
new party.
At a meeting of the Board on July 14, 1997, after Salomon Brothers
delivered its written opinion to the Board expressing its opinion that the cash
price of $14.00 per share of Common Stock to be received by the Company in
connection with the Transaction is fair to the Company from a financial point of
view, the Board voted unanimously to approve the Transaction.
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On July 14, 1997, the last trading day before the Transaction was publicly
announced, the closing sale price of the Common Stock as reported on the Nasdaq
National Market ("Nasdaq") was $11.38.
On July 23, 1997, Prometheus purchased 1,921,012 shares of Common Stock for
an aggregate purchase price of $26.9 million at the Initial Closing.
BACKGROUND OF THE COMPANY
The Company is a fully integrated provider of assisted living
accommodations and services that operates, acquires and develops assisted living
facilities. The Company currently operates 49 assisted living facilities
containing 6,278 units. Of the 49 assisted living facilities, the Company
operates 15 assisted living facilities owned by the Company directly or by
affiliated limited partnerships for which the Company serves as managing general
partner and facilities manager ("Affiliated Partnerships") and 32 assisted
living facilities operated under long-term operating leases for the Company's
own account or for Affiliated Partnerships in which the Company has a majority
ownership interest, and manages two assisted living facilities. The Company also
has seven facilities currently under construction that are expected to contain
780 units. In addition to operating and managing assisted living facilities, the
Company has also acquired or developed market rate senior apartments, as well as
affordable senior and multifamily apartment communities using the sale of tax
credits under a federal low income housing tax credit program to generate the
equity funding for development.
BACKGROUND OF LFREI
Established in 1848, Lazard Freres & Co., LLC is a leading private
investment bank, with extensive experience in principal investments, real
estate, asset management, mergers and acquisitions and corporate finance.
Operating through affiliated entities in six countries throughout the world,
Lazard Freres & Co., LLC advises numerous corporations, financial institutions
and governments on strategic and financial transactions. Lazard Freres & Co.,
LLC also provides investment management services to institutional and individual
investors worldwide, managing more than $53 billion of capital.
LFREI, of which Prometheus Assisted Living LLC is an affiliate, is a real
estate investment affiliate of Lazard Freres & Co., LLC. Since its inception,
LFREI has acquired sizable investment stakes in a select group of leading real
estate operating companies, including American Apartment Communities; RF&P
Corporation (renamed Commonwealth Atlantic Properties); Dermody Properties; Bell
Atlantic Properties (renamed Atlantic American Properties Trust); and Alexander
Haagen Properties, Inc.
The Real Estate Investment Banking Group at Lazard Freres & Co., LLC is a
recognized leader in the business of advising real estate companies on the
process of recapitalizing, restructuring and expanding their companies and
portfolios. Select clients include Corporate Property Investors, Mobil Corp.,
Olympia & York (World Financial Properties), Prudential Insurance Company, the
Rockefeller Group, Rodamco, N.V. and the Wright Runstad Company.
Neither Prometheus nor any of its controlled affiliates currently own a
material interest in any company whose business involves the ownership of
assisted living facilities, nor do any of them own a material interest in any
company which owns assets that currently compete with the Company's investments
or properties. Until the occurrence of a Termination Event under the
Stockholders Agreement, Prometheus and its controlled affiliates have committed
that they will not, directly or indirectly, own any equity interest (other than
a de minimis amount) in any public or private real estate 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 those nominated by Prometheus) have consented to such
ownership. See "Approval of the Transaction -- Information About Prometheus."
TERMS OF THE TRANSACTION
Prometheus Investment. Subject to the terms and conditions of the Stock
Purchase Agreement, the Company will sell to Prometheus up to 9,653,325 shares
of Common Stock at a purchase price of $14.00 per
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share, representing an aggregate investment of $135.1 million (the "Total Equity
Commitment"). The Transaction will be consummated in three phases. At the
Initial Closing, the Company sold to Prometheus 1,921,012 shares, representing
an aggregate investment of $26.9 million. The shares sold to Prometheus at the
Initial Closing represent 16.6% of the outstanding Common Stock.
Subject to stockholder approval of the Transaction ("Stockholder
Approval"), at the Second Closing the Company will sell to Prometheus 3,078,988
shares. Thereafter, at one or more Subsequent Closings the Company from time to
time at its election may sell additional shares to Prometheus at $14.00 per
share, in minimum increments of 715,000 shares, until the Total Equity
Commitment is invested or, if earlier, eighteen months after Stockholder
Approval or, if earlier, June 30, 1999 (unless extended by mutual agreement of
the parties). If Prometheus invests the Total Equity Commitment, Prometheus will
own approximately 49.9% of the outstanding Common Stock.
Use of Proceeds. Proceeds from the sale of the shares will be used by the
Company to continue to implement its acquisition and development plans, to repay
debt, to strengthen systems and operations, and to expand services.
Management of the Company; Representation on the Board and Certain Board
Committees. Under the Stockholders Agreement, from and after the date of
Stockholder Approval (the "Stockholder Approval Date") the Company Articles and
the Company's Bylaws (the "Company Bylaws") shall be amended to cause the Board
to be structured to consist of 11 members, of which initially four members will
be designees of Prometheus (the "Prometheus Nominees"). The Stockholders
Agreement provides that Prometheus shall thereafter have on the Board a number
of representatives equal to a percentage of the total number of members of the
Board that is equal to the percentage of Common Stock beneficially owned by
Prometheus; provided, that (i) if Prometheus would be entitled to a fractional
number of representatives, it will instead be entitled to a number of
representatives equal to the next higher number, (ii) in no event will
Prometheus be entitled to more than four representatives and (iii) after the
occurrence of a Termination Event (which shall occur at any time after the last
Subsequent Closing if either (A) Prometheus no longer owns at least 5% of the
Common Stock on a Fully Diluted Basis or (B) Prometheus no longer owns at least
$25 million of Common Stock), Prometheus shall not be entitled to any
representatives on the Board. If Prometheus' right to nominate directors to the
Board is reduced, Prometheus shall cause the applicable number of Prometheus
Nominees to immediately resign (regardless of the remaining term, if any) from
the Board. So long as the Standstill Period is in effect, the Stockholders
Agreement prohibits Prometheus from seeking additional representation on the
Board.
Pursuant to the Stock Purchase Agreement, from and after the date that the
Prometheus Nominees first become members of the Board, any Board action other
than in the ordinary course of business (with certain exceptions) will require
the affirmative vote of eight of the 11 directors.
Pursuant to the Stockholders Agreement, the Company will form an Executive
Committee initially consisting of five members, two of whom will be appointed by
Prometheus, which will be delegated authority to approve certain Board actions
by the affirmative vote of four of the five members. As long as Prometheus
maintains a greater than 30% ownership interest in the Company, it will maintain
its right to have two Prometheus Nominees on the Executive Committee and, in
addition, at least one Prometheus Nominee will serve on each other special
committee of the Board, including the Audit and Compensation committees. Also,
unless a Termination Event occurs, a Prometheus Nominee will serve on the
Nominating Committee, which will generally have the authority to nominate
directors and the Chairman, Chief Executive Officer and President of the
Company. All nominees to the Board (other than the Prometheus Nominees) will
require the unanimous approval of the Nominating Committee, provided that if the
Nominating Committee cannot unanimously agree on a nominee, the nomination will
be referred to the entire Board, which will decide the matter based on a simple
majority vote.
Participation Rights. From and after the date of the Stockholders Agreement
until a Termination Event, Prometheus will generally have the right to
participate in the Company's future equity offerings for cash by purchasing its
proportionate share of the securities offered therein.
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Restrictions on Voting Rights. During the Standstill Period, Prometheus has
agreed to vote any shares it owns in favor of directors nominated by the
Nominating Committee or the Board, and, on any other matters, will vote any
shares it owns that represent aggregate ownership of in excess of 49.9% of the
outstanding shares of Common Stock, at its option in accordance with the
recommendation of the Board or proportionally in accordance with the votes of
the other holders of the Common Stock. However, Prometheus may vote all of the
shares of Common Stock that it owns, in its sole and absolute discretion, with
regard to the election of Prometheus Nominees to the Board.
Standstill Provisions. For a period of three years after the shareholder
approval date subject to earlier termination as described below (the "Standstill
Period"), Prometheus may not: (i) acquire more than 49.9% of the outstanding
shares of Common Stock, on an Adjusted Fully Diluted Basis (as defined below);
(ii) act in concert with any other person or group by becoming a member of any
group acquiring, holding, voting or disposing of voting securities pursuant to
Section 13(d) of the Exchange Act (other than such a group comprised exclusively
of Prometheus and one or more of its affiliates); (iii) solicit or propose to
effect or negotiate certain business combination transactions other than
pursuant to the Stock Purchase Agreement; (iv) solicit, initiate 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 Exchange
Act, disregarding certain provisions thereof); call, or participate in a call
for, any special meeting of shareholders; request, or take any action to obtain
any list of holders of any securities of the Company; or initiate, propose,
participate in the making of, or solicit shareholders for the approval of any
shareholder proposal; (v) seek Board representation or a change in the
composition or size of the Board, except as permitted by the Stockholders
Agreement; or (vi) assist or encourage any person with respect to any of the
foregoing. As used herein, the term Adjusted Fully Diluted Basis shall mean
Fully Diluted Basis, except that shares of Common Stock issuable upon conversion
of the Company's outstanding convertible debt or upon exercise of options
granted under management benefit plans shall not be included. After giving
effect to the sale of 9,653,325 shares to Prometheus in the Transaction, and
assuming no other change in the number of outstanding shares, Prometheus will
own 49.9% of the Common Stock on an Adjusted Fully Diluted Basis.
For a period of two years after the shareholder approval date or, if
earlier, until a Termination Event, Prometheus may not sell any shares of Common
Stock. Thereafter, and during the remaining term of the Standstill Period,
Prometheus will not transfer any shares of Common Stock, except (a) in
transactions pursuant to Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), (b) in negotiated transfers to third parties, other than
any company which is primarily engaged in the assisted living business or
derives $15 million in revenues from the assisted living business (an "Assisted
Living Company"), (c) to certain affiliates who agree to be bound by the terms
of the Stockholders Agreement, (d) in accordance with the Registration Rights
Agreement in a bona fide public offering and (e) subject to certain conditions,
to bona fide financial institutions for the purpose of securing bona fide
indebtedness.
Registration Rights. Pursuant to the Registration Rights Agreement, the
Company has granted certain registration rights to Prometheus that will enable
Prometheus to resell in registered offerings certain shares of Common Stock and
other securities of the Company acquired by it to the public under certain
conditions. The shares issued to Prometheus pursuant to the Stock Purchase
Agreement will not be registered under the Securities Act, and may not be sold
in the absence of registration under the Securities Act unless an exemption from
registration is available.
Conditions to Closing. Each of the Company's and Prometheus' obligations to
effect the Second Closing and each of Subsequent Closings are subject to various
mutual and unilateral conditions, including, without limitation, the following:
(i) receipt of Stockholder Approval; (ii) adoption of certain amendments to the
Company Articles and Company Bylaws; (iii) receipt by the Company of title
policies on certain of its properties, a promissory note from an affiliate of
the Company and estoppel certificates from certain of the Company's landlords;
and (iv) the satisfaction of various customary conditions, including the
continuing correctness of the Company's representations and warranties in the
Stock Purchase Agreement, the receipt of any consents necessary for the
Transaction and the absence of a material adverse change in the condition of the
Company.
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No Solicitation of Competing Transactions. Under the Stock Purchase
Agreement, the Company has agreed not to solicit any Competing Transaction (as
defined below) and to give notice to Prometheus of any competing proposal that
it receives. The Company's Board may, in accordance with the terms of the Stock
Purchase Agreement, terminate the Transaction with Prometheus at any time in
favor of a Competing Transaction which it determines in good faith will provide
greater value to the Company's stockholders. Prior to entering into a definitive
agreement with respect to a Competing Transaction, however, the Company must
provide Prometheus with a minimum of (A) five business days' notice of the
competing party's interest in pursuing a Competing Transaction and (B) two
business days' notice of the superior proposal of the competing party. Within
such five-business-day period or two-business-day period, as applicable,
Prometheus may propose an improved transaction. For purposes of the Stock
Purchase Agreement, a "Competing Transaction" is defined as (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 the Stock Purchase Agreement or (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other than
business combination, liquidation, or other action out of the ordinary course of
business of the Company, other than any of the transactions contemplated by the
Stock Purchase Agreement.
Expenses; Break-Up Fee. The Stock Purchase Agreement provides that (i) if
the Board does not recommend stockholder approval of the Transaction and either
(A) the Company's shareholders fail to approve the Transaction or (B) the Second
Closing has not occurred on or before January 31, 1998, or (ii) the Company
fails to convene the Annual Meeting prior to December 31, 1997, then the Company
shall pay Prometheus a $6.0 million adjustment to the purchase price of the
shares purchased at the Initial Closing, a $7.0 million breakup fee and a
portion of Prometheus' expenses. Alternatively, if the Board recommends
shareholder approval of the Transaction and the shareholders fail to approve the
Transaction, then the Company shall pay Prometheus an $8.7 million adjustment to
the purchase price as well as a portion of Prometheus' expenses. If the
transactions contemplated in the Stock Purchase Agreement do not close as a
result of a willful breach of a material representation, warranty or covenant in
the agreement on the part of the Company, then the Company will pay Prometheus
$13.0 million as both an adjustment to the purchase price of the shares
purchased in the Initial Closing and a breakup fee as well as a portion of
Prometheus' expenses.
Right to Transfer. The Stock Purchase Agreement provides that if the
Company does not receive Stockholder Approval prior to December 31, 1997,
Prometheus shall have the right to transfer shares purchased at the Initial
Closing without being subject to the restrictions on transfer set forth in the
Stockholders Agreement, so long as it does not transfer any shares to an
Assisted Living Company.
POTENTIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, represents an
attractive opportunity to improve long-term shareholder value by providing the
Company with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to it,
thereby enhancing the Company's short-term and long-term growth prospects and
better positioning it to capitalize on assisted living opportunities in the
United States. In particular, the Company believes that the Transaction may have
a number of beneficial effects on the Company and its shareholders, including
the following:
Large, Timely Infusion of Capital at a Premium to Market. The Transaction
is expected to enable the Company to accomplish its financing objectives for
1997 and 1998 in a single transaction on favorable terms compared with those
that might have been available in the public markets. The $14.00 per share
purchase price represents a 23% premium over the closing price of the Common
Stock on Nasdaq on July 14, 1997, the last trading day before the announcement
of the Transaction to the public. Also, because the purchase price for the
Common Stock to be acquired by Prometheus is fixed, the Transaction protects the
Company against the risks of a decline in the stock market as a whole and the
market for assisted living industry shares in particular. Moreover, the Company
is not exposed to the risk of a decline in the market price of its shares that
is observed in advance of such offerings. Additionally, the Transaction will
enable management to focus on
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developments and acquisitions and intensively managing the Company's existing
properties instead of being required to divert management time and attention to
the process of raising capital.
Indirect Affiliation with Prometheus. Prometheus (and specifically LFREI)
is highly regarded as a sophisticated investor in real estate. Four individuals
to be nominated by Prometheus will become directors of the Company immediately
after approval by the Company's shareholders of the Transaction. The Company
believes that it will benefit significantly from its association with Prometheus
and its access to the market knowledge, operating experience and research
capabilities of Prometheus.
Improved Future Access to Capital. The Company believes that, as a result
of the Transaction, it will have greater access to the capital markets and a
lower cost of capital because the Transaction will (i) increase its equity
market capitalization and total capitalization, (ii) establish an indirect
affiliation with highly-regarded Prometheus (and specifically LFREI), which
should enhance the Company's access and attractiveness to significant
institutional investors; and (iii) through the participation rights granted to
Prometheus under the Stockholders Agreement, provide a potential buyer for
substantial portions of future offerings by the Company of its equity securities
or debt securities convertible into equity. Moreover, because of its substantial
investment in the Company, Prometheus will have significant incentives to make
available its resources, experience and advice regarding access to capital
markets and assisting the Company to achieve a lower cost of capital. The
Company believes that improved access to the capital markets should enhance its
ability to grow and increase shareholder value.
Potential Enhancement of Shareholder Value. The Transaction will not result
in any direct return to shareholders of cash or other consideration. The
Company, however, believes that the Transaction offers shareholders an
opportunity to realize long-term value. The Company's strategic plan calls for
the application of the significant capital to be raised in the Transaction to
execute an attractive growth strategy for the purpose of increasing the
Company's asset base and cash flow in a controlled but significant fashion over
a relatively short period of time.
It should be noted, however, that there is no assurance that the Company
will realize all or any of the potential benefits described above, which are
forward looking statements that are subject to numerous risks and uncertainty.
The Company's ability to enhance shareholder value will depend upon a number of
circumstances, many of which are outside the control of management, including
the availability of attractive acquisition and development opportunities; the
Company's continuing ability to identify, perform due diligence with respect to,
acquire and effectively manage a large number of assisted living facility
properties; the state of the capital markets generally and prevailing interest
rates; uncertainty concerning the Company's ability to refinance its
indebtedness at favorable interest rates as it becomes due; and risks relating
to the ownership of real estate generally, including the risks of potential
liability for unknown environmental matters and the risk of uninsured losses.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, could have
certain adverse effects on the Company and its shareholders, including the
following:
Concentration of Ownership of Common Stock. During the Standstill Period,
Prometheus will be entitled to own up to 49.9% of the Company's Common Stock, on
an Adjusted Fully Diluted Basis, and will be the largest single shareholder of
the Company. Prometheus will have the right to nominate up to four directors of
the Board. Although certain Standstill Provisions will preclude Prometheus from
increasing its percentage interest in the Company for a period of at least three
years (subject to certain exceptions), and Prometheus will be subject to certain
limitations on its voting rights with respect to its shares of Common Stock
during that time, Prometheus nonetheless will have a substantial influence over
the affairs of the Company as a result of the Transaction and the effective
ability to block any combination transaction with a third party. This
concentration of ownership in one shareholder could be disadvantageous to other
shareholders' interests.
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Also, once the Standstill Period terminates, Prometheus could purchase a
majority of the outstanding shares of Common Stock and then control the election
of the Board or the outcome of any corporate transaction or other matter
submitted to the shareholders for approval.
Anti-Takeover Effect of the Transaction. Prometheus' acquisition of up to
49.9% of the outstanding Common Stock (41% on a Fully Diluted Basis) and the
director nomination, voting and other rights granted to Prometheus under the
Stockholders Agreement, although subject to certain limitations during the
Standstill Period, may make it more difficult for other shareholders to
challenge the Company's director nominees, elect their own nominees as
directors, or remove incumbent directors and may render the Company a less
attractive target for an unsolicited acquisition by an outsider. In addition,
under California law, a merger or consolidation involving the Company requires
the affirmative approval of a majority of the shares entitled to vote.
Prometheus would likely have sufficient voting power to block any such
transaction, even after taking into account the limitations on Prometheus'
voting rights set forth in the Stockholders Agreement.
Potential Dilution. While the Company generally has the ability to control
the timing of the Subsequent Closings and any additional investments by
Prometheus, if the proceeds from sales of securities to Prometheus are not
invested in a timely or accretive manner, there would be dilution of earnings
per share and funds from operations per share to the existing shareholders of
the Company. The Company does not intend to change its careful acquisition
criteria, and it may temporarily have excess cash on its balance sheet if
sufficient acquisitions are not completed within eighteen months after
shareholder approval (unless the Company and Prometheus agree to extend this
date).
Supermajority Voting Requirement. From and after the date the Prometheus
Nominees first become members of the Board, virtually all Board actions other
than in the ordinary course of business will require the affirmative vote of
eight of the 11 directors. This supermajority voting requirement could result in
gridlock among the directors on certain matters held to a vote.
POTENTIAL EFFECTS OF SHAREHOLDER APPROVAL OF THE TRANSACTION
Approval of the Transaction by the shareholders will constitute approval of
all of the various terms set forth in the Stock Purchase Agreement, the
Stockholders Agreement and the Registration Rights Agreement and the
transactions contemplated thereby.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction, including potential claims alleging violations of the Board's
duties to shareholders. Under California law, fully informed shareholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary duty claims against directors.
OPINION OF FINANCIAL ADVISOR
The Company engaged Salomon Brothers as its financial advisor in connection
with the Transaction. On July 14, 1997, Salomon Brothers delivered to the Board
a written opinion to the effect that, as of such date and based upon and subject
to certain matters stated therein, the consideration to be received by the
Company pursuant to the Stock Purchase Agreement is fair to the Company from a
financial point of view. A copy of Salomon Brothers' opinion, which sets forth
the assumptions made, matters considered and limits on the review undertaken, is
attached hereto as Appendix H. SHAREHOLDERS SHOULD READ SALOMON BROTHERS'
OPINION CAREFULLY IN ITS ENTIRETY. The opinion of Salomon Brothers does not
constitute a recommendation as to how any shareholder should vote at the Annual
Meeting.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the Company and its shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
The recommendation of the Board is based on its belief that the Transaction
represents an attractive opportunity to improve long-term shareholder value by
providing the Company with access to significant
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equity capital at an attractive cost and additionally provides strategic
resources not otherwise readily available to it, thereby enhancing the Company's
short-term and long-term growth prospects and positioning it to better
capitalize on assisted living facility opportunities in the United States. See
"Approval of the Transaction -- Recommendation of the Board; Factors and
Conclusions of the Board Involved in its Determination."
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
(PROPOSAL 2)
The Board has approved an amendment to the Company Articles increasing the
maximum number of authorized directors from nine to 11. THE BOARD UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANY
ARTICLES.
REINCORPORATION OF THE COMPANY IN DELAWARE
(PROPOSAL 3)
The Board has approved a plan to reincorporate the Company as a Delaware
corporation, which will also be named ARV Assisted Living, Inc., pursuant to a
merger of the Company into the Delaware Company and the conversion of each
outstanding share of Common Stock into one share of Delaware Company Common
Stock. Approval of the Reincorporation shall constitute approval of all of the
provisions set forth in the Delaware Company Certificate and Delaware Company
Bylaws. If the Transaction Proposals and Proposal 3 are approved, the Delaware
Company Certificate shall supersede the Company Articles (as amended pursuant to
Proposal 2) and the Delaware Company Bylaws shall be amended in accordance with
the provisions of the Stock Purchase Agreement and the Stockholder Agreement.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
REINCORPORATION.
ELECTION OF THE COMPANY'S DIRECTORS
(PROPOSAL 4)
The following individuals, each of whom is currently a Director of the
Company, have been nominated for election to the Board: R. Bruce Andrews, John
A. Booty, David P. Collins, Gary L. Davidson, Maurice J. DeWald, James M. Peters
and John J. Rydzewski. If the Transaction Proposals are approved, four
additional directors nominated by LFREI will be appointed to the Board, and the
authorized number of directors of the Company will be increased to 11.
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THE ANNUAL MEETING
OUTSTANDING SHARES AND VOTING RIGHTS
Record Date. Only shareholders of record at the close of business on the
Record Date are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
Quorum. The Company Bylaws provide that a majority of the issued and
outstanding shares of Common Stock entitled to vote, present in person or
represented by proxy at the Annual Meeting, shall constitute a quorum. Shares
held by Prometheus shall be included for purposes of determining a quorum.
Shares represented by proxies that reflect abstentions or broker non-votes will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
Voting Rights. The securities that can be voted at the Annual Meeting
consist of issued and outstanding shares of Common Stock, with each share
entitling its owner to one vote on all matters. At the close of business on the
Record Date, the Company had outstanding 11,584,272 shares of Common Stock.
Shareholders' votes will be tabulated by the persons appointed by the Chairman
of the Annual Meeting to act as inspectors of election for the Annual Meeting.
No Appraisal Rights. Shareholders are not entitled under California law to
appraisal rights with respect to the Transaction.
Reasons for Seeking Shareholder Approval of the Transaction. Approval of
the Transaction is not required by California law, the Company Articles or
Company Bylaws or the rules of Nasdaq. Instead, the Company is opting to seek
shareholder approval of the Transaction to validate the determination of the
Board that the Transaction is in the best interests of the Company and its
shareholders.
VOTE REQUIRED
Vote Required to Approve Proposal 1. Pursuant to the Stock Purchase
Agreement, the affirmative vote of a majority of the total votes cast (other
than Prometheus' shares) by the shareholders, provided that the number of total
votes cast (including Prometheus' shares) represents over 50% of the shares of
Common Stock issued and outstanding on the Record Date, is required to approve
the Transaction (Proposal 1). Abstentions will have the same effect as a vote
against the Transaction and broker non-votes will not be counted as votes for or
against the Transaction, and will not be included in counting the number of
votes necessary for approval of the Transaction. The Affiliated Shareholders,
who as of the Record Date collectively owned 20.6% of the outstanding shares of
Common Stock, have executed a Stockholders' Voting Agreement with Prometheus,
pursuant to which they have agreed to vote all of their shares in favor of the
Transaction. Prometheus, which as of the Record Date held 1,921,012 shares of
Common Stock, representing 16.6% of the total outstanding Common Stock, is
expected to vote its shares in favor of Proposal 1; however, the shares voted by
Prometheus will be counted only for determining a quorum, not for determining
the outcome of the vote. Approval of the Transaction by the requisite vote of
the shareholders of the Company is a condition to consummation of the
Transaction (except for the purchase by Prometheus of 1,921,012 shares on July
23, 1997).
Vote Required to Approve Proposals 2 and 3. The affirmative vote of a
majority of the total shares entitled to vote is required to approve each of the
amendment to the Company Articles (Proposal 2) and the Reincorporation (Proposal
3). Abstentions and broker non-votes will have the same effect as a vote against
Proposals 2 and 3.
Vote Required For Election of Directors (Proposal 4). The favorable vote of
a plurality of the shares of Common Stock present at the Annual Meeting, either
in person or by properly executed proxies, and entitled to vote is required to
elect members of the Board. Abstentions or broker non-votes as to the election
of directors will not affect the election of the candidates receiving the
plurality of votes.
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PROXIES
The shares represented by each properly executed proxy not subsequently
revoked will be voted at the Annual Meeting in accordance with the instructions
contained therein. If no specification is made, the proxy will be voted (i) FOR
Proposal 1 to approve the Transaction, (ii) FOR Proposal 2 to approve the
amendment to the Company Articles, (iii) FOR Proposal 3 to approve the
Reincorporation, and (iv) FOR Proposal 4 to elect the persons nominated to the
Board.
A shareholder giving a proxy in the form accompanying this Proxy Statement
has the power to revoke the proxy prior to its exercise by (i) prior to the
Annual Meeting, filing a written notice of revocation bearing a later date with
Sheila M. Muldoon, Vice President, General Counsel and Secretary, ARV Assisted
Living, Inc., 245 Fischer Avenue, D-1, Costa Mesa, California 92626, (ii)
delivering to the Company a duly executed proxy bearing a later date, or (iii)
attending the Annual Meeting and voting in person.
If necessary, the holders of the proxies may vote in favor of a proposal to
adjourn the Annual Meeting to permit further solicitation of proxies in order to
obtain sufficient votes to approve any of the matters being considered at the
Annual Meeting. If the Annual Meeting is adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies may be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn).
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone or
facsimile transmission by officers, directors, and employees of the Company, who
will not be specifically compensated for such solicitation activities, and by
, a third party solicitor who the Company intends to
engage for this purpose and who will receive a fee estimated at $ (plus
out-of-pocket expenses) for its services for soliciting such proxies.
Arrangements also will be made with brokerage houses and other custodians,
nominees and fiduciaries for forwarding solicitation materials to the beneficial
owners of shares of Common Stock held of record by such persons, and the Company
will reimburse such persons for their reasonable expenses incurred in that
connection.
SHAREHOLDERS ARE REQUESTED TO INDICATE THEIR VOTE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE POSTAGE-PAID
ENVELOPE THAT HAS BEEN PROVIDED. THE BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF EACH OF THE PROPOSALS SET FORTH IN THIS PROXY
STATEMENT.
APPROVAL OF THE TRANSACTION
(PROPOSAL 1)
The following discussion summarizes the material aspects of the
Transaction, as set forth in the Stock Purchase Agreement and the various
exhibits thereto, including the Stockholders Agreement and the Registration
Rights Agreement. This summary is not intended to be a complete description of
the Stock Purchase Agreement or the exhibits thereto and is subject to, and
qualified in its entirety by, reference to the Stock Purchase Agreement, the
Stockholders Agreement and the Registration Rights Agreement, copies of which
are attached hereto as appendices and incorporated herein by reference.
INFORMATION ABOUT THE COMPANY
The Company is a fully integrated provider of assisted living
accommodations and services that operates, acquires and develops assisted living
facilities. The Company currently operates 49 assisted living facilities
containing 6,278 units. Of the 49 assisted living facilities, the Company
operates 15 assisted living facilities owned by the Company directly or by
Affiliated Partnerships and 32 assisted living facilities operated under
long-term operating leases for the Company's own account or for Affiliated
Partnerships in which the Company has a majority ownership interest, and manages
two assisted living facilities. The Company also has seven facilities currently
under construction that are expected to contain 780 units. In addition to
operating
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and managing assisted living facilities, the Company has also acquired or
developed market rate senior apartments, as well as affordable senior and
multifamily apartment communities using the sale of tax credits under a federal
low income housing tax credit program to generate the equity funding for
development.
The Company is incorporated in California. Its executive offices are
located at 245 Fischer Avenue, D-1, Costa Mesa, California 92626, and its
telephone number is (714) 751-7400.
INFORMATION ABOUT LFREI
Established in 1848, Lazard Freres & Co., LLC is a leading private
investment bank, with extensive experience in principal investments, real
estate, asset management, mergers and acquisitions and corporate finance.
Operating through affiliated entities in six countries throughout the world,
Lazard Freres & Co., LLC advises numerous corporations, financial institutions
and governments on strategic and financial transactions. Lazard Freres & Co.,
LLC also provides investment management services to institutional and individual
investors worldwide, managing more than $53 billion of capital.
LFREI, of which Prometheus Assisted Living LLC is an affiliate, is a real
estate investment affiliate of Lazard Freres & Co., LLC. Since its inception,
LFREI has acquired sizable investment stakes in a select group of leading real
estate operating companies, including American Apartment Communities; RF&P
Corporation (renamed Commonwealth Atlantic Properties); Dermody Properties; Bell
Atlantic Properties (renamed Atlantic American Properties Trust); and Alexander
Haagen Properties, Inc.
The Real Estate Investment Banking Group at Lazard Freres & Co., LLC is a
recognized leader in the business of advising real estate companies on the
process of recapitalizing, restructuring and expanding their companies and
portfolios. Select clients include Corporate Property Investors, Mobil Corp.,
Olympia & York (World Financial Properties), Prudential Insurance Company, the
Rockefeller Group, Rodamco, N.V. and the Wright Runstad Company.
Neither Prometheus nor any of its controlled affiliates currently own a
material interest in any company whose business involves the ownership of
assisted living facilities, nor do any of them own a material interest in any
company which owns assets that currently compete with the Company's investments
or properties. Until a Termination Event under the Stockholders Agreement,
Prometheus and its controlled affiliates have committed that they will not,
directly or indirectly, own any equity interest (other than a de minimis amount)
in any public or private real estate 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 Prometheus Nominees) have consented to such ownership.
BACKGROUND OF THE TRANSACTION
At various times in 1997, the Company considered alternative means of
obtaining an infusion of capital for purposes of continuing its acquisition and
development plans and repaying debt. Among the alternatives that were considered
by the Company were obtaining a strategic investment in the Company, a public
offering of Common Stock or debt, continuing to operate without a capital
infusion and a sale of the Company. After consideration of these alternatives,
the Company preliminarily concluded that pursuing a strategic investment in the
Company was the most attractive means of meeting the Company's capital
requirements.
In February 1997, after an introduction by a third party, a potential
investor (the "Potential Investor") became interested in the Company. Upon
concluding confidentiality arrangements, the Potential Investor began due
diligence on the Company. In May and June of 1997, the Company received several
additional expressions of interest from other potential investors, none of
which, other than Prometheus, made formal proposals to the Company.
Prior to June 1997, the Company's investment bankers and advisors held
informal meetings with representatives of Prometheus to discuss Prometheus'
interest in making an investment in the Company. On June 2, 1997, Salomon
Brothers arranged a meeting between representatives of the Company and
Prometheus to discuss such a transaction. The Company was aware of Prometheus',
and specifically LFREI's, reputation
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<PAGE> 23
in the real estate industry and was receptive to Prometheus' expression of
interest in exploring an affiliation between the Company and Prometheus.
At a special meeting of the Board on June 9, 1997, management of the
Company briefed the Board on the contacts between the Company and Prometheus and
on the status of negotiations between the Company and the Potential Investor.
Management also recommended that the Company retain a financial advisor for
purposes of evaluating potential transactions between the Company and Prometheus
or the Potential Investor, which recommendation the Board took under
consideration but did not act upon then.
On June 10, 1997, Prometheus began due diligence on the Company. On June
12, 1997, representatives of Prometheus, the Company and Salomon Brothers met to
discuss in greater detail the proposed terms of Prometheus' potential investment
in the Company.
On June 13, 1997, the Potential Investor sent a letter to the Company
outlining the terms of a potential transaction between the Company and the
Potential Investor.
At a special meeting of the Board on June 16, 1997, the Board appointed
John J. Rydzewski, a director of the Company, as the sole member of the Board's
Strategic Investment Committee, which would assume primary responsibility for
analyzing the proposed investments in the Company by Prometheus and the
Potential Investor and reporting back to the Board with his analysis. The Board
also authorized Mr. Rydzewski to engage a financial advisor to assist in the
analysis.
Between June 16, 1997 and June 26, 1997, Mr. Rydzewski met with each of
Prometheus and the Potential Investor to discuss their respective proposals.
During this period, Mr. Rydzewski also entered negotiations with Salomon
Brothers and another investment banking firm regarding their engagement as
financial advisor. After determining to recommend the engagement of Salomon
Brothers, Mr. Rydzewski asked Salomon Brothers to assist him in his analysis. On
June 26, 1997, Mr. Rydzewski briefed the Board on his meetings with Prometheus
and the Potential Investor and described the relative attractiveness of their
respective proposals. Based in part on Mr. Rydzewski's recommendation, the Board
authorized management of the Company to pursue a transaction with Prometheus and
retain Salomon Brothers as its financial advisor for purposes of analyzing and
negotiating a transaction with Prometheus.
On June 27, 1997, the Company entered into an exclusivity agreement with
Prometheus pursuant to which the Company agreed not pursue a transaction with
any other investor prior to August 8, 1997 while negotiations on definitive
agreements with Prometheus were in process. The Company also engaged Salomon
Brothers as its financial advisor on that date for purposes of analyzing and
negotiating a transaction with Prometheus.
Between June 27, 1997 and July 13, 1997, while Prometheus continued its due
diligence, the Company and Prometheus negotiated the specific terms of the
proposed transaction and reached agreement on the form of the definitive
agreements pertaining to the transaction.
On July 10, 1997, the Board received a joint letter (the "July 10 Letter")
from the Potential Investor and a new party (the "New Party") expressing an
interest in entering negotiations regarding an acquisition of the Company. The
July 10 Letter contemplated alternative proposals in which the New Party would
acquire the Company through a merger or a purchase of the Company's Common Stock
and shareholders of the Company would receive common stock of the New Party
("New Party Common Stock") valued at a minimum of $14.00 per share of Common
Stock, in the case of a merger, or a combination of cash and New Party Common
Stock valued at a minimum of $14.00 per share of Common Stock, in the case of a
stock purchase. Gary L. Davidson, the Chairman of the Board of the Company,
contacted the New Party by telephone and communicated that he would present the
letter to the Board.
On July 13, 1997, a special meeting of the Board was called to discuss the
proposed transaction with Prometheus and the July 10 Letter. Prior to that
meeting, counsel for the Company distributed a memorandum summarizing the
Transaction and complete drafts of the Stock Purchase Agreement, Stockholders
Agreement, Registration Rights Agreement and Stockholders Voting Agreement. All
members of the Board were present (either in person or by telephone) at the
meeting. At the meeting, Mr. Rydzewski provided a chronological summary of the
significant events relating to the proposed transaction. Counsel for
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<PAGE> 24
the Company then presented a detailed summary of each of the principal documents
relating to the Transaction and answered the Board's questions regarding such
documents.
Following the summary of the principal documents by counsel to the Company,
Salomon Brothers distributed a report setting forth the financial analysis
underlying its opinion relating to the fairness of the Transaction and presented
such financial analysis to the Board. Salomon Brothers noted that it was
prepared to deliver its fairness opinion at that time. Management of the
Company, Salomon Brothers and counsel for the Company then discussed with the
Board the potential advantages and disadvantages of, and alternatives to, the
Transaction, emphasizing the opportunity to raise a large amount of capital in a
single transaction at a significant premium to the historic average market price
of the Common Stock, the certainty of amount and flexibility as to timing of the
investment and the ability to obtain continuing access to Prometheus' strategic
advice and capital markets expertise.
The Board then discussed the July 10 Letter from the New Party. After
discussing the proposal contained in the letter at some length, the Board
concluded that the expression of interest was significantly less attractive, and
less definitive, for shareholders of the Company than the terms of the
Transaction. Among the reasons why the Board concluded that the July 10 Letter
was less attractive than the Transaction were the relatively greater certainty
of completing the Transaction, the fact that the July 10 Letter contemplated the
issuance of New Party Common Stock which the Board did not view as attractive
consideration, the uncertainty as to price of the proposals contemplated by the
July 10 Letter and the Board's conclusion that the minimum proposed price was
insufficient for a change of control transaction. Based on these factors, the
Board concluded that it would not pursue negotiations with the New Party.
At a meeting of the Board on July 14, 1997, counsel for the Company advised
the Board of the results of the continued negotiations with Prometheus and
entertained questions from the Board. Salomon Brothers then delivered its
written opinion to the Board expressing its opinion that the cash price of
$14.00 per share of Common Stock to be received by the Company in connection
with the Transaction is fair to the Company from a financial point of view. The
Board then discussed the merits of the Transaction with Salomon Brothers and
counsel for the Company. After these discussions, the Board voted unanimously to
approve the Stock Purchase Agreement and the transactions contemplated thereby,
subject to final negotiation of definitive documents by management. After final
negotiations and redrafting, the Stock Purchase Agreement, the Stockholders
Agreement, the Registration Rights Agreement and the Stockholders' Voting
Agreement were executed on July 14, 1997.
On July 14, 1997, the last trading day before the Transaction was publicly
announced, the closing sale price of the Common Stock as reported on Nasdaq was
$11.38.
On July 20, 1997, after Prometheus concluded it was generally satisfied
with its due diligence review of the Company, Prometheus requested an
acceleration of the Initial Closing, which was previously scheduled to occur no
earlier than August 29, 1997. Accordingly, the Company and Prometheus entered
into the Amendment to Stock Purchase Agreement providing that Prometheus would
have the option to purchase (i) 1,064,286 shares of Common Stock immediately
following the satisfaction or waiver of certain conditions and (ii) an
additional 856,726 shares no later than August 1, 1997.
On July 22, 1997, after Prometheus completed its due diligence review, the
Company and Prometheus entered into the Second Amendment to Stock Purchase
Agreement providing that the Company be required to fulfill certain additional
conditions prior to the Second Closing, including the receipt of certain title
policies, a promissory note from an affiliate of the Company and certain
estoppel certificates from four landlords of the Company.
On July 23, 1997, Prometheus purchased 1,921,012 shares of Common Stock for
an aggregate purchase price of $26.9 million at the Initial Closing.
TERMS OF THE TRANSACTION
Parties. Prometheus Assisted Living LLC, an affiliate of LFREI, will
acquire the shares issued in connection with the Transaction. LFREI has a
contractual obligation to advance to Prometheus Assisted
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<PAGE> 25
Living LLC the funds to purchase the shares as required pursuant to the Stock
Purchase Agreement, and has guaranteed the performance by Prometheus Assisted
Living LLC of its obligations under the Stock Purchase Agreement.
Prometheus Investment. Pursuant to the Stock Purchase Agreement, the
Company will sell an aggregate of up to 9,653,325 shares of Common Stock to
Prometheus at a price of $14.00 per share, for an aggregate purchase price of up
to $135.1 million. The purchase price per share was determined as a result of
arm's length negotiations between the Company and its advisors, on the one hand,
and Prometheus and its advisors, on the other hand. At the Initial Closing, the
Company sold 1,921,012 shares to Prometheus at $14.00 per share, for an
aggregate purchase price of approximately $26.9 million. As of the Record Date,
Prometheus owned approximately 16.6% of the outstanding Common Stock.
If the Transaction is approved by the Company stockholders, then, at a
Second Closing, the Company will sell to Prometheus 3,078,988 shares.
Thereafter, at one or more Subsequent Closings, the Company from time to time at
its election may sell additional shares to Prometheus at $14.00 per share, in
minimum increments of 715,000 shares, until the Total Equity Commitment is
invested or, if earlier, eighteen months after Stockholder Approval or, if
earlier, June 30, 1999 (unless extended by mutual agreement of the parties). If
the Total Equity Commitment is invested, LFREI will own approximately 49.9% of
the outstanding Common Stock assuming no other change in the number of
outstanding shares.
Use of Proceeds. Proceeds from the sale of the shares will be used by the
Company to continue to implement its acquisition and development plans, to repay
debt, to strengthen systems and operations, and to expand services.
Stockholders Agreement. Concurrently with the execution of the Stock
Purchase Agreement,
Prometheus and the Company entered into the Stockholders Agreement, which grants
certain rights to and imposes certain restrictions on Prometheus with respect to
the shares purchased by it pursuant to the Stock Purchase Agreement. Many of
these rights terminate on the Termination Date. These rights and restrictions
include the following:
(i) Management of the Company; Representation on the Board and Certain
Board Committees.
If the shareholders approve the Transaction, the Company shall amend the
Company Articles, and the Company and Prometheus will take all actions necessary
to cause the Board to be structured to consist of 11 members, of which seven
members will be the existing directors of the Company and four members will be
Prometheus Nominees (at least one in each class of the Board). The Company and
Prometheus will take all actions necessary to cause the Prometheus Nominees to
become members of the Board as soon as practicable after the shareholders'
approval of the Transaction. Thereafter, at each annual or special meeting of
shareholders of the Company, or by the taking of action by written consent of
shareholders of the Company with respect to which any class of directors is to
be elected, Prometheus shall have the right (but not the obligation) to
designate nominees to the Board such that the number of Prometheus Nominees
represent a percentage of the total number of members of the Board that is equal
to the percentage of Common Stock beneficially owned by Prometheus; provided,
that (i) if Prometheus would be entitled to a fractional number of
representatives, it will instead be entitled to a number of representatives
equal to the next higher number, (ii) in no event will Prometheus be entitled to
more than four representatives and (iii) after the occurrence of a Termination
Event, Prometheus shall not be entitled to any representatives on the Board. If
Prometheus' right to nominate directors to the Board is reduced, Prometheus
shall cause the applicable number of its nominees to immediately resign
(regardless of the remaining term, if any) from the Board. So long as the
Standstill Period is in effect, the Stockholders Agreement prohibits Prometheus
from seeking additional representation on the Board.
Pursuant to the Stock Purchase Agreement, from and after the date that the
Prometheus Nominees first become members of the Board, any Board action other
than in the ordinary course of business (with certain exceptions), including
certain corporate actions set forth in the Stock Purchase Agreement such as (i)
the acquisition or sale of any business or assets having a value in excess of 1%
of the Company's assets, (ii) incurrence of indebtedness having a value in
excess of 1% of the Company's assets, (iii) the approval of
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<PAGE> 26
any annual operating budget of the Company, (iv) a material change in the
Company's management, (v) a change in the number of shares of Common Stock
authorized for issuance and (vi) a change in the Company's dividend policy
(collectively, the "Corporate Action Matters"), will require the affirmative
vote of eight of the 11 directors. During the period in which Prometheus is
entitled to designate nominees to the Board under the Stockholders Agreement,
the number of directors of the Company may not exceed 11 members.
If the Transaction is approved by the shareholders, the Company will amend
the Company Bylaws to provide that so long as Prometheus is entitled to have
four Prometheus Nominees on the Board, Prometheus will have the right to have
two Prometheus Nominees on the Executive Committee and one Prometheus Nominee on
each special committee of the Board, including the Audit Committee and the
Compensation Committee. Also, unless a Termination Event occurs, one Prometheus
Nominee will serve on the Nominating Committee. Prometheus will also have the
right to name an individual to serve on the board of directors or comparable
governing body of each subsidiary of the Company so long as Prometheus has the
right to nominate at least one director to the Board.
The Board will delegate to the Executive Committee the authority to approve
any action other than in the ordinary course of business. The affirmative vote
of four out of the five members of the Executive Committee will be required to
approve the matters delegated to the Executive Committee.
The unanimous consent of the Nominating Committee shall be required prior
to the appointment of a Chairman, Chief Executive Officer or President of the
Company. In addition, all nominees to the Board (other than the Prometheus
Nominees) will require the unanimous approval of the Nominating Committee,
provided that if the Nominating Committee cannot unanimously agree on such a
nominee, the nomination will be referred to the entire Board, which shall decide
the matter based on a simple majority vote.
(ii) Participation Rights. Until a Termination Event, in the event that the
Company issues or sells shares of capital stock (including securities
convertible into or exchangeable or redeemable for capital stock of the Company
and including capital stock to be issued pursuant to the conversion, exchange or
redemption of other securities), Prometheus will be entitled to a participation
right to purchase or subscribe for that proportion of the total number of shares
to be issued, including shares to be issued to Prometheus pursuant to the rights
described in this paragraph, equal to Prometheus' proportionate holdings of
Common Stock outstanding prior to such issuance (but not to exceed 49.9% of the
capital stock issued). Notwithstanding the foregoing, Prometheus shall have no
right to participate in (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 on the date of the Stock Purchase Agreement, or (ii) the issuance of
capital stock pursuant to the conversion, exchange or redemption of any other
capital stock, or (iii) the issuance of capital stock for consideration other
than cash. Prometheus will be entitled to participate in the issuance of capital
stock by the Company pursuant to benefit, option, stock purchase or similar
plans, including upon the exercise of options, rights, warrants or other
securities, but any participation rights which arise as a result thereof shall
be deferred until such time as participation rights shall otherwise arise. All
purchases pursuant to such participation rights will be at the same price and on
the same terms and conditions as are applicable to other purchasers.
(iii) Restriction on Voting Rights. During the Standstill Period Prometheus
has agreed to vote any shares it owns in favor of the election of directors
nominated by the Nominating Committee or the Board, as applicable. Prometheus
will vote any shares it owns that represent aggregate ownership of in excess of
49.9% of the outstanding shares of Common Stock at its option in accordance with
the recommendation of the Board or proportionally in accordance with the votes
of the other holders of the Common Stock. However, Prometheus may vote all of
the shares of Common Stock that it owns, in its sole and absolute discretion,
with regard to the election of the Prometheus Nominees to the Board.
(iv) Standstill Provisions.
For a period of three years after the shareholder approval date subject to
earlier termination as described below, Prometheus may not: (i) acquire more
than 49.9% of the outstanding shares of Common Stock, on an
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Adjusted Fully Diluted Basis (ii) act in concert with any other person or group
by becoming a member of any group acquiring, holding, voting, or disposing of
voting securities pursuant to Section 13(d) of the Exchange Act (other than such
a group comprised exclusively of Prometheus and one or more of its affiliates);
(iii) solicit or propose to effect or negotiate certain business combination
transactions other than pursuant to the Stock Purchase Agreement; (iv) solicit,
initiate, 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 Exchange Act, disregarding certain provisions thereof);
call, or participate in a call for, any special meeting of shareholders;
request, or take any action to obtain any list of holders of any securities of
the Company; or initiate, propose, participate in the making of, or solicit
shareholders for the approval of any shareholder proposal; (v) seek Board
representation or a change in the composition or size of the Board, except as
permitted by the Stockholders Agreement; or (vi) assist or encourage any person
with respect to any of the foregoing. After giving effect to the sale of
9,653,325 shares to Prometheus in the Transaction, and assuming no other change
in the number of outstanding shares, Prometheus will own 49.9% of the Common
Stock on an Adjusted Fully Diluted Basis.
For a period of two years after the shareholder approval date or, if
earlier, until a Termination Event, Prometheus may not sell any shares of Common
Stock. Thereafter, and during any remaining term of the Standstill Period,
Prometheus will not transfer any shares of Common Stock, except (a) in
transactions pursuant to Rule 144 under the Securities Act of 1933, (b) in
negotiated transfers to third parties, other than Assisted Living Companies, (c)
to certain affiliates who agree to be bound by the terms of the Stockholders
Agreement, (d) in accordance with the Registration Rights Agreement in a bona
fide public offering and (e) subject to certain conditions, to bona fide
financial institutions for the purpose of securing bona fide indebtedness.
(v) Termination of the Standstill Period. The Standstill Period will be
automatically terminated if any of the following events occurs: (i) the
occurrence of a default under any debt agreement that would reasonably be
expected to result in a Material Adverse Effect (as defined in the Stockholders
Agreement) and which cannot be cured by the Company within the applicable cure
period under such debt agreement; (ii) the authorization by the Company or the
Board, with all Prometheus Nominees abstaining or voting against, of the
solicitation of offers, proposals, or indications of interest with respect to
certain mergers, sales of assets, or other similar extraordinary transactions
(each a "Covered Transaction"); (iii) the written submission by any person or
group of a proposal with respect to a Covered Transaction (unless as soon as
practicable after receipt of such proposal the Board determines that such
proposal is not in the best interests of the Company and its shareholders, and
the Board continues to reject such proposal as a result of such determination);
(iv) in connection with an actual or proposed Covered Transaction, the removal
of any rights plan, staggered board provisions, supermajority vote provisions,
or similar impediments to the consummation thereof; (v) 90 days after the
occurrence a Termination Event; (vi) the failure of the Company to timely cure
any breach of the Stock Purchase Agreement or the Stockholders Agreement which
would reasonably be expected to materially adversely affect Prometheus or cause
a Material Adverse Effect; or (vii) the occurrence of any material violation by
the Company of its covenant to obtain supermajority approval by the Board on all
Corporate Action Matters.
(vi) Exclusive Investment Vehicle for Assisted Living Industry. Until a
Termination Event occurs, Prometheus and its controlled affiliates will not,
directly or indirectly, acquire any equity interest (other than a de minimus
amount) in any public or private company the principal business of which is
ownership, management, operation and development of assisted living facilities
in the United States, unless 75% of the directors of the Company (other than the
Prometheus' Nominees) have consented to such ownership.
Registration Rights Agreement. Concurrent with the Stock Purchase
Agreement, the Company and Prometheus Assisted Living LLC entered into the
Registration Rights Agreement, pursuant to which the Company is obligated to
file up to six demand registration statements under the Securities Act for the
resale by Prometheus of all or a portion of the Company securities owned by it.
Because the Common Stock issued to Prometheus was not registered and because
Prometheus may be deemed to be an "underwriter" for purposes of the Securities
Act, the shares of Common Stock and other securities of the Company owned by it
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may not be sold in the absence of registration under the Securities Act unless
an exemption from registration is available.
The Registration Rights Agreement provides, among other things, that, at
any time after July 14, 1999, Prometheus will have the right, from time to time,
to require the Company to file a registration statement (any such filing, the
"Demand Registration") under the Securities Act for any or all shares acquired
by Prometheus pursuant to the Stock Purchase Agreement and the Stockholders
Agreement, and any securities issued or issuable with respect to any such shares
("Registrable Securities"). The right to a Demand Registration is limited,
however, in that (i) it may be invoked in each instance only with respect to a
number of shares having a fair market value equal or greater than $10 million,
(ii) the Company is not required to effect more than six Demand Registrations,
and (iii) the Company will have the right from time to time to require
Prometheus not to sell under the Demand Registration or to postpone or suspend
the effectiveness thereof in certain circumstances. Prometheus also will have
the right, with respect to most registrations of Common Stock by the Company for
its own account, to require the Company to include Registrable Securities in
such registration. The Registration Rights Agreement provides that the Company
will pay the expenses, other than underwriting discounts and fees, relating to
the first three Demand Registrations requested by Prometheus, and Prometheus
will pay for any further Demand Registrations. The Registration Rights Agreement
otherwise contains terms that are generally customary for registration rights
agreements of its type.
Conditions to Closing. Each of the Company's and Prometheus' obligations to
effect the Second Closing and each of the Subsequent Closings are subject to
various mutual and unilateral conditions, including, without limitation, the
following: (i) receipt of Stockholder Approval, (ii) adoption of certain
amendments to the Company Articles and Company Bylaws, (iii) receipt by the
Company of title policies on certain of its properties, a promissory note from
an affiliate of the Company and estoppel certificates from certain of the
Company's landlords and (iv) the satisfaction of various customary conditions,
including the continuing correctness of the Company's representations and
warranties in the Stock Purchase Agreement, the receipt of any consents
necessary for the Transaction and the absence of a material adverse change in
the condition of the Company.
No Solicitation of Competing Transactions. Unless and until the Stock
Purchase 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 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 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 Prometheus 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 such matters and if such inquiry or proposal is in writing, the Company
shall deliver to Prometheus a copy of such inquiry or proposal; provided,
however, that nothing contained in this provision 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 shareholders than the Agreement, it may enter into
negotiations with respect to such proposal. The Company will notify Prometheus
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
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five business days after the Company's initial notification to Prometheus of an
inquiry or proposal relating
to a Competing Transaction. Within the two-business-day or five-business-day
period referred to above,
Prometheus may propose an improved transaction.
Expenses; Break-Up Fee. The Stock Purchase Agreement provides that (i) if
the Board does not recommend stockholder approval of the Transaction and either
(A) the Company's shareholders fail to approve the Transaction or (B) the Second
Closing has not occurred on or before January 31, 1998, or (ii) the Company
fails to convene the Annual Meeting prior to December 31, 1997, then the Company
shall pay Prometheus a $6.0 million adjustment to the purchase price of the
shares purchased in the Initial Closing, a $7.0 million breakup fee and a
portion of Prometheus' expenses. Alternatively, if the Board recommends
shareholder approval of the Transaction and the shareholders fail to approve the
Transaction, then the Company shall pay Prometheus an $8.7 million adjustment to
the purchase price as well as a portion of Prometheus' expenses. If the
transactions contemplated in the Stock Purchase Agreement do not close as a
result of a willful breach of a material representation, warranty or covenant in
the agreement on the part of the Company, then the Company will pay Prometheus
$13.0 million as both an adjustment to the purchase price of the shares
purchased in the Initial Closing and a breakup fee as well as a portion of
Prometheus' expenses.
Amendment or Termination of the Stock Purchase Agreement. Although the
Board reserves the right to amend the provisions of the Stock Purchase Agreement
without approval of the shareholders, either before or after approval by the
shareholders of the Transaction and the transactions contemplated thereby, the
Company intends to solicit further approval of the shareholders in the event
that any such amendment would change the Transaction in a way that would be
materially adverse to shareholders. In addition, any amendment would require the
consent of Prometheus. The Board also reserves the right to terminate the Stock
Purchase Agreement without obtaining further approval of the shareholders. The
Board does not anticipate any further amendment of the terms of, or the
termination of, the Stock Purchase Agreement.
Stockholders' Voting Agreement. In connection with the Stock Purchase
Agreement, Prometheus also entered into a Stockholders' Voting Agreement with
the Affiliated Shareholders. Pursuant to this agreement, the Affiliated
Shareholders agreed to vote the Common Stock owned by them in favor of the
Transaction and for the election of the Prometheus Nominees and the directors
nominated by the Nominating Committee. Each of the Affiliated Shareholders also
agreed not to transfer any of his shares of Common Stock until the earlier of
(i) the date on which the Prometheus Nominees first became members of the Board
and (ii) if the Stockholder Approval vote fails or does not occur by December
31, 1997, the earlier of the date of the stockholder meeting at which
Stockholder Approval failed or December 31, 1997. The Stockholders' Voting
Agreement will terminate concurrently with the termination of the Stockholders
Agreement.
POTENTIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, represents an
attractive opportunity to improve long-term shareholder value by providing the
Company with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to it,
thereby enhancing the Company's short-term and long-term growth prospects and
better positioning it to capitalize on assisted living facility opportunities in
the United States. In particular, the Company believes that the Transaction may
have a number of beneficial effects on the Company and its shareholders,
including the following:
Large, Timely Infusion of Capital at a Premium to Market. The Transaction
is expected to enable the Company to accomplish its financing objectives for
1997 and 1998 in a single transaction on favorable terms compared with those
available in the public markets. The $14.00 per share purchase price represents
a 23% premium over the closing price of the Common Stock on Nasdaq on July 14,
1997, the last trading day before the announcement of the Transaction to the
public. Also, because the purchase price for the Common Stock to be acquired by
Prometheus is fixed, the Transaction protects the Company against the risks of a
decline in the stock market as a whole and the market for assisted living
industry shares in particular. Moreover, the Company is not exposed to the risk
of a decline in the market price of its shares that is commonly observed in
advance of such offerings. Additionally, the Transaction will enable management
to focus on developments
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and acquisitions and intensively managing the Company's existing properties
instead of being required to divert management time and attention to the process
of raising capital.
Indirect Affiliation with Prometheus. Prometheus (and specifically LFREI)
is highly-regarded as a sophisticated investor in real estate. Four individuals
to be nominated by Prometheus will become directors of the Company immediately
after approval by the Company's shareholders of the Transaction. The Company
believes that it will benefit significantly from its association with Prometheus
and its access to the market knowledge, operating experience and research
capabilities of Prometheus.
Improved Future Access to Capital. The Company believes that, as a result
of the Transaction, it will have greater access to the capital markets and a
lower cost of capital because the Transaction will (i) increase its equity
market capitalization and total capitalization, (ii) establish an indirect
affiliation with the highly-regarded Prometheus (and specifically LFREI), which
should enhance the Company's access and attractiveness to significant
institutional investors; and (iii) through the participation rights granted to
Prometheus under the Stockholders Agreement, provide a potential buyer for
substantial portions of future offerings by the Company of its equity securities
or debt securities convertible into equity. Moreover, because of its substantial
investment in the Company, Prometheus will have significant incentives to make
available its resources, experience and advice regarding access to capital
markets and assisting the Company to achieve a lower cost of capital. The
Company believes that improved access to the capital markets should enhance its
ability to grow and increase shareholder value.
Potential Enhancement of Shareholder Value. The Transaction will not result
in any direct return to shareholders of cash or other consideration. The
Company, however, believes that the Transaction offers shareholders an
opportunity to realize long-term value. The Company's strategic plan calls for
the application of the significant capital to be raised in the Transaction to
execute an attractive growth strategy for the purpose of increasing the
Company's asset base and cash flow in a controlled but significant fashion over
a relatively short period of time.
It should be noted, however, that there is no assurance that the Company
will realize all or any of the potential benefits described above, which are
forward looking statements that are subject to numerous risks and uncertainty.
The Company's ability to enhance shareholder value will depend upon a number of
circumstances, many of which are outside the control of management, including
the availability of attractive acquisition and development opportunities; the
Company's continuing ability to identify, perform due diligence with respect to,
acquire and effectively manage a large number of assisted living facilities; the
state of the capital markets generally and prevailing interest rates;
uncertainty concerning the Company's ability to refinance its indebtedness at
favorable interest rates as it becomes due; and risks relating to the ownership
of real estate generally, including the risks of bankruptcy, insolvency or the
downturn in business of or failure to renew leases by the Company's anchor
tenants, potential liability for unknown environmental matters, and the risk of
uninsured losses.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, will have
certain potential adverse effects on the Company and its shareholders, including
the following:
Concentration of Ownership of Common Stock. Prometheus will be entitled to
own up to 49.9% of the Company's Common Stock, on an Adjusted Fully Diluted
Basis, and will be the largest single shareholder of the Company. Prometheus
will have the right to nominate up to four directors of the Board. Although
certain restrictions during the Standstill Period will preclude Prometheus from
increasing its percentage interest in the Company for a period of at least three
years (subject to certain exceptions) and limit its voting rights with respect
to its shares of Common Stock during that time, Prometheus nonetheless will have
a substantial influence over the affairs of the Company as a result of the
Transaction. This concentration of ownership in one shareholder could be
disadvantageous to other shareholders' interests.
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Also, once the Standstill Period terminates, Prometheus could be in a
position to purchase a majority of the outstanding shares of Common Stock and
then control the election of the Board or the outcome of any corporate
transaction or other matter submitted to the shareholders for approval.
Anti-Takeover Effect of the Transaction. Prometheus' acquisition of up to
49.9% of the Common Stock and the director nomination, voting and other rights
granted to Prometheus under the Stockholders Agreement, although subject to
certain limitations during the Standstill Period, may make it more difficult for
other shareholders to challenge the Company's director nominees, elect their own
nominees as directors, or remove incumbent directors and may render the Company
a less attractive target for an unsolicited acquisition by an outsider.
Potential Dilution. While the Company generally has the ability to control
the timing of Second Closing and the Subsequent Closings and any additional
investments by Prometheus, if the proceeds from sales of securities to
Prometheus are not invested in a timely or accretive manner, there would be
dilution of earnings per share and funds from operations per share to the
existing shareholders of the Company. The Company does not intend to change its
careful acquisition criteria, and it may temporarily have excess cash on its
balance sheet if sufficient acquisitions are not completed within eighteen
months after shareholder approval (unless the Company and Prometheus agree to
extend these dates).
POTENTIAL EFFECTS OF SHAREHOLDER APPROVAL OF THE TRANSACTION
Approval of the Transaction by the shareholders will constitute approval of
all of the various terms of the Transaction set forth in the Stock Purchase
Agreement, the Stockholders Agreement and the Registration Rights Agreement and
the transactions contemplated thereby, including an amendment to the Company
Articles in the form set forth in Appendix D hereto.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction, including potential claims, if any, alleging violations of the
Board's duties to shareholders. Under California law, the fully informed
shareholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary duty claims against directors.
As described in "-- Terms of the Transaction -- Conditions to Closing"
above, approval of the Transaction is a condition to consummation of the
Transaction, but there also are numerous other conditions that must be satisfied
in order for the Transaction to be consummated. There can be no assurance that
all of these conditions will be satisfied, or that the Transaction will be
consummated.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Company believes that neither the Company nor any of the Company's
current shareholders will recognize taxable gain as a result of the Transaction.
The foregoing discussion is only a summary of certain federal income tax
considerations resulting from the Transaction that may be relevant to the
Company and the Company's current shareholders. This discussion does not address
the federal income tax considerations resulting from the Transaction that may be
relevant to Prometheus or its shareholders, and does not address the state,
local, or foreign tax considerations resulting from the Transaction that may be
relevant to the Company, Prometheus, or their respective shareholders. This
discussion is based on the current provisions of the Internal Revenue Code (the
"Code"), the applicable Treasury regulations promulgated thereunder,
administrative rulings, court decisions, certain factual assumptions related to
the ownership and operation of the Company, and certain representations made by
the Company and Prometheus. Shareholders should consult their own tax advisers
regarding the federal tax consequences of the Transactions as well as any
consequences under laws of any other jurisdiction.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
On July 14, 1997, Salomon Brothers delivered its written opinion (the
"Opinion") to the Board that, as of such date, the cash price of $14.00 per
share of Common Stock to be received by the Company in connection with the
Transaction is fair to the Company from a financial point of view. Prior to its
presentation to the
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Board, Salomon Brothers provided to each director a report (the "Report")
setting forth the analysis underlying the Opinion. This analysis, as presented
to the Board, is summarized herein. The members of the Board had an opportunity
to ask questions of Salomon Brothers. Salomon Brothers discussed with the Board
the information in the Report, and the financial data and other factors
considered by Salomon Brothers in conducting its analysis, material portions of
which are summarized herein.
In requesting the Opinion, the Board did not give any special instructions
to Salomon Brothers or impose any limitations upon the scope of the
investigation that Salomon Brothers deemed necessary to enable it to deliver the
Opinion. A copy of the Opinion, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached to this Proxy
Statement as Appendix H and is incorporated herein by reference. The summary of
the Opinion set forth below is qualified in its entirety by reference to the
full text of the Opinion. The Company's stockholders are urged to read the
Opinion in its entirety. The Opinion is directed only to the fairness of the
consideration to be received by the Company from a financial point of view and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Annual Meeting.
In conducting its analysis and arriving at the Opinion, Salomon Brothers
reviewed such information and considered such financial data and other factors
as Salomon Brothers deemed relevant under the circumstances, including: (i) the
Stock Purchase Agreement, the Registration Rights Agreement and the Stockholders
Agreement and the specific terms of the Transaction, (ii) the Annual Reports to
Shareholders and Annual Reports on Form 10-K for each of the years ended March
31, 1997 and 1996 and such other publicly available information concerning the
Company as Salomon Brothers believed to be relevant to its inquiry, (iii)
financial and operating information with respect to the business, operations and
prospects of the Company furnished to Salomon Brothers by the Company, (iv) a
trading history of the Company's Common Stock from October 1995 (the date of the
Company's initial public offering of its Common Stock) to the date of the
Opinion and a comparison of that trading history with those of other companies
that Salomon Brothers deemed relevant, (v) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that Salomon Brothers deemed relevant, and (vi) a comparison of
the financial terms of the Transaction with the financial terms of certain other
transactions that Salomon Brothers deemed relevant. In addition, Salomon
Brothers had discussions with the management of the Company concerning the
business, operations, assets, financial condition and prospects of the Company,
and undertook such other studies, analyses and investigations as Salomon
Brothers deemed appropriate. The Opinion was necessarily based on market,
economic and other conditions as they existed and could be evaluated as of the
date of the Opinion.
In connection with its review and analysis and in arriving at the Opinion,
Salomon Brothers assumed and relied upon the accuracy and completeness of the
financial and other information used by it without assuming any responsibility
for independent verification of such information and further relied upon the
assurances of management of the Company that management was not aware of any
facts that would make such information inaccurate or misleading. With respect to
the financial projections of the Company, upon advice of management of the
Company, Salomon Brothers assumed that such projections were reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
management of the Company as to the future financial performance of the Company
and that the Company would perform in accordance with such projections. In
arriving at its opinion, Salomon Brothers did not conduct a physical inspection
of the properties and facilities of the Company and did not make or obtain any
evaluations or appraisals of the assets or liabilities of the Company. Salomon
Brothers assumed that consummation of all or any portion of the Transaction
would not result in any default or similar event, or trigger any
change-in-control payment or offer to be made, under any of the Company's loan
agreements, instruments of indebtedness or other agreements, which had not been
or would not be waived. In addition, pursuant to the terms of Salomon Brothers'
engagement by the Company, the Company did not authorize Salomon Brothers to
solicit, and Salomon Brothers did not solicit, any indications of interest from
any third party with respect to a similar investment in the shares of the
Company's Common Stock or the purchase of all or a part of the business of the
Company. The Opinion relates only to the Transaction and does not address the
merits of any other proposal or indication of interest that as of the date of
the Opinion had been or might be received.
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Subject to the foregoing and the other considerations set forth hereafter,
the following is a summary of the material financial analyses performed by
Salomon Brothers in arriving at the opinion that, as of the date of the Opinion,
the cash price of $14.00 per share of Common Stock to be received by the Company
in connection with the Transaction, is fair to the Company from a financial
point of view.
Comparable Transaction Analysis. Salomon Brothers compared the purchase
price per share of the Common Stock pursuant to the Transaction to selected
historical trading prices of the Common Stock. Salomon Brothers analyzed the
percentage difference between the proposed purchase price of $14.00 per share
pursuant to the Transaction and the closing price of the Common Stock one day,
one month, and 40 days prior to July 12, 1997. The purchase price pursuant to
the Transaction represented a 24.4%, 31.0%, and 72.3% premium to the Common
Stock price one day, one month, and 40 days prior to July 12, 1997,
respectively. Salomon Brothers compared these premiums with a group of 374 past
strategic minority stake investments from 1987 to 1997 (281 from 1992 to 1997).
Without consideration of qualitative factors, Salomon Brothers found that
premiums paid for a comparable minority stake during the period of 1987 to 1997
ranged from 25.5% (one day prior to the announcement) to 35.2% (one month prior
to the announcement).
Comparable Company Analysis. Salomon Brothers compared selected financial
ratios for the Company with a group of ten publicly traded companies in the
assisted living industry that Salomon Brothers considered to be reasonably
comparable to the Company for purposes of its analysis. The companies considered
were (i) Alternative Living Services, Inc., (ii) Assisted Living Concepts, Inc.,
(iii) Atria Communities, Inc., (iv) CareMatrix Corporation, (v) Emeritus
Corporation, (vi) Karrington Health, Inc., (vii) Kapson Senior Quarters Corp.,
(viii) Regent Assisted Living, Inc., (ix) Sterling House Corporation, and (x)
Sunrise Assisted Living, Inc. (collectively, the "Comparable Companies").
Salomon Brothers selected Comparable Companies on the basis of various factors,
including the size of the public company and similarity of the line of business;
however, no public company or transaction utilized as a comparison is identical
to the Company or the Transaction. Salomon Brothers noted that the valuation
data for the assisted living industry is limited and highly scattered reflecting
the short and variable earnings records for most of the companies in the
industry. Accordingly, the analysis described below is not purely mathematical
but rather involves complex considerations and judgments concerning differences
in historical and projected financial and operating characteristics of the
Company and the Comparable Companies and other factors that could affect public
trading value. As a result, Salomon Brothers noted that, in its view, the
comparable company analysis was of somewhat limited utility.
For the Company and each of the Comparable Companies, Salomon Brothers
calculated, among other things, multiples of the price per share of common stock
(as of July 11, 1997) to the estimated calendar year 1998 earnings per share
(based on published research reports of certain analysts covering the Company
and the Comparable Companies as reported by First Call Data Corporation ("First
Call") as of July 11, 1997), and "Firm Value" (all fully diluted shares at the
current stock price less any option proceeds, plus straight debt, minority
interest, straight preferred stock, all out-of-the-money convertibles, less
investments in unconsolidated affiliates and cash) to such company's latest
twelve months average earnings measured before interest, taxes, depreciation and
amortization ("EBITDA").
Taking into account the Company's financial performance relative to the
Comparable Companies, Salomon Brothers derived a reference range of market price
per share to estimated calendar year 1998 earnings per share of 15.0x to 33.2x
and Firm Value to latest twelve months EBITDA of 21.0x to 26.0x. Using such
derived range of multiples, Salomon Brothers derived an implied equity value per
share of Common Stock for the Company of $9.20 to $13.55 as compared to its most
recent per share stock price of $11.25 and the proposed per share purchase price
of $14.00 per share.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Salomon Brothers estimated the present value of the future cash flows that the
Company could produce over a five-year period from 1997 through 2001, if the
Company were to perform on a stand-alone basis without giving effect to the
infusion of cash from the Transaction in accordance with forecasts developed by
management of the Company, and certain variants thereof. Salomon Brothers
determined certain equity market value reference ranges for the Company based
upon the sum of (i) the aggregate discounted value (using various discount rates
ranging
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from 11.0% to 13.0%) of the five-year unleveraged free cash flows of the Company
plus (ii) the discounted value (using various discount rates ranging from 11.0%
to 13.0%) of the product of (a) the final year's projected EBITDA multiplied by
(b) numbers representing various terminal or exit multiples (ranging from 7.0x
to 9.0x). This analysis resulted in an equity value reference range per share of
the Common Stock of $8.82 to $17.62, from which Salomon Brothers determined that
a range of $10.89 to $15.29 per share was the most reasonable range.
In arriving at its Opinion and in preparing the Report, Salomon Brothers
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of the analyses performed by Salomon Brothers. In addition, Salomon
Brothers believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered by it, without
considering all such analyses and factors, could create an incomplete view of
the process underlying its analyses set forth in the Opinion and the Report. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description.
In performing its analyses, Salomon Brothers made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company. Any estimates contained in such analyses are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less than such estimates. Actual values will depend upon
several factors, including events affecting the long-term care industry, general
economic, market and interest rate conditions and other factors which generally
influence the price of securities.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Board
selected Salomon Brothers to act as its financial advisor on the basis of
Salomon Brothers's international reputation and Salomon Brothers's familiarity
with the Company and the assisted living industry. In the ordinary course of its
business, Salomon Brothers actively trades the securities of the Company for
Salomon Brothers's own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In connection with the Transaction, Salomon Brothers provided certain
investment banking services to the Company, including the introduction of the
Company to Prometheus, rendering structuring advice, and assisting the Company
with the negotiations with Prometheus. In addition, Salomon Brothers was engaged
to deliver the Report and render the Opinion to the Board. Pursuant to a letter
agreement dated June 27, 1997, between the Company and Salomon Brothers the
Company agreed to pay Salomon Brothers for such services as follows: (i)
$100,000 upon the execution of the definitive Purchase Agreement and (ii) an
amount equal to 3.00% (less such $100,000) of the total proceeds and other
consideration paid or received or to be paid or received in connection with the
Transaction. Such latter amounts are payable to Salomon Brothers as of the
closing date of each portion of the Transaction, based upon the amount actually
invested in the Company on each closing date. To date, the Company has not paid
any of the amounts due under the letter agreement. The Company also agreed to
reimburse Salomon Brothers for its out-of-pocket expenses (in an amount not to
exceed $30,000 without Board approval), including fees and disbursements of
counsel, and to indemnify Salomon Brothers and its affiliates, their respective
directors, officers, partners, agents and employees and each person, if any,
controlling Salomon Brothers or any of its affiliates against certain
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
Salomon Brothers has provided services to the Company and to entities
related to the Company, including acting as a representative of the underwriters
in the initial public offering of Common Stock in October 1995 and as the
initial purchaser in the Company's offering of 6 3/4% Convertible Subordinated
Notes due 2006 in March 1996, and may in the future provide services to the
Company or such other entities. Salomon Brothers has received or expects to
receive customary compensation for such services.
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<PAGE> 35
As noted under the caption "Approval of the Transaction -- Recommendation
of the Board; Factors and Conclusions of the Board Involved in Its
Determination," the fairness opinion of Salomon Brothers was only one of many
factors considered by the Board in arriving at its determination to approve the
Transaction.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the Company and its shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
The Board believes that the Transaction is in the best interests of the
Company and its shareholders because, if consummated, it represents an
attractive opportunity to improve long-term shareholder value by providing the
Company with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to it,
thereby enhancing the Company's short-term and long-term growth prospects and
positioning it to better capitalize on assisted living facility opportunities in
the United States. See "-- Potential Beneficial Effects of the Transaction"
above.
While the Board believes that the Transaction is in the best interests of
the Company and its shareholders, the consummation of the Transaction may have
certain adverse effects that shareholders should consider. These considerations
include (i) the substantial amount of stock that will be concentrated in one
shareholder of the Company, as well as certain rights being granted to
Prometheus in connection with the Transaction (including rights with respect to
Board representation and information), which rights will allow Prometheus to
exercise substantial influence over the affairs of the Company even during the
Standstill Period and might discourage other persons from offering to acquire a
significant interest in the Company, (ii) the possibility that Prometheus will
gain control of the Company if the Standstill Period terminates, and (iii) the
possible dilution of earnings per share to shareholders as a result of the
Transaction. See "-- Potential Adverse Effects of the Transaction" above.
In reaching its determination that the Transaction is in the best interests
of the Company and its shareholders, the Board considered the following material
factors in addition to those discussed above under "Potential Beneficial Effects
of the Transaction" and "Potential Adverse Effects of the Transaction."
Substantial Shareholder. The Board considered that, as a result of the
Transaction, Prometheus will be the largest single shareholder of the Company,
owning as much as 49.9% of the outstanding Common Stock on an Adjusted Fully
Diluted Basis. The Board considered that Prometheus also will have substantial
information rights, the right to nominate Board members, and numerous other
rights as set forth above in "-- Terms of the Transaction." Although the Board
believes that this concentration of ownership in one shareholder could
potentially be disadvantageous to the other shareholders' interests, the Board
also believes that certain provisions of the Stockholders Agreement should
reduce, to some extent, the impact of such concentration of ownership by
imposing various limitations on Prometheus with regard to its ownership,
transfer and voting of Common Stock, including (i) provisions that prohibit
Prometheus from acquiring greater than 49.9% of the Company's Common Stock on an
Adjusted Fully Diluted Basis, (ii) provisions that limit to four the number of
directors nominated to the Board by Prometheus during the Standstill Period, and
(iii) provisions that restrict Prometheus from transferring shares of Common
Stock except in accordance with applicable securities laws and subject to
restrictions against transferring shares to Assisted Living Companies. While the
Board recognized the potentially negative aspects of the concentration of
substantial ownership in a single shareholder, the Board believes that, on
balance, the potentially negative aspects are outweighed by the potential
benefits of obtaining in a timely way such a large amount of capital at a
reasonable cost, the indirect affiliation with Prometheus and the other
potential benefits of the Transaction.
Impact on Other Investments. The Board believes that the limitations on the
Company's ability to engage in certain corporate actions without the approval of
a supermajority of the Board or four out of five members of the Executive
Committee, and the composition of the Board following the shareholder approval
of the Transaction (and thereafter), might discourage other persons from
offering to acquire a significant interest in the Company (or all or a
significant interest in the assets of the Company). As a result, the Board
considers
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<PAGE> 36
this to be a negative factor. However, the Board believes that this factor is
outweighed by the positive factors outlined above.
The members of the Board evaluated the factors referred to above in light
of their knowledge of the business and operations of the Company, their business
judgment and the advice of Salomon Brothers. In view of the wide variety of
factors considered in connection with the Board's evaluation of the Transaction,
the Board did not find it practicable to, and did not, quantify or attempt to
assign relative weights to the specific factors considered in reaching its
determination.
BENEFICIAL OWNERSHIP OF COMMON STOCK PRIOR TO AND AFTER THE TRANSACTION
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock outstanding as of the Record Date and
immediately following the final Subsequent Closing of the Transaction (assuming
that an aggregate of 7,732,313 shares are issued pursuant to the Second Closing
and the Subsequent Closings), by (i) each person or group known to the Company
who owns or who will own more than 5% of the outstanding shares of Common Stock,
and (ii) each of the directors and the executive officers of the Company. Unless
otherwise indicated in the footnotes, all of such interests are owned directly,
and the indicated person has sole voting and investment power. The number of
shares represents the number of shares of Common Stock the person holds,
including shares that may be issued upon the exercise of options that are
exercisable within 60 days of the Record Date. Information presented in the
table and related notes has been obtained from the beneficial owner and/or from
reports filed by the beneficial owner with the Securities and Exchange
Commission pursuant to Section 13 of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY OWNED ADJUSTED FOR SUBSEQUENT
ON AUGUST 19, 1997 CLOSINGS
----------------------------- ------------------------------
AMOUNT AND NATURE PERCENT AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF OF BENEFICIAL OF OF BENEFICIAL OF
BENEFICIAL OWNERS OWNERSHIP CLASS OWNERSHIP CLASS
- --------------------------------------- ----------------- ------- ----------------- -------
<S> <C> <C> <C> <C>
Prometheus Assisted Living LLC......... 1,921,012 16.6% 9,653,325 49.9%
Thirty Rockefeller Plaza
63rd Floor
New York, NY 10020
Morgan Stanley Dean Witter, Discover &
Co.(1)............................... 961,297 8.3% 961,297 5.0%
1585 Broadway
New York, NY 10036
Ardsley Advisory Partners(2)........... 730,000 6.3% 730,000 3.8%
646 Steamboat Road
Greenwich, CT 06836
Wellington Management Company, LLP(3).. 641,356 5.5% 641,356 3.3%
75 State Street
Boston, MA 02109
Scudder, Stevens & Clark, Inc(4)....... 592,900 5.1% 592,900 3.1%
345 Park Avenue
New York, NY 10154
Gary L. Davidson(5)(6)................. 1,003,521 8.6% 1,003,521 5.2%
John A. Booty(5)(7).................... 699,246 6.0% 699,246 3.6%
David P. Collins(5)(8)................. 558,939 4.8% 558,939 2.9%
Graham P. Espley-Jones(9).............. 274,964 2.4% 274,964 1.4%
Sheila M. Muldoon(10).................. 3,500 * 3,500 *
Eric K. Davidson(11)................... 14,538 * 14,538 *
R. Bruce Andrews(12)................... 2,500 * 2,500 *
Maurice J. DeWald(12).................. 3,500 * 3,500 *
James M. Peters(12).................... 2,500 * 2,500 *
John J. Rydzewski(12)(13).............. 7,500 * 7,500 *
All directors and executive officers as
a group (10 persons)................. 2,570,708 21.8% 2,570,708 13.2%
</TABLE>
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<PAGE> 37
- ---------------
* Less than 1%
(1) Morgan Stanley, Dean Witter, Discover & Co. ("Morgan Stanley"), a Delaware
corporation and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of 961,297 shares
of the Common Stock of the Company. Accounts managed on a discretionary
basis by wholly-owned subsidiaries of Morgan Stanley, including Miller
Anderson & Sherred LLP, a Delaware limited liability partnership and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, are known to have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from, the sale of such
securities. No such account holds more than 5 percent of the class.
(2) Ardsley Advisory Partners, a Connecticut general partnership ("Ardsley"),
is an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, as amended. Philip J. Hempleman ("Mr. Hempleman") is
the managing partner of Ardsley. The shares of the Company are held in
discretionary accounts managed by Ardsley and Mr. Hempleman (including
accounts of certain clients, including investment partnerships for which
(i) Ardsley serves as the management company and (ii) a general partnership
comprised of the partners that comprise Ardsley serves as general partner).
As a result of their roles as investment advisor, Ardsley and Mr. Hempleman
may be deemed to be the beneficial owners of the shares of the Company held
in such discretionary accounts. Each client for whose account Ardsley had
purchased shares of the Company has the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of,
such shares purchased for his account.
(3) Wellington Management Company, LLP, a Massachusetts limited liability
partnership ("Wellington"), an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, may be deemed to beneficially
own 641,356 shares of the Common Stock of the Company which are held of
record by clients of Wellington. Those clients have the right to receive,
or the power to direct the receipt of, dividends from, or the proceeds from
the sale of, such securities. The shares of Common Stock were acquired by
Wellington Trust Company, NA, a wholly owned subsidiary of Wellington and a
bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934.
Wellington has shared power to vote or direct to vote of 265,500 shares of
the Common Stock of the Company, and shared power to dispose or to direct
the disposition of 641,356 shares.
(4) Scudder, Stevens & Clark, Inc., a Delaware corporation, an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, has sole power to vote or to direct the vote of 259,400 shares of the
Common Stock of the Company, shared power to vote or to direct the vote of
228,200 shares, and sole power to dispose or to direct the disposition of
592,900 shares.
(5) Excludes 402,257 shares owned of record by the Company's employee stock
ownership plan (the "ESOP"), of which Messrs. Gary Davidson, Booty and
Collins are trustees.
(6) Of the 1,003,521 shares beneficially owned by Mr. Gary Davidson, 593,029
are held of record by the Davidson Family Partnership, 343,102 shares are
held by the Gary L. Davidson Funded Revocable Living Trust, and the
remaining 67,390 shares are subject to options exercisable within 60 days
of August 19, 1997. Excludes 9,423 shares beneficially owned by Mr. Gary
Davidson held of record by the ESOP as of August 19, 1997.
(7) Of the 699,246 shares beneficially owned by Mr. Booty, 107,773 are held of
record by the Booty-Jones Family Partnership (of which Mr. Booty is the
managing partner and holds a pecuniary interest equal to 1% thereof),
418,028 shares are held by the Booty Family Trust (as to which Mr. Booty
has shared voting and investment power), 750 shares are held in Mr. Booty's
name alone, 69,500 shares are owned by the Karen A. Booty Charitable
Remainder Trust of which Mr. Booty has sole voting and investment power,
and the remaining 69,500 shares are owned by the John A. Booty Charitable
Remainder Uni Trust (of which Mr. Booty has sole voting and investment
power), and the remaining 33,695 shares are subject to options exercisable
within 60 days of August 19, 1997. Excludes 9,423 shares beneficially owned
by Mr. Booty held of record by the ESOP as of August 19, 1997.
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<PAGE> 38
(8) Of the 558,939 shares beneficially owned by Mr. Collins, 98,678 are held of
record by the D & V Collins Family Limited Partnership (as to which Mr.
Collins has shared voting and investment power), 408,591 shares are held by
the Collins Family Community Property Trust (as to which Mr. Collins has
shared voting and investment power), 11,978 shares are held by the David P.
Collins Annuity Trust, and the remaining 39,692 shares are subject to
options exercisable within 60 days of August 19, 1997. Excludes 8,531
shares beneficially owned by Mr. Collins held of record by the ESOP on
August 19, 1997.
(9) Of the 274,964 shares beneficially owned by Mr. Espley-Jones, 22,412 shares
are subject to options exercisable within 60 days of August 19, 1997.
Excludes 5,372 shares beneficially owned by Mr. Espley-Jones held of record
by the ESOP as of August 19, 1997.
(10) Of the 3,500 shares beneficially owned by Ms. Muldoon, 1,000 are held of
record by Charles Schwab & Co. Inc. IRA Rollover and 2,500 shares are
subject to options exercisable within 60 days of August 19, 1997.
(11) Of the 14,538 shares beneficially owned by Mr. Eric Davidson, 4,000 are
held of record by Eric K. Davidson UTA Fidelity 401(k) and 103 are held by
Eric K. Davidson UTA Principal Financial 401(k) and 10,435 shares are
subject to options exercisable within 60 days of August 19, 1997. Excludes
143 shares beneficially owned by Mr. Eric Davidson held of record by the
ESOP on August 19, 1997.
(12) All non-employee directors have options exercisable within 60 days of
August 19, 1997 to purchase 2,500 shares.
(13) 5,000 of the shares beneficially owned by Mr. Rydzewski are held of record
by Merrill Lynch Custodian FBO Benedetto, Gartland & Greene, Inc. SEP FBO
John J. Rydzewski.
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of a majority of the total votes cast by shareholders
other than Prometheus, provided that the number of total votes cast (including
votes cast by Prometheus) represents over 50% of the shares of Common Stock
issued and outstanding, is required to approve the Transaction.
Approval of the Transaction by the requisite vote of the shareholders of
the Company is a condition to consummation of the Transaction (except for the
Initial Closing on 1,921,012 shares of Common Stock on July 23, 1997).
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
29
<PAGE> 39
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
(PROPOSAL 2)
The Board proposes to amend the Company Articles to increase the maximum
number of authorized directors from nine to 11.
The Company Articles currently provide that the number of directors of the
Company must be a minimum of five and a maximum of nine. The authorized number
of directors is currently set at seven. In connection with the Transaction, the
Company has agreed to increase the number of directors to 11, four of whom will
initially be LFREI Nominees. Amending the Company Articles to increase the
maximum number of authorized directors is a condition to the Second Closing of
the Transaction.
The proposal to amend the Company Articles will be voted upon by the
shareholders of the Company separately from Proposal 1 and each of the other
Proposals. HOWEVER, THE APPROVAL OF EACH OF THE TRANSACTION PROPOSALS IS
CONDITIONED UPON APPROVAL OF BOTH OF THE TRANSACTION PROPOSALS BY THE
SHAREHOLDERS OF THE COMPANY. ACCORDINGLY, A VOTE AGAINST THE PROPOSAL TO AMEND
THE COMPANY ARTICLES MAY HAVE THE SAME EFFECT AS A VOTE AGAINST THE TRANSACTION.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
PROPOSAL TO AMEND THE COMPANY ARTICLES.
The foregoing discussion of the amendment to the Company Articles
constitutes a summary of the proposed amendment to the Company Articles. This
summary is qualified by reference to the complete text of the amendment, which
is set forth in the form of the Amendment to Restated Articles of Incorporation,
a copy of which is attached as Appendix D to this Proxy Statement.
30
<PAGE> 40
REINCORPORATION OF THE COMPANY IN DELAWARE
(PROPOSAL 3)
GENERAL
The Board has unanimously approved a proposal to change the Company's state
of incorporation from California to Delaware. The Board believes the
Reincorporation is in the best interests of the Company and its shareholders.
The primary reason for the proposed change in domicile is to cause the
Company to be governed by Delaware law, which over the years has undertaken to
maintain a modern and flexible corporation law which frequently is revised to
meet changing business conditions. As a result, Delaware has become a preferred
domicile for many major United States corporations. Because of Delaware's
significance as the state of incorporation of major corporations, the Delaware
judiciary has become particularly familiar with matters of corporation law, and
Delaware has a well-developed body of court decisions interpreting its law. As a
consequence, Delaware law is comparatively well-known and understood.
A number of changes will be effected as a result of the Reincorporation.
Such changes are described below under the heading "Comparison of Rights of
Shareholders of the Company and Stockholders of the Delaware Company."
The Board estimates the aggregate costs to the Company of Reincorporation
to be approximately $175,000.
In the event this proposal is not adopted, the Company will continue to
operate as a California corporation.
MERGER OF ARV ASSISTED LIVING, INC. INTO NEWLY FORMED DELAWARE SUBSIDIARY
The proposed Reincorporation would be accomplished by merging the Company
into a newly formed Delaware subsidiary, which is currently named ARV Delaware,
Inc. (the "Delaware Company"), pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), substantially in the form which is attached as Appendix E
to this Proxy Statement. The Delaware Company was incorporated in Delaware on
, 1997 specifically for purposes of the Reincorporation and has
conducted no business and has no material assets or liabilities. After
completion of the merger, the Delaware Company will change its name to ARV
Assisted Living, Inc. The Delaware Company's principal executive offices are
located at 245 Fischer Avenue, D-1, Costa Mesa, California 92626, telephone
(714) 751-7400. The Reincorporation would not result in any change in the
Company's business, assets or liabilities and would not result in any relocation
of management or other employees.
CERTAIN CONSEQUENCES OF THE MERGER
Effective Time. The merger will take effect on the later of the times (the
"Effective Time") at which a Certificate of Ownership and Merger is filed with
the Secretary of State of Delaware and Articles of Merger are filed with the
California Department of Corporations, which filings are anticipated to be made
as soon as practicable after the Reincorporation proposal is approved by the
shareholders of the Company. At the Effective Time, the separate corporate
existence of the Company will cease and shareholders of the Company will become
stockholders of the Delaware Company.
Management After the Merger. Immediately after the merger of the Company
into the Delaware Company (the "Merger"), the Board of Directors of the Delaware
Company (the "Delaware Board of Directors") will be composed of the current
members of the Board.
Shareholder Rights. Certain differences in stockholder rights exist under
California General Corporation Law (the "CGCL") and Delaware General Corporation
Law (the "DGCL") and the organization documents of the Company and the Delaware
Company. See "Comparison of Rights of Shareholders of the Company and
Stockholders of the Delaware Company" for a discussion of the effects of these
and other differences between the rights of stockholders under the CGCL and the
DGCL.
31
<PAGE> 41
Conversion of Common Stock. As a result of the Reincorporation, each
outstanding share of Common Stock will automatically be converted into one share
of Delaware Company Common Stock. Other than changes due to the differences
between California and Delaware law and certain differences between the Company
Articles and Company Bylaws and the Delaware Company Certificate and Delaware
Company Bylaws (each as defined below) (see "Comparison of Rights of
Shareholders of the Company and Stockholders of the Delaware Company"), there
will be no material changes in the rights and obligations of holders of the
Common Stock as a result of the Reincorporation. The Delaware Common Stock will
be listed on Nasdaq under the same symbol as the Company's Common Stock.
Number of Shares of Common Stock Outstanding. The number of outstanding
shares of Delaware Common Stock immediately following the Reincorporation will
equal the number of shares of Common Stock of the Company outstanding
immediately prior to the Effective Time.
Employee Plans. The Company's employee benefit plans (the "Plans"),
including the Company's 1995 Stock Option and Incentive Plan, will each be
continued by the Delaware Company following the Reincorporation. Approval of the
proposed Reincorporation will constitute approval of the adoption and assumption
of the Plans by the Delaware Company.
Outstanding Options. In addition to the assumption by the Delaware Company
of all options outstanding under the Plans, any and all other outstanding
options and other rights to acquire shares of Common Stock will be converted
into options or rights to acquire shares of Delaware Common Stock,.
Federal Income Tax Consequences. The Reincorporation is intended to be tax
free under the Code. Accordingly, no gain or loss will be recognized by the
holders of shares of the Company's Common Stock as a result of the
Reincorporation, and no gain or loss will be recognized by the Company or the
Delaware Company. Each former holder of shares of the Company's Common Stock
will have the same tax basis in the Delaware Common Stock received by such
holder pursuant to the Reincorporation as such holder has in the shares of the
Company's Common Stock held by such holder at the Effective Time. Each
stockholder's holding period with respect to the Delaware Common Stock will
include the period during which such holder held the shares of Common Stock, so
long as the latter were held by such holder as a capital asset at the Effective
Time. The Company has not obtained, and does not intend to obtain, a ruling from
the Internal Revenue Service with respect to the tax consequences of the
Reincorporation.
The Company believes no gain or loss should be recognized by the holders of
outstanding options to purchase shares of Common Stock, so long as (i) such
options (a) were originally issued in connection with the performance of
services by the optionee and (b) lacked a readily ascertainable value (for
example, were not actively traded on an established market) when originally
granted and (ii) the options to purchase the Delaware Common Stock into which
the Company's outstanding options will be converted in the Reincorporation also
lack a readily ascertainable value when issued. Notwithstanding the foregoing,
optionees should consult their own tax advisors regarding the federal income tax
consequences to them of the Reincorporation as well as any consequences under
the laws of any other jurisdiction.
The foregoing is only a summary of certain federal income tax consequences.
Shareholders should consult their own tax advisers regarding the federal tax
consequences of the Reincorporation as well as any consequences under the laws
of any other jurisdiction.
ACCOUNTING TREATMENT OF THE MERGER
Upon consummation of the merger, all assets and liabilities of the Company
will be transferred to the Delaware Company at book value because the
Reincorporation will be accounted for as a pooling of interests.
APPRAISAL RIGHTS
California law provides that shareholders of a corporation involved in a
reorganization are not entitled to dissenters' rights if the corporation, or its
shareholders immediately before the reorganization, or both, own (immediately
after the reorganization) certain equity securities possessing more than
five-sixths of the voting power of the surviving or acquiring corporation or a
parent party. Consequently, because Reincorporation is a
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<PAGE> 42
reorganization in which the shareholders of the Company will own, immediately
after the reorganization, equity securities possessing more than five-sixths of
the voting power of the Delaware Company, appraisal rights are not available to
shareholders of the Company with respect to the Reincorporation.
APPROVAL REQUIRED FOR REINCORPORATION
Under California law, the affirmative vote of a majority of the outstanding
shares of each class of the Company's capital stock entitled to vote on the
proposal is required for approval of the Reincorporation. The Common Stock is
the only class of the Company's capital stock of which shares are outstanding
and entitled to vote on the proposal to approve the Reincorporation. Abstentions
and broker non-votes will have the effect of votes against the proposal to
approve the Reincorporation. The Reincorporation may be abandoned or the Merger
Agreement may be amended (with certain exceptions), either before or after
stockholder approval has been obtained, if in the opinion of the Board,
circumstances arise that make such action advisable.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE COMPANY AND STOCKHOLDERS OF THE
DELAWARE COMPANY
General. Upon consummation of the Merger, the shareholders of the Company
will become stockholders of the Delaware Company, and their rights as
stockholders will be governed by the Delaware Company Certificate and Delaware
Company Bylaws. The Delaware Company Certificate and Delaware Company Bylaws do
not differ in material respects from the Company Articles and Company Bylaws.
However, the rights of Delaware Company stockholders will be governed by the
DGCL, while the rights of the Company shareholders are governed by the CGCL. The
DGCL and the CGCL differ in many respects, and consequently it is not practical
to summarize all of such differences. It should be noted that certain aspects of
the DGCL have been publicly criticized because they do not afford minority
shareholders the same substantive rights and protections as are available under
the CGCL.
The following is a summary of significant differences between the Company
Articles, Company Bylaws and applicable provisions of the CGCL, on the one hand,
that Delaware Company Certificate, Delaware Company Bylaws and applicable
provisions of the DGCL, on the other. This discussion is not intended to be
complete and is qualified in its entirety by reference to Delaware Company
Certificate and Delaware Company Bylaws, attached as Appendices F and G hereto.
Copies of the Company Articles and the Company Bylaws are available for
inspection at the principal executive officers of the Company and copies will be
sent to holders of shares Common Stock upon request.
Directors; Classified Board; Cumulative Voting. Under the Company Articles,
the Board consists of a minimum of five and a maximum of nine directors divided
into two classes (so long as there are seven or eight directors), in which each
director is elected for a two-year term, or three classes (so long as there are
nine directors), in which each director is elected for a three-year term. The
Delaware Company Certificate does not address the number of directors or classes
of the Board. The Delaware Company Bylaws provide that the Delaware Board of
Directors will consist of one or more directors divided into classes as
determined by the Delaware Board of Directors. The DGCL permits, but does not
require, the adoption of a classified Board of Directors with staggered terms,
with each class having a term of office longer than one year but not longer than
three years. Under the CGCL, corporations whose outstanding shares are listed on
the New York Stock Exchange or the American Stock Exchange, and certain
corporations whose outstanding shares are authorized for quotation on the
Nasdaq, are permitted to have a classified board.
Cumulative voting, which enhances the ability of minority stockholders to
elect directors, is not available under the DGCL unless otherwise provided in a
corporation's certificate of incorporation. Under cumulative voting, each
stockholder is entitled to the number of votes equal to the number of shares
owned by the stockholder multiplied by the number of directors to be elected.
All such votes may be case for a single nominee or distributed among several
nominees. In the absence of cumulative voting, the holders of a majority of the
shares present or represented at a meeting to elect directors may elect all
directors, and no director could be elected without the support of a majority of
the stockholders. The Delaware Company Certificate does not provide for
cumulative voting. Under the CGCL, corporations whose outstanding shares are
listed on the New York Stock Exchange or the American Stock Exchange and certain
corporations whose outstanding
33
<PAGE> 43
shares are authorized for quotation on the Nasdaq are permitted to eliminate
cumulative voting. The Company Articles provide for the elimination of
cumulative voting.
Removal of Directors; Filling Vacancies on the Board of Directors. Under
the DGCL, directors generally may be removed, with or without cause, by the
holders of a majority of voting shares. Under the CGCL, a director may be
removed for cause by the directors or a court, upon suit by holders of at least
10% of the outstanding shares. A director also may be removed without cause,
under the CGCL, by the holders of a majority of voting shares, unless the number
of shares voting against removal would be sufficient to elect such director if
voted cumulatively.
Under the Delaware Company Bylaws, any vacancies on the Delaware Board of
Directors may be filled by a majority of the directors then in office whether or
not less than a quorum, or by a sole remaining director. In addition, the
Delaware Company Bylaws provide that a director elected to fill a vacancy on the
Delaware Board of Directors will serve for the unexpired portion of the term of
the director whose place has been filled. Under the DGCL, however, if at the
time of filling any vacancy or newly created directorship, the directors then in
office constitute less than a majority of the entire Board of Directors (as
constituted immediately prior to any increase in their number), the Delaware
Chancery Court may, under certain circumstances, order an election to be held to
fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office.
Under the CGCL, a vacancy created by removal of a director may be filled by
the Board of Directors only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. Under
the Company Bylaws, vacancies on the Board, including those arising from the
removal of a director, may be filled by a majority of directors then in office,
or, if the number of directors then in office is less than a quorum, by (i) the
unanimous written consent of the directors then in office, (ii) the affirmative
vote of a majority of directors then in office at a meeting held pursuant to
notice or waiver of notice complying with California Corporations Code Section
307 or (iii) a sole remaining director. The CGCL provides that if, after the
filling of any vacancy by the directors, the directors then in office who have
been elected by the shareholders shall constitute less than a majority of the
directors then in office, (i) any holder or holders of 5% or more of the
outstanding voting shares may call a special meeting of the shareholders, or
(ii) the California Superior Court of the proper county shall, upon application
of such shareholder or shareholders, summarily order a special meeting of
shareholders, to be held to elect the entire Board of Directors.
Stockholder Action by Written Consent; Special Meetings; Stockholder
Proposals. Unless otherwise provided in the certificate of incorporation,
stockholders of a Delaware corporation may take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to authorize the proposed action at a meeting at which all shares
entitled to vote were present and voted. The Delaware Company Certificate does
not permit stockholder action without a meeting by written consent. The Delaware
Company Bylaws provide that special meetings of stockholders may be called by
the President, or by the President or the Secretary at the request in writing of
a majority of the Delaware Board of Directors, or at the request in writing of
the stockholders owning a majority of the outstanding voting shares.
The Company Articles also do not permit shareholder action by written
consent. The Company Bylaws provide that special meetings of the shareholders
may be called by the Board, the Chairman of the Board, the President or by one
or more shareholders holding shares entitled to cast not less than 10% of the
votes at the meeting.
Under the Company Articles, a shareholder must notify the Secretary of the
Company at least 45 days in advance of the Company's annual meeting of
shareholders in order to (i) bring a proposal before the annual meeting or (ii)
nominate a director for election at the annual meeting. Under the Delaware
Company Certificate, the notice requirement for a stockholder bringing a
proposal before the annual meeting or nominating a director for election at the
annual meeting is 180 days.
Limitation on Directors' Liability. The Delaware Company Certificate
contains certain provisions limiting the personal liability of directors. The
Company Articles also contain certain provisions limiting the
34
<PAGE> 44
personal liability of directors, although in general, the DGCL permits a
corporation to indemnify its directors and officers under a broader range of
circumstances than does the CGCL.
Authorized Capital Stock. The Company Articles authorize the issuance of up
to 100,000,000 shares of Company Common Stock and 10,000,000 shares of Preferred
Stock, of which, at August 19, 1997, 11,584,272 shares of Company Common Stock
were issued, and 1,129,737 shares of Company Common Stock were reserved for
issuance upon exercise of outstanding options and warrants. The Delaware Company
Certificate also authorizes the issuance of up to 100,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock. Authorized but unissued shares
of Delaware Company Common Stock and Delaware Company Preferred Stock are
available for issuance at the discretion of the Delaware Board of Directors
without stockholder approval. Such shares could be issued in the future by the
Delaware Board of Directors in ways that would make more difficult a change in
control of the Delaware Company, such as through a private sale, diluting the
stock ownership of the person seeking to gain control of the Delaware Company.
Any such action could have the effect of deterring an offer for outstanding
Delaware Company Common Stock which might otherwise enable the holders thereof
to earn a premium over the then current market price of such securities.
Dissenters' Rights. Under the CGCL and DGCL, a dissenting shareholder of a
corporation participating in certain transactions may, under varying
circumstances, receive cash in the amount of the fair market value of his shares
(as determined by agreement of the parties or by a court), in lieu of the
consideration he or she would otherwise receive in any such transaction. The
DGCL generally requires such dissenters' rights of appraisal with respect to
mergers and consolidations, but not a sale of assets, unless the corporation's
certificate of incorporation provides otherwise. The DGCL contains certain
exclusions from dissenters' rights requirements, including a merger or
consolidation by a corporation, the shares of which are either listed on a
national securities exchange or held by more than 2,000 stockholders, if the
stockholders receive shares of the surviving corporation or of such a listed or
widely-held corporation. In contrast the CGCL in general affords dissenters'
rights in a share-for-share exchange reorganization, a sale-of-assets
reorganization, or a merger. The exclusions from dissenters' rights in mergers
under the CGCL are somewhat different from those under the DGCL. For example, in
the case of a corporation whose shares are listed on a national securities
exchange, dissenters' rights would nevertheless be available in certain
transactions for any shares with respect to which there are certain restrictions
on transfer, and for any class with respect to which there are certain
restrictions on transfer, and for any class with respect to which the holders of
5% or more of such class claims dissenters' rights. Also, under the CGCL,
shareholders of a corporation involved in a reorganization are not entitled to
dissenters' rights if the corporation, or its shareholders immediately before
the reorganization, or both, own (immediately after the reorganization) certain
equity securities possessing more than five-sixths of the voting power of the
surviving or acquiring corporation or a parent party.
Loans to Directors, Officers and Employees. Under the DGCL, a corporation
may make loans or guarantee the obligations of its officers or other employees
and those of its subsidiaries when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Under the
CGCL, shareholders of a corporation with at least 100 shareholders may approve a
bylaw providing that a disinterested majority of the Board may approve loans and
guarantees to officers without shareholder approval if the Board determines that
such loans may reasonably be expected to benefit the corporation. There is no
such bylaw in the Company Bylaws.
Dividends and Repurchases of Shares; Par Value, Capital and Surplus. The
CGCL dispenses with the concepts of par value of shares as well as statutory
definitions of capital, surplus and the like, while such concepts are retained
under the DGCL. A Delaware corporation may make repurchases or redemptions that
do not impair capital, and may pay dividends out of any surplus account
(generally the stockholders' equity of the corporation less the par value of the
capital stock outstanding) or, if there exists no surplus, out net profits of
the current and preceding fiscal year (after provision for outstanding preferred
stock). To determine the surplus, assets and liabilities may be revalued at
their current fair market value, which may create greater surplus from which to
pay dividends than would the book valuation of assets and liabilities.
35
<PAGE> 45
With certain limited exceptions, distributions to shareholders of a
California corporation (including redemptions, repurchases and dividends, other
than stock dividends) are generally limited either to the amount of the
corporation's retained earnings or to an amount which would leave the
corporation with (i) tangible assets of at least one and one quarter times its
liabilities other than certain deferred liabilities) and (ii) current assets at
least equal to its current liabilities. In addition, the CGCL provides that a
corporation may not make any distribution that would render the corporation
unable to meet its liabilities, nor may such a distribution be made if, as a
result, the excess of the corporation's assets over its liabilities would be
less than the liquidation preference of all shares having a preference on
liquidation over the class or series to which the distribution is made. The CGCL
does not permit the revaluation of assets from book value to their current fair
market value.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of each class
of the Company's capital stock entitled to vote at the Annual Meeting is
required to approve the Reincorporation proposal. Abstentions and broker
non-votes will have the effect of votes against the Reincorporation proposal.
The persons named as proxies in the accompanying form of proxy intend to vote in
favor of Reincorporation. A vote FOR the Reincorporation proposal will
constitute approval of (i) the change in the Company's state of incorporation
through a merger of the Company into the Delaware Company, (ii) the Delaware
Company Certificate, (iii) the Delaware Company Bylaws, and (iv) all other
aspects of the Reincorporation proposal. If the Transaction Proposals and
Proposal 3 are approved, the Delaware Company Certificate shall supersede the
Company Articles (as amended pursuant to Proposal 2) and the Delaware Company
Bylaws shall be amended in accordance with the provisions of the Stock Purchase
Agreement and the Stockholders Agreement.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL TO
REINCORPORATE THE COMPANY IN THE STATE OF DELAWARE.
ELECTION OF DIRECTORS
(PROPOSAL 4)
GENERAL
The Company Articles currently provides that the Board will consist of a
minimum of five and maximum of nine directors, and that at such time as the
Company becomes a listed corporation within the meaning of Section 301.5 of the
California Corporations Code, the directors will be divided into two classes (so
long as there are eight or less directors on the Board) or three classes (so
long as there are nine directors on the Board). The authorized number of
directors is currently fixed at seven.
In May 1997, upon the Company becoming a listed corporation as defined in
Section 301.5 of the California Corporations Code, the Board was divided into
two classes, the first of which (the "Class A Directors") consists of John A.
Booty, James M. Peters and R. Bruce Andrews and the second of which (the "Class
B Directors") consists of Gary L. Davidson, David P. Collins, Maurice J. DeWald
and John J. Rydzewski. The initial term of each of the Class A Directors and
Class B Directors expires on the date of the Annual Meeting.
Each of the seven current Class A Directors and Class B Directors was
elected to his present term of office by the shareholders of the Company and
each is a nominee for election at the Annual Meeting. The Class A Directors
elected at the Annual Meeting will hold office until the annual meeting of
shareholders in 1998, and the Class B Directors will hold office until the
annual meeting of shareholders in 1999.
If any nominee for director should be unable or decline to serve, the
authority provided in the proxy to vote for the election of directors will be
exercised to vote for a substitute or substitutes. As of the date of this Proxy
Statement, management has no knowledge that any of the nominees will be unable
or will decline to serve. None of the nominees has any family relationship among
themselves. Mr. Gary Davidson is the father of Eric K. Davidson, Senior Vice
President of the Company. The Company Articles and Company Bylaws
36
<PAGE> 46
contain provisions eliminating or limiting the personal liability of directors
for violations of a director's fiduciary duty to the extent permitted by
California law.
INFORMATION CONCERNING NOMINEES TO THE BOARD
Set forth below are the names and descriptions of the backgrounds of the
nominees for election as Directors of the Company, who also constitute the
current Board. Each of the nominees first became a Director of the Company in
the year set forth below and has continually served as a Director since that
date.
NOMINEES FOR ELECTION TO SERVE UNTIL 1998 (CLASS A NOMINEES)
<TABLE>
<CAPTION>
YEAR FIRST BECAME
A DIRECTOR OF
NAME AGE POSITION THE COMPANY
- ------------------ --- ----------------------------------------- -----------------
<S> <C> <C> <C>
John A. Booty 59 Vice Chairman of the Board and Director 1985
R. Bruce Andrews 57 Director 1995
James M. Peters 62 Director 1995
</TABLE>
JOHN A. BOOTY. In 1980, with Mr. Davidson and others, Mr. Booty founded the
predecessor to the Company, and served as President of the Company since its
inception in 1985 through September 30, 1996, when he retired. Mr. Booty
received a Bachelor's Degree at the University of California at Berkeley, from
which he also holds a Master's Degree in Business Administration. Prior to
founding the Company, Mr. Booty was with Ford Motor Company Aeronutronics,
Development Research Associates, and Booz Allen and Hamilton, of which Mr. Booty
was a Vice-President.
R. BRUCE ANDREWS. Mr. Andrews has served as President and Chief Executive
Officer of Nationwide Health Properties, Inc. since September 1989 and a
director of that company since October 1989. Mr. Andrews had previously served
as a director of American Medical International, Inc., a hospital management
company, and served as its Chief Financial Officer from 1970 to 1985 and its
Chief Operating Officer in 1985 and 1986. Mr. Andrews is also a director of
Alexander Haagen Properties, Inc.
JAMES M. PETERS. Mr. Peters was the founder of the J.M. Peters Company (an
American Stock Exchange listed company), a California-based home building firm.
Mr. Peters served as President and Chief Executive Officer of the J.M. Peters
Company from its inception in 1975 until his retirement in 1992. During his
career, Mr. Peters has been responsible for building and marketing more than
12,000 housing units. Mr. Peters is a principal of the Peters -- Hover Company,
Inc. and serves as a member of the Board of Trustees of the UCLA Foundation.
NOMINEES FOR ELECTION TO SERVE UNTIL 1999 (CLASS B NOMINEES)
<TABLE>
<CAPTION>
YEAR FIRST BECAME
A DIRECTOR OF
NAME AGE POSITION THE COMPANY
- ------------------- --- ----------------------------------------- -----------------
<S> <C> <C> <C>
Gary L. Davidson 63 Chairman of the Board, President, Chief 1985
Executive Officer and Director Senior
David P. Collins 59 Executive Vice President and Director 1985
Maurice J. DeWald 57 Director 1995
John J. Rydzewski 44 Director 1995
</TABLE>
GARY L. DAVIDSON. In 1980, with Mr. Booty and others, Mr. Davidson founded
the predecessor to the Company, and has served as Chairman of the Board and
Chief Executive Officer since its inception in 1985. Since October 1, 1996, Mr.
Davidson has also acted as President of the Company. Mr. Davidson, an attorney
(inactive), received his Bachelor's Degree and his Juris Doctor Degree from the
University of California at Los Angeles. Mr. Davidson was co-founder and first
president of both the American Basketball and the World Hockey Associations, and
also founded and served as the first commissioner and president of the World
Football League. In 1994, Sports Illustrated honored him as one of the forty
most influential persons in sports
37
<PAGE> 47
over the past forty years. Mr. Davidson is the father of Eric K. Davidson,
Senior Vice President of the Company.
DAVID P. COLLINS. Mr. Collins, Senior Executive Vice President, has served
the Company in several capacities since 1981. He is currently in charge of ARV
Assisted Living International, Inc., a wholly owned subsidiary of the Company.
Prior to that he was in charge of Investor Relations and was responsible for
capital formation for the Company and for affiliated entities. Prior to 1981,
Mr. Collins was active in international finance. Mr. Collins received his
Bachelors Degree from St. Anselm College, Manchester, New Hampshire.
MAURICE J. DEWALD. Mr. DeWald is Chairman and Chief Executive Officer of
Verity Financial Group, Inc. which he founded in 1992. Previously, Mr. DeWald
was a Managing Partner and served on the Board of Directors of KPMG Peat
Marwick. Mr. DeWald is currently a director of Tenet Healthcare Corporation,
Dai-Ichi Kangyo Bank of California and Monarch Funds. Mr. DeWald received a
B.B.A. Degree from the University of Notre Dame and serves on its School of
Business Administration Advisory Council.
JOHN J. RYDZEWSKI. Mr. Rydzewski is an investment banker specializing in
health care finance and has been a principal of Benedetto, Gartland & Company,
Inc. (formerly Benedetto, Gartland and Greene, Inc.) since 1993. Mr. Rydzewski
served as Executive Vice-President and Chief Financial Officer in 1992 for Four
Winds, Inc. He also served as a Vice President in the Health Care Finance group
of Kidder, Peabody & Co. Incorporated from 1986 to 1992. He has served as a
director of United Medical Corporation and Maxim Healthcare Corporation. Mr.
Rydzewski is a Certified Public Accountant and received a Master of Business
Administration and a Bachelor of Science Degree from the Wharton School of the
University of Pennsylvania.
VOTE
Directors will be elected by a favorable vote of a plurality of the shares
of voting stock present and entitled to vote, in person or by proxy, at the
Annual Meeting. Accordingly, abstentions or broker non-votes as to the election
of directors will not affect the election of the candidates receiving a
plurality of the votes. Absent written instructions to the contrary, proxies
representing shares of the Company's Common Stock will be voted FOR the election
of each of the persons listed above as Directors of the Company in the class
indicated.
CHANGE IN BOARD STRUCTURE UPON APPROVAL OF THE TRANSACTION PROPOSALS
If the Transaction Proposals are approved, (i) the authorized number of
directors will be increased to 11, (ii) the Board will be divided into three
classes and (iii) four Prometheus Nominees will be appointed to the Board, with
at least one Prometheus Nominee in each class of directors. In order to create
three classes of the Board with at least one Prometheus Nominee in each class,
certain of the existing Class A Directors will be redesignated as Class B
Directors and certain of the existing Class B Directors will be redesignated as
Class C Directors.
INFORMATION ON COMMITTEES OF THE BOARD AND MEETINGS
The Board established a Compensation Committee and an Audit Committee at or
about the time of the initial public offering of the Company's common stock in
October 1995. The Company currently has no Nominating Committee and the full
Board selects nominees for election of directors.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for directors and executive officers, administers the 1995 Stock
Option and Incentive Plan (the "1995 Stock Option Plan") and recommends policies
relating to benefit plans. The Compensation Committee consists of John J.
Rydzewski, Maurice J. DeWald and James M. Peters. Mr. Peters is the current
Chairman of the Committee. The Compensation Committee met six times during
fiscal 1997 and all members were in attendance.
The Audit Committee reviews the Company's accounting practices, internal
accounting controls and financial results and oversees the engagement of the
Company's independent auditors. The Audit Committee consists of Maurice J.
DeWald, R. Bruce Andrews and John J. Rydzewski. Mr. Dewald is the current
38
<PAGE> 48
Chairman of the Committee. The Audit Committee met four times in fiscal 1997 and
all members were in attendance.
During fiscal 1997, there were four meetings of the Board and all directors
attended at least 75% of the meetings of the Board.
COMPENSATION OF DIRECTORS
Non-employee directors receive $12,000 per year, paid quarterly in advance,
and $500 for each meeting of the Board or committee of the Board that they
attend. In October 1995, the Company established the 1995 Stock Option Plan
which provides, among other things, that each non-employee director who is
initially elected or appointed to the Board will, upon such election or
appointment, be automatically granted an option to purchase 10,000 shares of
Common Stock, vesting at the rate of 2,500 per year measured from the date of
grant, at an exercise price equal to the fair market value of the Common Stock
on the date of grant. In addition, every fourth year following the date on which
such non-employee director is elected or appointed, on the date of the annual
meeting of the shareholders of the Company, if such person has continuously
served as a non-employee director, such non-employee director shall
automatically receive an option to purchase 10,000 shares of Common Stock, at an
exercise price equal to the fair market value of the Common Stock on the date of
grant, vesting at the rate of 2,500 per year measured from the date of grant.
THE COMPANY'S EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of September 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------- --- --------------------------------------------------------------
<S> <C> <C>
Gary L. Davidson 63 Chairman of the Board, President, Chief Executive Officer and
Director
David P. Collins 59 Senior Executive Vice President and Director
Graham Espley-Jones 37 Executive Vice President and Chief Financial Officer
Sheila M. Muldoon 41 Vice President, Secretary and General Counsel
Eric K. Davidson 35 Senior Vice President
</TABLE>
For a description of the backgrounds of Messrs. Gary Davidson and Collins,
see "Proposal to Elect the Company's Directors -- Information Concerning
Nominees to the Board." The biographical information for Mr. Espley-Jones, Ms.
Muldoon and Mr. Eric Davidson are set forth below.
GRAHAM P. ESPLEY-JONES. Mr. Espley-Jones has served as Chief Financial
Officer of the Company since 1989, and prior to that time served the Company as
Director of Finance. Mr. Espley-Jones graduated from Pepperdine University with
a Master's Degree in Business Administration and from San Diego State University
with a Bachelor's Degree in Business Administration. Prior to joining the
Company in 1988, he served as the Controller for the real estate division of
First California Savings Bank. Mr. Espley-Jones serves on the Executive Board of
the American Senior Housing Association.
SHEILA M. MULDOON. Ms. Muldoon has acted as the Company's General Counsel
since April 1996, and prior to that time was employed as Assistant General
Counsel since September 1994. Prior to joining the Company, Ms. Muldoon was the
General Counsel of Osprey Financial Group, Inc. From 1990 to 1993, she worked
with the FDIC as a Senior Attorney in the Real Estate Section of the Legal
Division. Prior to that time, Ms. Muldoon was a partner in the San Diego law
firm of Higgs, Fletcher & Mack. Ms. Muldoon did her undergraduate work at the
University of Notre Dame, and received her law degree from The Hastings College
of the Law.
ERIC K. DAVIDSON. Mr. Eric Davidson, the son of Chairman, President and CEO
Gary L. Davidson became the Senior Vice President of the Company in charge of
acquisitions in April 1996. He has been employed by the Company since September
of 1994. Prior to that time, Mr. Davidson was a real estate broker with Cushman
& Wakefield for more than nine years, specializing in commercial real estate
transactions. Mr. Davidson is a graduate of U.C. Berkeley.
39
<PAGE> 49
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation paid by the Company in the fiscal years ended 1997, 1996 and 1995
to the Company's Chief Executive Officer and the Company's four next most highly
compensated executive officers as of March 31, 1997 whose annual salary and
bonus exceeded $100,000 and John A. Booty, former President who retired
September 30, 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION OTHER
NAME AND -------------------------- AWARDS OF COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS STOCK OPTIONS(1) (2)(3)(4)
- ----------------------------------------- ---- -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Gary L. Davidson, 1997 $272,414 $ 84,634 10,000 $ 8,483
Chairman, CEO and President 1996 263,100 140,785 101,085 15,476
1995 250,250 148,575 -- 49,918
John A. Booty, 1997 136,207 50,582 -- 6,426
former President (retired 1996 263,100 140,785 33,695 13,274
September 30, 1996)(5) 1995 250,250 148,575 -- 49,918
David P. Collins 1997 204,791 63,329 10,000 3,474
Senior Executive Vice President 1996 186,132 120,062 59,539 3,971
1995 229,968 70,043 -- 33,608
Graham P. Espley-Jones, 1997 193,882 -- 10,000 7,226
Executive Vice President and 1996 166,000 33,000 33,618 12,485
Chief Financial Officer 1995 135,500 56,610 -- 33,228
Sheila M. Muldoon, 1997 156,981 7,000 20,000 2,624
Vice President, General Counsel 1996 112,000 21,500 10,000 --
and Secretary(6) 1995 51,667 3,000 -- --
Eric K. Davidson, 1997 132,230 6,167 20,000 5,741
Senior Vice President(7) 1996 96,667 20,000 30,655 5,827
1995 75,141 -- -- 8,677
</TABLE>
- ---------------
(1) Options have been granted to each of the Named Executive Officers as more
fully described in "-- Option Grants in Last Fiscal Year" below.
(2) Includes consulting fees from ARV Management, Inc. and ARV Housing Partners,
Inc., former subsidiaries of the Company. Both subsidiaries have been merged
into the Company and all compensation from them were discontinued as of
fiscal 1996. Fees paid by ARV Management, Inc. to the Named Executive
Officers in fiscal year 1995 are as follows: Mr. Gary Davidson -- $30,720;
Mr. Booty -- $30,720; Mr. Collins -- $18,360; and Mr.
Espley-Jones -- $23,000. Fees paid by ARV Housing Partners, Inc. to the
Named Executive Officers in fiscal year 1996 are as follows: Mr. Gary
Davidson -- $6,475; Mr. Booty -- $6,475 and Mr. Espley-Jones -- $11,000.
(3) Also includes premiums for term life, medical, dental and disability
insurance purchased for the benefit of certain of the Named Executive
Officers in the following amounts: Mr. Gary Davidson -- $8,483, $9,001 and
$3,248; Mr. Booty -- $6,426, $6,799 and $3,248; Mr. Collins -- $3,474,
$3,971 and $3,248; Mr. Espley-Jones -- $7,226, $1,485 and $2,948; and Mr.
Eric Davidson -- $5,741, $5,827 and $5,785 for the fiscal years ended March
31, 1997, 1996 and 1995, respectively and $2,624 for fiscal year ended March
31, 1997 for Ms. Muldoon. These amounts represent insurance premiums paid by
the Company beyond what it pays for other similarly situated employees.
(4) Also includes contributions made by the Company or affiliates under the
Company's ESOP for the fiscal year ended March 31, 1995 in the following
amounts: Mr. Gary Davidson -- $15,950; Mr. Booty -- $15,950; Mr.
Collins -- $12,000; Mr. Espley-Jones -- $7,280; and Mr. Eric
Davidson -- $2,892. There were no contributions made in the fiscal years
ended March 31, 1997 and 1996.
40
<PAGE> 50
(5) Mr. Booty retired as President of the Company on September 30, 1996. His
bonus reflects the bonus earned under his employment agreement, but his
salary does not include compensation paid to Mr. Booty as a consultant from
and after his retirement date of September 30, 1996 through March 31, 1997.
Mr. Booty's compensation as a consultant is discussed in "-- Certain
Relationships and Related Transactions."
(6) Ms. Muldoon joined the Company in September of 1994.
(7) Regarding options to purchase Common Stock granted to Mr. Eric Davidson,
options to purchase 30,655 shares were granted at an exercise price of
$15.40 per share, 10% higher than their fair market value as of the date of
grant, October 17, 1995.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding options
granted during fiscal 1997 to the Named Executive Officers pursuant to the 1995
Stock Option Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(1) YEAR(2) PER SHARE DATE 5% 10%
- -------------------------------- ------------ ------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Davidson................ 10,000 2.6% $11.25 10/17/06 $ 70,751 $179,296
John A. Booty(4)................ -- -- -- -- -- --
David P. Collins................ 10,000 2.6% $11.25 10/17/06 70,751 179,296
Graham P. Espley-Jones.......... 10,000 2.6% $11.25 10/17/06 70,751 179,296
Sheila M. Muldoon............... 20,000 5.1% $11.25 10/17/06 141,501 358,592
Eric K. Davidson................ 20,000 5.1% $11.25 10/17/06 141,501 358,952
</TABLE>
---------------
(1) These options were granted for a term of 10 years, subject to termination in
certain events related to termination of employment, and become exercisable
in four annual installments beginning on October 17, 1998.
(2) In fiscal 1997, the Company granted options to purchase an aggregate of
389,000 shares under the 1995 Stock Option Plan and this number was used in
calculating the percentage set forth in this column. During fiscal 1997,
options to purchase 188,390 shares under the 1995 Stock Option Plan were
canceled due to termination of employment.
(3) Assumed rates of stock price appreciation are calculated based on
requirements promulgated by the Securities and Exchange Commission and are
for illustrative purposes only. Actual stock prices will vary from time to
time based upon market factors and the Company's financial performance.
There can be no assurance that the assumed rates of appreciation will be
achieved.
(4) Mr. Booty retired as President of the Company on September 30, 1996, prior
to the granting of options in fiscal 1997.
41
<PAGE> 51
Fiscal Year-End Option Values
None of the Named Executive Officers exercised options during fiscal 1997.
The following table sets forth certain information regarding options held as of
the end of such fiscal year by each of the Named Executive Officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT YEAR-END AT YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Davidson................. -- -- 33,695 77,390 -- --
John A. Booty.................... -- -- 33,695 -- -- --
David P. Collins................. -- -- 19,846 49,693 -- --
Graham P. Espley-Jones........... -- -- 11,206 32,412 -- --
Sheila M. Muldoon................ -- -- -- 30,000 -- --
Eric K. Davidson................. -- -- 2,770 47,885 -- --
</TABLE>
- ---------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities on that date exceeds the exercise price of the option. The amount
set forth represents the difference between the fair market value of the
securities underlying the options on March 31, 1997, based on the last sale
price of $9.75 per share of Common Stock on that date (as reported on the
Nasdaq National Market) and the exercise price of the options, multiplied by
the applicable number of options, without giving effect to the diminution of
value attributable to the restrictions on such stock.
Employment Agreements
The Company entered into employment agreements with the Named Executive
Officers. Employment agreements with Messrs. Davidson, Booty, Collins and
Espley-Jones (referred to collectively as the "Four Executive Officers"),
commenced October 1, 1995 and have an initial termination date of September 30,
1998; however, the employment agreements of Messrs. Davidson, Collins and
Espley-Jones require that each of them be given at least two years' notice prior
to the termination date (Mr. Booty retired from the Company as of September 30,
1996). The agreements require the Four Executive Officers to devote their full
productive time to the Company during the term of the agreements and to refrain
from competing with the Company in the business of assisted living or long-term
healthcare for a period of one year following expiration of the term of the
agreements.
The agreements for the Four Executive Officers include provisions for a
base salary paid on a monthly basis (the "Base Salary"), annual increases in
Base Salary based on increases in the Consumer Price Index, guaranteed bonuses
each quarter equal to 6.25% of Base Salary (the "Minimum Bonus") (Mr.
Espley-Jones does not receive Minimum Bonuses), and additional bonuses no later
than May 1 of each year, determined in the discretion of the Board, based on
earnings of the Company and other criteria as determined by the Compensation
Committee of the Board. No discretionary bonuses were earned by Messrs.
Davidson, Collins and Espley-Jones for fiscal 1997, and Mr. Booty retired as of
September 30, 1996. Each of the Four Executive Officers has also been granted
certain stock options. The Company may terminate any of the Four Executive
Officers without cause by making such individual a cash payment equal to the
greater of (i) one year's Base Salary and, if applicable, Minimum Bonus, or (ii)
the current annual Base Salary and, if applicable, Minimum Bonus divided by 12
and multiplied by the number of remaining months under the employment agreement,
and, in addition, the payment by the Company of premiums of COBRA benefits for
the maximum period of eligibility. Any of the Four Executive Officers
voluntarily terminating his employment with the Company will receive a lump-sum
payment equal to 3 months' Base Salary. The covenant not to compete discussed in
the preceding paragraph is not applicable, however, in the event severance pay
is waived.
The Company has entered into written employment agreements with Ms. Muldoon
and Mr. Eric Davidson (the "Two Executive Officers") commencing April 23, 1997
and terminating April 23, 2000, subject to automatic 1-year extensions unless
they receive written notice at least 30 days prior to termination date of
42
<PAGE> 52
the Company's intent to terminate the agreements. The agreements require the Two
Executive Officers to devote their full productive time to the Company during
the term of the agreement and to refrain from competing with the Company in the
business of assisted living or long-term healthcare for a period of one year
following expiration of the term of the agreement.
The agreements for the Two Executive Officers include provisions for a base
salary paid on a monthly basis (the "Base Salary"), annual increases in Base
Salary as of January 1st and September 16, respectively, and bonuses no later
than December 31 of each year, both as determined at the discretion of the
management of the Company. The Two Executive Officers have also been granted
certain stock options. The Company may terminate the Two Executive Officers
without cause by making them a cash payment equal to three month's Base Salary.
If either of the Two Executive Officers voluntarily terminates employment with
the Company such person will receive a lump-sum payment equal to 3 months' Base
Salary. The covenant not to compete discussed in the preceding paragraph is not
applicable, however, in the event severance pay is waived.
Change in Control Arrangements
In fiscal 1997, the Compensation Committee took action to better assure
that the Named Executive Officers would continue to provide independent
leadership consistent with the Company's best interests in the event of an
actual or threatened change of control of the Company. The employment agreements
of each of the Named Executive Officers provide certain protections in the event
of a change in control. A "change in control" of the Company is defined as a
change in ownership such that any one person, or more than one person acting as
a group, would have possession of more than 50% of the total fair market value
or the total voting power of the capital stock of the Company; or a change in
effective control of the Company such that any one person or more than one
person acting as a group would acquire ownership of capital stock possessing 50%
or more of the voting power of the Company, or a majority of the members of the
Board was replaced during any 12-month period by directors whose appointment or
election was not endorsed by a majority of the members of the Board prior to the
date of such appointment or election; or a change in the ownership of a
substantial portion of the Company's assets such that any one person or more
than one person acting as a group would acquire, within a 12-month period,
assets from the Company having a total fair market value equal to or more than
33 1/3% of the total fair market value of all of the assets of the Company
immediately prior to such acquisitions. Upon any "change in control," the Named
Executive Officers are entitled to receive a lump sum equal to three times the
total compensation received during the immediately preceding calendar year. In
addition, the stock option agreements between the Company and the Named
Executive Officers include a provision authorizing the Compensation Committee to
accelerate vesting of the options, and the Compensation Committee has authorized
such vesting acceleration in the Employment Agreements discussed above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board established the Compensation Committee of the Board (the
"Committee") in November 1995. The Committee consists of three non-employee
directors. The Committee is responsible for administering the Company's 1995
Stock Option and Incentive Plan and administering the Company's executive
compensation programs. The objectives of these programs is to pay competitively
in order to attract qualified personnel given the Company's needs; retain and
motivate these executives to superior performance; link individual compensation
to individual and company performance; and align executives' financial interests
with those of the Company's shareholders.
Basic compensation levels for four of the Named Executives (Messrs. Gary
Davidson, Booty, Collins and Espley-Jones, collectively referred to in this
Report as the "Four Executive Officers") for fiscal year ended March 31, 1997
were set prior to the Company's initial public offering and prior to the
creation of the Committee. As a privately-held company and prior to the creation
of the Committee, the Company's compensation procedures were determined by the
Board of Directors and were informal. Commencing on October 1, 1995, Messrs.
Gary Davidson, Chairman; Booty, President; Collins, Senior Executive Vice
President; and Espley-Jones, Chief Financial Officer, entered into three year
employment agreements with the Company ending September 30, 1998, subject to
automatic renewal unless otherwise notified. During fiscal
43
<PAGE> 53
1997 and in July of 1997, the agreements for Messrs. Gary Davidson, Collins and
Espley-Jones were amended to state that each of the named individuals be given
at least two years' notice prior to the termination date. Mr. Booty retired as
President of the Company on September 30, 1996.
Compensation levels for the remaining two Named Executive Officers, Sheila
M. Muldoon and Eric K. Davidson (collectively, the "Two Executive Officers") are
examined yearly on the anniversary dates of their employment (January 1 and
September 15, respectively). The Company entered into written employment
agreements with the Two Executive Officers commencing April 23, 1997 and
terminating April 23, 2000, subject to automatic one-year extensions unless they
receive written notice at least 30 days prior to the termination date of the
Company's intent not to renew the agreements.
1997 Executive Compensation Components
Executive compensation consists of three components: base salary, bonus and
long-term incentive awards. The Company also relies on the recommendations of
the Chairman and President in matters related to the individual performance of
the employees of the Company, other than the Four Executive Officers, because
the Committee believes they are the most qualified to make this assessment.
Base Salary. Base salaries for the Four Executive Officers were established
in their respective employment contracts effective as of October 1, 1995,
resulting in payment, during fiscal 1997, of $272,414, $272,414, $204,791, and
$193,882, to Messrs. Gary Davidson, Booty, Collins and Espley-Jones,
respectively. The base salaries are increased annually on April 1 by a
percentage equal to the Consumer Price Index, subject to a floor of three
percent (3%) and a ceiling of eight percent (8%).
Bonus. With respect to Messrs. Gary Davidson, Booty and Collins, their
employment contracts provide for a minimum bonus of 25% of their respective base
salary to be paid to them in quarterly installments. During the fiscal year
ended March 31, 1997, minimum bonuses of $84,634, $50,582 and $63,329 were paid
or accrued to Messrs. Gary Davidson, Booty and Collins, respectively.
Each of the Four Executive Officers' contracts provide for discretionary
bonuses to be set by the Compensation Committee based on the earnings of the
Company and other criteria determined by the Compensation Committee. The
Compensation Committee established bonus criteria for Messrs. Gary Davidson,
Collins and Espley-Jones for the 1997 fiscal year tied to the profitability of
the Company as measured by net income before tax, exclusive of extraordinary
items. Because the Company did not meet the profitability criteria established
by the Compensation Committee for fiscal 1997, no discretionary bonuses were
paid to Messrs. Gary Davidson, Collins and Espley-Jones.
Regarding the Two Executive Officers, bonuses are awarded at the discretion
of management. In fiscal 1997, bonuses of $7,000 and $4,500 were paid to Ms.
Muldoon and Mr. Eric Davidson, respectively, for work performed regarding
specific transactions.
Long Term Incentive Awards. Stock options are granted to provide a
long-term incentive opportunity that this directly linked to shareholder value.
The Named Executive Officers were granted options to purchase shares of Common
stock during the fiscal year ended March 31, 1997 as follows: Gary L.
Davidson -- 10,000 shares; John A. Booty -- no shares; David P.
Collins -- 10,000 shares; Graham Espley-Jones -- 10,000 shares; Sheila M.
Muldoon -- 20,000 shares; and Eric K. Davidson -- 20,000 shares. The exercise
price is equal to the market value of the Common Stock on the date of grant
($11.25 per share), and the options become exercisable in 25% annual increments
on October 17 of 1998, 1999, 2000 and 2001, respectively.
In the fiscal year ended March 31, 1997, stock options were granted by the
Company to 68 of its employees in recognition of their dedication, commitment
and hard work and their ongoing contribution to the success of the Company. No
stock options have been granted between April 1, 1997 and August 31, 1997.
44
<PAGE> 54
Policy with Respect to Section 162(m)
Section 162(m) of the Code includes potential limitations on the
deductibility for federal income tax purposes of compensation in excess of $1
million paid or accrued with respect to any of the executive officers whose
compensation is required to be reported in the Company's proxy statement.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. For 1997, the Committee does not contemplate
that there will be any such nondeductible compensation.
Additional information concerning the salary, bonus and stock awards for
the Company's Named Executive Officers can be found in the tables appearing
under "Compensation of Executive Officers."
THE COMPENSATION COMMITTEE
James M. Peters
Maurice J. DeWald
John J. Rydzewski
45
<PAGE> 55
PERFORMANCE GRAPH
The following chart presents a comparison of the cumulative total return on
shares of Common Stock with the cumulative total return of the Nasdaq National
Market-U.S. Index and a peer group selected by the Company for the period
beginning October 19, 1995, the first day of trading for the Common Stock, and
ending March 31, 1997, the end of the Company's last fiscal year. The
performance graph assumes the investment of $100 on October 19, 1995 in the
Common Stock and in each index, and that all dividends were reinvested. The
stock price shown below for the Common Stock is historical and not necessarily
indicative of future price performance.
<TABLE>
<CAPTION>
Measurement Period Arv Assisted NASDAQ Stock
(Fiscal Year Covered) Living Inc PEER GROUP Market (U.S.)
<S> <C> <C> <C>
10/19/95 100 100 100
3/96 121 94 106
3/97 70 61 117
</TABLE>
The peer group consists of three companies primarily involved in the
provision of assisted living services: Assisted Living Concepts, Inc., Just Like
Home, Inc. and The Standish Care Company, all of which were public as of October
19, 1995. All of the companies in the self-constructed peer group are weighted
by their respective market capitalization.
46
<PAGE> 56
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 19, 1997 (based on a total of
11,584,272 outstanding shares of Common Stock) by (i) each of the Company's
directors, (ii) each of the Named Executive Officers and (iii) all executive
officers and directors as a group. Except as otherwise indicated, the Company
believes the persons named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
Amounts and percentages listed below include warrants and options that are
exercisable within 60 days of August 19, 1997.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER(1) OWNED BENEFICIALLY OWNED
- --------------------------------------------------------------- ------------ --------------------
<S> <C> <C>
Gary L. Davidson(2)(3)......................................... 1,003,521 8.6%
John A. Booty(2)(4)............................................ 699,246 6.0%
David P. Collins(2)(5)......................................... 558,939 4.8%
Graham P. Espley-Jones(6)...................................... 274,964 2.4%
Sheila M. Muldoon(7)........................................... 3,500 *
Eric K. Davidson(8)............................................ 14,538 *
R. Bruce Andrews(9)............................................ 2,500 *
Maurice J. DeWald(9)........................................... 3,500 *
James M. Peters(9)............................................. 2,500 *
John J. Rydzewski(9)(10)....................................... 7,500 *
All directors and executive officers as a group (10 persons)... 2,570,708 21.8%
</TABLE>
- ---------------
* Less than 1%
(1) Except where otherwise noted, the address of the Company's directors,
executive officers and selling shareholders is c/o ARV Assisted Living,
Inc., 245 Fischer Avenue, Costa Mesa, California 92626.
(2) Excludes 402,257 shares owned of record by the Company's employee stock
ownership plan (the "ESOP"), of which Messrs. Gary Davidson, Booty and
Collins are trustees.
(3) Of the 1,003,521 shares beneficially owned by Mr. Gary Davidson, 593,029
are held of record by the Davidson Family Partnership, 343,102 shares are
held by the Gary L. Davidson Funded Revocable Living Trust, and the
remaining 67,390 shares are subject to options exercisable within 60 days
of August 19, 1997. Excludes 9,423 shares beneficially owned by Mr. Gary
Davidson held of record by the ESOP as of August 19, 1997.
(4) Of the 699,246 shares beneficially owned by Mr. Booty, 107,773 are held of
record by the Booty-Jones Family Partnership (of which Mr. Booty is the
managing partner and holds a pecuniary interest equal to 1% thereof),
418,028 shares are held by the Booty Family Trust (as to which Mr. Booty
has shared voting and investment power), 750 shares are held in Mr. Booty's
name alone, 69,500 shares are owned by the Karen A. Booty Charitable
Remainder Trust of which Mr. Booty has sole voting and investment power,
and the remaining 69,500 shares are owned by the John A. Booty Charitable
Remainder Uni Trust (of which Mr. Booty has sole voting and investment
power), and the remaining 33,695 shares are subject to options exercisable
within 60 days of August 19, 1997. Excludes 9,423 shares beneficially owned
by Mr. Booty held of record by the ESOP as of August 19, 1997.
(5) Of the 558,939 shares beneficially owned by Mr. Collins, 98,678 are held of
record by the D & V Collins Family Limited Partnership (as to which Mr.
Collins has shared voting and investment power), 408,591 shares are held by
the Collins Family Community Property Trust (as to which Mr. Collins has
shared voting and investment power), 11,978 shares are held by the David P.
Collins Annuity Trust, and the
47
<PAGE> 57
remaining 39,692 shares are subject to options exercisable within 60 days of
August 19, 1997. Excludes 8,531 shares beneficially owned by Mr. Collins held of
record by the ESOP on August 19, 1997.
(6) Of the 274,964 shares beneficially owned by Mr. Espley-Jones, 22,412 shares
are subject to options exercisable within 60 days of August 19, 1997.
Excludes 5,372 shares beneficially owned by Mr. Espley-Jones held of record
by the ESOP as of August 19, 1997.
(7) Of the 3,500 shares beneficially owned by Ms. Muldoon, 1,000 are held of
record by Charles Schwab & Co. Inc. IRA Rollover and 2,500 shares are
subject to options exercisable within 60 days of August 19, 1997.
(8) Of the 14,538 shares beneficially owned by Mr. Eric Davidson, 4,000 are
held of record by Eric K. Davidson UTA Fidelity 401(k) and 103 are held by
Eric K. Davidson UTA Principal Financial 401(k) and 10,435 shares are
subject to options exercisable within 60 days of August 19, 1997. Excludes
143 shares beneficially owned by Mr. Eric Davidson held of record by the
ESOP on August 19, 1997.
(9) All non-employee directors have options exercisable within 60 days of
August 19, 1997 to purchase 5,000 shares.
(10) 5,000 of the shares beneficially owned by Mr. Rydzewski are held of record
by Merrill Lynch Custodian FBO Benedetto, Gartland & Greene, Inc. SEP FBO
John J. Rydzewski.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of August 19, 1997, the following persons are known to the Company to be
the beneficial owners of more than five percent of the Company's Common Stock.
In preparing the table shown below with respect to the four entities, the
Company has relied, without further investigation, on the information contained
on the copy of the Schedule 13G delivered to it, which was filed by the
respective reporting persons with the SEC under the Securities Exchange Act of
1934. The numbers shown on the table should be interpreted in light of the
related footnotes.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
- -------------- ------------------------------------------ -------------------- ---------
<C> <S> <C> <C>
Morgan Stanley, Dean Witter, Discover &
Common Co. 965,197 8.3%
1585 Broadway
New York, NY 10036
Common Ardsley Advisory Partners 730,000 6.3%
646 Steamboat Road
Greenwich, CT 06836
Common Wellington Management Company, LLP 641,356 5.5%
75 State Street
Boston, MA 02109
Common Scudder, Stevens & Clark, Inc. 592,900 5.1%
345 Park Avenue
New York, NY 10154
</TABLE>
- ---------------
(1) Morgan Stanley, Dean Witter, Discover & Co. ("Morgan Stanley"), a Delaware
corporation and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of 965,197 shares
of the Common Stock of the Company. Accounts managed on a discretionary
basis by wholly-owned subsidiaries of Morgan Stanley, including Miller
Anderson & Sherred LLP, a Delaware limited liability partnership and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, are known to have the right to receive or the power to direct
the receipt of dividends from, or the proceeds from, the sale of such
securities. No such account holds more than 5 percent of the class.
(2) Ardsley Advisory Partners, a Connecticut general partnership ("Ardsley"), is
an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, as amended. Philip J. Hempleman ("Mr. Hempleman") is
the managing partner of Ardsley. The shares of the Company are held in
48
<PAGE> 58
discretionary accounts managed by Ardsley and Mr. Hempleman (including
accounts of certain clients, including investment partnerships for which
(i) Ardsley serves as the management company and (ii) a general partnership
comprised of the partners that comprise Ardsley serves as general partner).
As a result of their roles as investment advisor, Ardsley and Mr. Hempleman
may be deemed to be the beneficial owners of the shares of the Company held
in such discretionary accounts. Each client for whose account Ardsley had
purchased shares of the Company has the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of,
such shares purchased for his account.
(3) Wellington Management Company, LLP, a Massachusetts limited liability
partnership ("Wellington"), an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, may be deemed to beneficially
own 641,356 shares of the Common Stock of the Company which are held of
record by clients of Wellington. Those clients have the right to receive, or
the power to direct the receipt of, dividends from, or the proceeds from the
sale of, such securities. The shares of Common Stock were acquired by
Wellington Trust Company, NA, a wholly owned subsidiary of Wellington and a
bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934.
Wellington has shared power to vote or direct to vote of 265,500 shares of
the Common Stock of the Company, and shared power to dispose or to direct
the disposition of 641,356 shares.
(4) Scudder, Stevens & Clark, Inc., a Delaware corporation, an investment
adviser registered under Section 203 of the Investment Advisers Act of 1940,
has sole power to vote or to direct the vote of 259,400 shares of the Common
Stock of the Company, shared power to vote or to direct the vote of 228,200
shares, and sole power to dispose or to direct the disposition of 592,900
shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Two members of the Compensation Committee, Messrs. Andrews and Peters, are
not present or former employees of the Company and have no relationships with
the Company requiring disclosure pursuant to rules promulgated by the Securities
and Exchange Commission. Regarding Mr. Rydzewski, the Company retained
Benedetto, Gartland and Company, Inc., of which Mr. Rydzewski is a principal, to
act as financial adviser concerning the Company's investment in Senior Income
Fund, L.P., a Delaware limited partnership that owns four congregate care
facilities in Southern California."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To address certain structural issues in connection with tax credit
partnerships, Pacific Demographics Corporation ("Pacific Demographics")
(formerly ARVTC, Inc.), was formed in August 1994 by Messrs. Gary Davidson,
Booty, Collins and Espley-Jones, as well as two former Company officers, to
provide certain development services for these partnerships in exchange for cash
and deferred development fees generated by the tax credit partnerships. The
Company provided services to Pacific Demographics for which it received certain
fees from Pacific Demographics. The Company believes that these arrangements
were fair to the Company and that the compensation paid to Pacific Demographics
by the tax credit partnerships and by Pacific Demographics to the Company
appropriately reflected the services rendered by Pacific Demographics and the
Company, respectively, and the risks incurred by the shareholders of Pacific
Demographics who provided the guarantees for these projects.
In order to lessen potential conflicts of interest, in July 1995, the
Company's then principal shareholders, who included but were not limited to
Messrs. Gary Davidson, Booty, Collins and Espley-Jones sold Pacific
Demographics, Inc. to the Company for $100,000 in cash. In addition, they formed
a general partnership, Hunter Development ("Hunter") and became co-developers
with Pacific Demographics and retained the right to receive 20% of all developer
fees up to a maximum of $850,000. Subsequently each of the general partners of
Hunter assigned his interest in Hunter to Redhill Development, LLC. Of the
maximum amount of $850,000 which could be distributed, approximately $198,400
has been distributed through August 31, 1997 of which Messrs. Gary Davidson,
Booty, Collins and Espley-Jones have received approximately $55,300, $55,300,
$32,500 and $18,400, respectively.
49
<PAGE> 59
John A. Booty, former President of the Company and the current Vice
Chairman of the Board, provides consulting services to the Company for which Mr.
Booty is paid a varying sum not to exceed $30,000 per month for development and
acquisition services. In fiscal 1997 and through August 31, 1997, Mr. Booty was
paid $330,000 for consulting services.
The Company utilizes the services of J&D Design, as well as others, for
interior design work at its facilities. The principal of J&D Design is Joan
Davidson, wife of Senior Vice President Eric Davidson and daughter-in-law of
Chairman, President and Chief Executive Officer Gary Davidson. Services provided
by J&D Design include design work and the purchase of furniture, fixtures and
equipment ("FF&E") for developed facilities and rehabilitation of existing or
newly acquired facilities. In fiscal 1997 and through August 31, 1997, the
Company J&D Design earned approximately $854,000, of which approximately
$140,000 is due and payable, for design services and reimbursement of costs for
FF&E. In fiscal 1996 and fiscal 1995, the total paid by the Company to J&D
Design approximated $328,000 and $57,000, respectively.
Mr. R. Bruce Andrews, a member of the Board, is President of Nationwide
Health Properties, Inc. ("NHP"), a Health Care REIT. NHP is the owner of 16
assisted living facilities which are leased to the Company. Of that number,
leases for 13 assisted living facilities were entered into prior to November 29,
1995, the date Mr. Andrews became a Board member, and leases for three assisted
living facilities were entered into during Mr. Andrews' tenure as Board member.
Lease payments have aggregated approximately $14.7 million in fiscal 1997 and
through August 31, 1997 and $3.7 million from November 1, 1995 through March 31,
1996.
John J. Rydzewski, a Director of the Company and member of the Audit
Committee and the Compensation Committee, is a principal in the investment
banking firm of Benedetto, Gartland and Company, Inc. ("BG&C"). The Company
retained BG&C to provide advice concerning the Company's investment in Senior
Income Fund L.P., a Delaware limited partnership owning four congregate care
facilities in Southern California.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities (collectively, "Reporting Persons"), to file
reports on Forms 3, 4 and 5 of stock ownership and changes in ownership with the
Securities and Exchange Commission. Reporting Persons are required to furnish
the Company with copies of all forms that they file. Based on the Company's
review of copies of Forms 3, 4 and 5, and amendments thereto, received by the
Company for the year ended March 31, 1997, or written representations from
certain Reporting Persons that no Forms 5 were required to be filed by those
persons, the Company believes that during fiscal year 1997 all filing
requirements were complied with by the Reporting Persons except that Forms 3 and
5 required for Eric K. Davidson were not timely filed due to administrative
oversight.
50
<PAGE> 60
ANNUAL REPORT
A copy of the Company's Annual Report, including financial statements for
the fiscal years ended March 31, 1997 and March 31, 1996 is being mailed with
this Proxy Statement to shareholders of record on or about the Record Date, but
such report is not incorporated herein and is not deemed to be a part of this
Proxy Statement.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any shareholder intending to submit to the Company a proposal for inclusion
in the Company's proxy materials relating to the 1998 Annual Meeting must submit
such proposal so that it is received by the Company no later than February 28,
1998.
OTHER MATTERS
The Company is not aware of any matters that may be presented for action by
the shareholders at the Annual Meeting other than those set forth above. If any
other matter shall properly come before the Annual Meeting, the persons named in
the accompanying form of proxy intend to vote thereon in accordance with their
best judgment.
SHAREHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
Gary L. Davidson
Chairman of the Board
, 1997
Costa Mesa, California
51
<PAGE> 61
APPENDIX A
STOCK PURCHASE AGREEMENT
A-1
<PAGE> 62
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
<PAGE> 63
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
Definitions
Section 1.1. Action................................................1
Section 1.2. ADA...................................................1
Section 1.3. Advancing Party.......................................1
Section 1.4. Affiliate.............................................2
Section 1.5. Affiliated Limited Partnerships.......................2
Section 1.6. Agreement.............................................2
Section 1.7. Benefit Arrangements..................................2
Section 1.8. Blue Sky Laws.........................................2
Section 1.9. Board.................................................2
Section 1.10. Breakup Fee...........................................2
Section 1.11. Broker................................................2
Section 1.12. Business Day..........................................2
Section 1.13. Buyer.................................................2
Section 1.14. Capital Expenditure Budget and Schedule...............2
Section 1.15. CERCLA................................................2
Section 1.16. CHAMPUS...............................................2
Section 1.17. Claim.................................................2
Section 1.18. Closing...............................................2
Section 1.19. Closing Date..........................................2
Section 1.20. Code..................................................2
Section 1.21. Commitment............................................2
Section 1.22. Company...............................................2
Section 1.23. Company By-laws.......................................2
Section 1.24. Company Charter.......................................3
Section 1.25. Company Common Stock..................................3
Section 1.26. Company Environmental Reports.........................3
Section 1.27. Company Plans.........................................3
Section 1.28. Company Preferred Stock...............................3
Section 1.29. Company Properties....................................3
Section 1.30. Company Registration Statement........................3
Section 1.31. Company Reports.......................................3
Section 1.32. Company Stock.........................................3
Section 1.33. Competing Transaction.................................3
Section 1.34. Contracts.............................................3
Section 1.35. Controlled Group Liability............................3
Section 1.36. Convertible Debt......................................3
Section 1.37. Debt Instruments......................................3
Section 1.38. Development Budget and Schedule.......................3
Section 1.39. Employee Benefit Plans................................3
Section 1.40. Employees.............................................3
Section 1.41. Environmental Claim...................................4
Section 1.42. Environmental Laws....................................4
Section 1.43. Environmental Permits.................................4
Section 1.44. ERISA.................................................4
Section 1.45. ERISA Affiliates......................................4
Section 1.46. Exchange Act..........................................4
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Section 1.47. Executive Committee...................................4
Section 1.48. Fully Diluted Basis...................................4
Section 1.49. GAAP..................................................4
Section 1.50. Government Authority..................................4
Section 1.51. Governmental Entity ..................................4
Section 1.52. HSR Act...............................................4
Section 1.53. Indemnified Party.....................................4
Section 1.54. Initial Closing.......................................5
Section 1.55. Initial Number of Shares..............................5
Section 1.56. Insurance Policies....................................5
Section 1.57. IRS...................................................5
Section 1.58. Laws..................................................5
Section 1.59. Leased Property.......................................5
Section 1.60. Liabilities...........................................5
Section 1.61. Liens.................................................5
Section 1.62. Loss and Expenses.....................................5
Section 1.63. Material Adverse Effect...............................5
Section 1.64. Materials of Environmental Concern....................5
Section 1.65. Medical Reimbursement Programs........................5
Section 1.66. Medicaid..............................................6
Section 1.67. Medicare..............................................6
Section 1.68. OIG...................................................6
Section 1.69. Order.................................................6
Section 1.70. Other Filings.........................................6
Section 1.71. Owned Property........................................6
Section 1.72. Pension Plans.........................................6
Section 1.73. Per Share Purchase Price..............................6
Section 1.74. Permit................................................6
Section 1.75. Permitted Liens.......................................6
Section 1.76. person................................................7
Section 1.77. Projects..............................................7
Section 1.78. Proxy Statement.......................................7
Section 1.79. Purchase Price........................................7
Section 1.80. Purchased Shares......................................7
Section 1.81. Registration Rights Agreement.........................7
Section 1.82. Regulatory Filings....................................7
Section 1.83. Release...............................................7
Section 1.84. Remaining Equity Commitment...........................7
Section 1.85. Schedule Delivery.....................................7
Section 1.86. SEC...................................................7
Section 1.87. Second Closing Date...................................7
Section 1.88. Securities Act........................................7
Section 1.89. Securities Laws.......................................7
Section 1.90. Stock Purchase........................................7
Section 1.91. Stockholders Agreement................................7
Section 1.92. Stockholder Approval..................................7
Section 1.93. Structural Defect.....................................8
Section 1.94. Subsequent Closing....................................8
Section 1.95. Subsequent Purchase Price.............................8
Section 1.96. Subsequent Purchases..................................8
Section 1.97. Subsidiaries..........................................8
Section 1.98. Tax...................................................8
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Section 1.99. Tax Return............................................8
Section 1.100. Termination Event.....................................8
Section 1.101. Tax Asset.............................................8
Section 1.102. Title Policies........................................8
Section 1.103. Total Equity Commitment...............................9
Section 1.104. Transaction Documents.................................9
Section 1.105. Voting Agreements.....................................9
Section 1.106. Welfare Plans.........................................9
ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale.....................................9
Section 2.2 Consideration.........................................9
Section 2.3 Initial Closing.......................................9
Section 2.4 Subsequent Purchases and Sales........................9
Section 2.5 Additional Agreements and Closing Deliveries.........10
Section 2.6 Time and Place of Closings...........................11
Section 2.7 Right to Assign......................................11
Section 2.8 Limited Transfer Option..............................11
ARTICLE 3
Representations and Warranties of the Company
Section 3.1 Organization and Qualification; Subsidiaries.........11
Section 3.2 Authority Relative to Agreements; Board Approval.....12
Section 3.3 Capital Stock........................................12
Section 3.4 No Conflicts; No Defaults; Required Filings and
Consents...........................................13
Section 3.5 SEC and Other Documents; Financial Statements;
Undisclosed Liabilities............................13
Section 3.6 Litigation; Compliance With Law......................14
Section 3.7 Absence of Certain Changes or Events.................15
Section 3.8 Tax Matters and Partnership Status...................15
Section 3.9 Compliance with Agreements; Material Agreements......16
Section 3.10 Company Charter and Company By-laws;
Corporate Records..................................18
Section 3.11 Properties...........................................19
Section 3.12 Environmental Matters................................21
Section 3.13 Employees and Employee Benefit Plans.................23
Section 3.14 Labor Matters........................................25
Section 3.15 Affiliate Transactions...............................25
Section 3.16 Insurance............................................25
Section 3.17 Proxy Statement......................................26
Section 3.18 Regulatory Compliance................................26
Section 3.19 Vote Required........................................28
Section 3.20 Brokers or Finders...................................28
Section 3.21 Knowledge Defined....................................29
Section 3.22 Delivery of Schedules................................29
Section 3.23 Certain Information..................................29
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ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Section 4.1 Organization.........................................29
Section 4.2 Due Authorization....................................30
Section 4.3 Conflicting Agreements and Other Matters.............30
Section 4.4 Acquisition for Investment; Sophistication;
Source of Funds....................................30
Section 4.5 Proxy Statement......................................30
Section 4.6 Brokers or Finders...................................31
Section 4.7 Investment Company Matters...........................31
ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action...........................31
Section 5.2 Registration Rights Agreement........................32
Section 5.3 Stockholders Agreement...............................32
Section 5.4 Public Announcements; Confidentiality................32
Section 5.5 Conduct of the Business..............................33
Section 5.6 No Solicitation of Transactions......................36
Section 5.7 Information and Access...............................36
Section 5.8 Notification of Certain Matters......................37
Section 5.9 HSR Filing...........................................37
Section 5.10 Amendment of Company By-laws.........................37
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale...............................................38
Section 6.2 Use of Funds.........................................38
Section 6.3 Guarantee............................................38
Section 6.4 Loan.................................................38
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing............38
Section 7.2 Conditions to Purchase at Second Closing.............39
Section 7.3 Conditions of Purchase at All Closings...............39
Section 7.4 Conditions of Sale...................................40
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival..............................................41
Section 8.2 Indemnification by Buyer or the Company...............42
Section 8.3 Third-Party Claims....................................42
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ARTICLE 9
Termination
Section 9.1 Termination...........................................43
Section 9.2 Procedure and Effect of Termination...................44
Section 9.3 Expenses..............................................44
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts..........................................45
Section 10.2 Governing Law.........................................45
Section 10.3 Entire Agreement......................................46
Section 10.4 Notices...............................................46
Section 10.5 Successors and Assigns................................46
Section 10.6 Headings..............................................47
Section 10.7 Amendments and Waivers................................47
Section 10.8 Interpretation; Absence of Presumption................47
Section 10.9 Severability..........................................47
Section 10.10 Further Assurances....................................47
Section 10.11 Specific Performance..................................47
Section 10.12 Joint and Several Liability...........................47
Section 10.13 Interpretation of Schedules...........................48
Section 10.14 Acknowledgment of Company's Right to Take
Certain Actions.....................................48
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
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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
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 5.1(e) Stock Options
Schedule 5.5(a) Contemplated Transactions
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Stockholders Agreement
Exhibit C Form of Amendments to Company By-laws
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<PAGE> 69
THIS STOCK PURCHASE AGREEMENT (the
"Agreement"), dated as of July 14, 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 wishes to purchase from the Company, and the
Company wishes to sell to Buyer, up to an aggregate of 9,653,325
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 are entering
into this Agreement to provide for such purchase and sale and to
establish various rights and obligations in connection therewith;
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; and
WHEREAS, by separate agreements (the "Voting Agreements"),
certain stockholders of the Company have agreed to support and vote in
favor of this Agreement;
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 as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Section 1.1. "Action" shall mean any action, suit, arbitration,
inquiry, proceeding or investigation by or before any Government
Authority.
Section 1.2. "ADA" shall mean the Americans with Disabilities
Act.
Section 1.3. "Advancing Party" shall have the meaning set forth
in the first paragraph hereof.
<PAGE> 70
Section 1.4. "Affiliate" shall have the meaning ascribed thereto
in Rule 12b-2 promulgated under the Exchange Act, and as in effect on
the date hereof.
Section 1.5. "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.
Section 1.6. "Agreement" shall have the meaning set forth in the
first paragraph hereof.
Section 1.7. "Benefit Arrangements" shall have the meaning set
forth in Section 3.13(h).
Section 1.8. "Blue Sky Laws" shall have the meaning set forth in
Section 3.4(e).
Section 1.9. "Board" shall mean the Board of Directors of the
Company.
Section 1.10. "Breakup Fee" shall have the meaning set forth in
Section 9.3(b).
Section 1.11. "Broker" shall have the meaning set forth in
Section 3.20.
Section 1.12. "Business Day" shall mean any day other than a
Saturday, a Sunday or a bank holiday in New York, N.Y.
Section 1.13. "Buyer" shall have the meaning set forth in the
first paragraph hereof.
Section 1.14. "Capital Expenditure Budget and Schedule" shall
have the meaning set forth in Section 3.11(d).
Section 1.15. "CERCLA" shall have the meaning set forth in
Section 3.12(e).
Section 1.16. "CHAMPUS" means the United States Department of
Defense Civilian Health and Medical Program of the Uniformed Services.
Section 1.17. "Claim" shall have the meaning set forth in Section
3.12(g)(i).
Section 1.18. "Closing" shall mean the consummation of any Stock
Purchase.
Section 1.19. "Closing Date" shall mean, with respect to the
consummation of any Stock Purchase, the date on which the conditions
set forth herein with respect thereto shall be satisfied or duly
waived, or if the Company and Buyer mutually agree on a different
date, the date upon which they have mutually agreed.
Section 1.20. "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor thereto, including all of the
rules and regulations promulgated thereunder.
Section 1.21. "Commitment" shall have the meaning set forth in
Section 3.7.
Section 1.22. "Company" shall have the meaning set forth in the
first paragraph hereof.
Section 1.23. "Company By-laws" shall mean the by-laws of the
Company and any amendment or supplement thereto, as in effect on the
date hereof.
<PAGE> 71
Section 1.24. "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.
Section 1.25. "Company Common Stock" shall have the meaning set
forth in the second paragraph hereof.
Section 1.26. "Company Environmental Reports" shall have the
meaning set forth in Section 3.12(f).
Section 1.27. "Company Plans" shall have the meaning set forth in
Section 3.13(b).
Section 1.28. "Company Preferred Stock" shall have the meaning
set forth in Section 3.3(a).
Section 1.29. "Company Properties" shall have the meaning set
forth in Section 3.1l(a).
Section 1.30. "Company Registration Statement" shall have the
meaning set forth in Section 3.5(a).
Section 1.31. "Company Reports" shall have the meaning set forth
in Section 3.5(a).
Section 1.32. "Company Stock" shall mean, collectively, the
Company Common Stock and any other shares of capital stock of the
Company.
Section 1.33. "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.
Section 1.34. "Contracts" shall have the meaning set forth in
Section 3.9(c).
Section 1.35. "Controlled Group Liability" shall have the meaning
set forth in Section 3.13(h).
Section 1.36. "Convertible Debt" shall mean the Company's 6-3/4%
Convertible Subordinated Notes due 2006.
Section 1.37. "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 1.38. "Development Budget and Schedule" shall have the
meaning set forth in Section 3.11(e).
Section 1.39. "Employee Benefit Plans" shall have the meaning set
forth in Section 3.13(h).
Section 1.40. "Employees" shall have the meaning set forth in
Section 3.13(h).
<PAGE> 72
Section 1.41. "Environmental Claim" shall have the meaning set
forth in Section 3.12(g)(ii).
Section 1.42. "Environmental Laws" shall have the meaning set
forth in Section 3.12(g)(iii).
Section 1.43. "Environmental Permits" shall have the meaning set
forth in Section 3.12(a).
Section 1.44. "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.
Section 1.45. "ERISA Affiliates" shall mean any entity which is
under "common control" with the Company, within the meaning of Section
4001(b)(1) of ERISA.
Section 1.46. "Exchange Act" shall have the meaning set forth in
Section 3.4(e).
Section 1.47. "Executive Committee" shall mean the executive
committee of the Board as provided for in the form of the amendment to
Company By-laws attached hereto as Exhibit C. The Executive Committee
shall initially consist of five members, two of which will be
appointed by Buyer. Any approval of, or action taken by, the Executive
Committee will require the affirmative vote of four members of the
committee acting at a duly convened meeting. The initial members of
the Executive Committee will be Gary L. Davidson, Maurice J. DeWald,
John J. Rydzewski and the two members appointed by Buyer.
Section 1.48. "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 the Convertible Debt, the instruments listed in Schedule
3.3(a) and Company Common Stock issuable under option or other
equity-incentive plans listed on Schedule 3.13(b) and awards issued
pursuant thereto.
Section 1.49. "GAAP" shall have the meaning set forth in Section
3.5(b).
Section 1.50. "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.
Section 1.51. "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.
Section 1.52. "HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.53. "Indemnified Party" shall mean Buyer or the
Company, as the context may require.
<PAGE> 73
Section 1.54. "Initial Closing" shall have the meaning set forth
in Section 2.3.
Section 1.55. "Initial Number of Shares" shall mean 1,921,012
shares of Company Common Stock.
Section 1.56. "Insurance Policies" shall have the meaning set
forth in Section 3.16.
Section 1.57. "IRS" shall mean the Internal Revenue Service.
Section 1.58. "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.
Section 1.59. "Leased Property" shall have the meaning set forth
in Section 3.11(a).
Section 1.60. "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 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.
Section 1.61. "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.
Section 1.62. "Loss and Expenses" shall have the meaning set
forth in Section 8.2(a).
Section 1.63. "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.
Section 1.64. "Materials of Environmental Concern" shall have the
meaning set forth in Section 3.12(g)(iv).
Section 1.65. "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.
<PAGE> 74
Section 1.66. "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.).
Section 1.67. "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.).
Section 1.68. "OIG" means the Office of the Inspector General of
the United States Department of Health and Human Services.
Section 1.69. "Order" means any decree, injunction, judgment,
order, ruling, assessment or writ.
Section 1.70. "Other Filings" shall have the meaning set forth in
Section 5.1(b).
Section 1.71. "Owned Property" shall have the meaning set forth
in Section 3.11(a).
Section 1.72. "Pension Plans" shall have the meaning set forth in
Section 3.13(h).
Section 1.73. "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.
Section 1.74. "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.
Section 1.75. "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)
<PAGE> 75
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.
Section 1.76. "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.
Section 1.77. "Projects" shall have the meaning set forth in
Section 3.11(e).
Section 1.78. "Proxy Statement" shall have the meaning set forth
in Section 5.1(b).
Section 1.79. "Purchase Price" shall mean the Per Share Purchase
Price multiplied by the number of shares of Company Common Stock to be
purchased and sold at a particular Closing.
Section 1.80. "Purchased Shares" shall have the meaning set forth
in Section 2.1.
Section 1.81. "Registration Rights Agreement" shall have the
meaning set forth in Section 2.5(a).
Section 1.82. "Regulatory Filings" shall have the meaning set
forth in Section 3.4(e).
Section 1.83. "Release" shall have the meaning set forth in
Section 3.12(g)(v).
Section 1.84. "Remaining Equity Commitment" shall mean, on any
given date after the Initial Closing, the Total Equity Commitment
minus the Initial Purchase Price and, if any Subsequent Purchases
shall have occurred, minus the Subsequent Purchase Prices. The
Remaining Equity Commitment shall be deemed to be zero on the earlier
of (i) the date that the Remaining Equity Commitment equals zero
pursuant to the previous sentence or (ii) eighteen months after
Stockholder Approval, but not later than June 30, 1999 (unless
otherwise extended by Buyer and the Company in their sole discretion).
Section 1.85. "Schedule Delivery Date" shall have the meaning set
forth in Section 3.22.
Section 1.86. "SEC" shall have the meaning set forth in Section
3.5(a).
Section 1.87. "Second Closing Date" shall mean the Closing next
following Stockholder Approval.
Section 1.88. "Securities Act" shall have the meaning set forth
in Section 3.4(e).
Section 1.89. "Securities Laws" shall have the meaning set forth
in Section 3.5(a).
Section 1.90. "Stock Purchase" shall have the meaning set forth
in Section 2.1.
Section 1.91. "Stockholders Agreement" shall have the meaning set
forth in Section 2.5(a).
Section 1.92. "Stockholder Approval" shall have the meaning set
forth in Section 7.2(a).
<PAGE> 76
Section 1.93. "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.
Section 1.94. "Subsequent Closing" shall mean each Closing of a
Subsequent Purchase.
Section 1.95. "Subsequent Purchase Price" shall mean the Per
Share Purchase Price multiplied by the number of Purchased Shares
purchased by Buyer in a Subsequent Purchase.
Section 1.96. "Subsequent Purchases" shall have the meaning set
forth in Section 2.4(a).
Section 1.97. "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.
Section 1.98. "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.
Section 1.99. "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.
Section 1.100. "Termination Event" shall mean the date on which
the Remaining Equity Commitment is zero and 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.
Section 1.101. "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).
Section 1.102. "Title Policies" shall have the meaning set forth
in Section 3.11(a).
<PAGE> 77
Section 1.103. "Total Equity Commitment" shall mean
$135,146,550.00.
Section 1.104. "Transaction Documents" shall mean the
Stockholders Agreement and the Registration Rights Agreement.
Section 1.105. "Voting Agreements" shall have the meaning set
forth in the fifth paragraph hereof.
Section 1.106. "Welfare Plans" shall have the meaning set forth
in Section 3.13(h).
ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale. Subject to the terms and
conditions hereof, from time to time after the date hereof, at each
Closing, the Company will sell, convey, assign, transfer, and deliver,
and Buyer will purchase and acquire from the Company, an aggregate of
up to 9,653,325 shares of Company Common Stock (the "Purchased
Shares"); provided, however, that the obligation of Buyer to acquire
any Purchased Shares in excess of the number of shares constituting
48.9% of Company Common Stock shall be subject to the condition
specified in Section 7.4(d). Each Closing at which Buyer purchases any
Purchased Shares is herein referred to as a "Stock Purchase."
Section 2.2 Consideration. Subject to the terms and conditions
hereof, at each Closing, Buyer shall deliver to the Company the
Purchase Price with respect to the number of shares of Company Common
Stock to be purchased and sold at such Closing by wire transfer of
immediately available funds in U.S. dollars to the account or accounts
specified by the Company.
Section 2.3 Initial Closing. Subject to the terms and conditions
hereof, as promptly as practicable following the date on which the
applicable conditions set forth in Sections 7.1, 7.3 and 7.4 shall
have been satisfied or duly waived (but in no event prior to August
29, 1997) Buyer will purchase and acquire (and the Advancing Party
shall advance sufficient funds for such purchase) from the Company,
and the Company will sell, convey, assign, transfer and deliver to
Buyer, the Initial Number of Shares of Company Common Stock, and Buyer
will pay to the Company the Purchase Price for such shares of Company
Common Stock (the "Initial Closing").
Section 2.4 Subsequent Purchases and Sales.
(a) Subject to the terms and conditions hereof, following
the Initial Closing Buyer will purchase and acquire (and the Advancing
Party shall advance sufficient funds for such purchase) from the
Company, and the Company will sell and deliver to Buyer, subject to
satisfaction or waiver of the applicable conditions set forth in
Sections 7.2, 7.3 and 7.4, (i) at the Second Closing 3,078,988
Purchased Shares and (ii) after the Second Closing from time to time
as determined by the Company (but in any event on or before the
earlier of eighteen months after the Stockholder Approval and June 30,
1999) at one or more Subsequent Closings an aggregate of 4,653,325
Purchased Shares (each Closing referred to in clauses (i) and (ii)
referred to as a "Subsequent Purchase" and, together, the "Subsequent
Purchases").
<PAGE> 78
(b) At least 20 calendar days prior to a Subsequent
Purchase, the Company shall notify (which notice shall be in writing
and shall be irrevocable) Buyer of the anticipated date of the
Subsequent Closing and the number of Purchased Shares the Company is
requiring Buyer to purchase, which shall not be fewer than 715,000
Purchased Shares (or such lesser amount if the number of Purchased
Shares to be purchased under the Remaining Equity Commitment is less
than 715,000); provided, however, that the notice of the stockholders
meeting called to approve the issuance of the Company's Common Stock
shall serve as notice for the Second Closing and the Second Closing
shall occur on the date of Stockholder Approval if the other
conditions thereto specified in this Agreement have been satisfied.
Subject to the terms and conditions hereof, the Closing of any
Subsequent Purchase shall occur as soon as possible following the date
on which the applicable conditions set forth in Sections 7.2, 7.3 and
7.4 shall have been satisfied or duly waived.
(c) If less than all Purchased Shares shall have been issued
and sold at any and all Closings on or before the earlier of eighteen
months after the Stockholder Approval and June 30, 1999, then Buyer
shall, subject to the satisfaction or waiver of the applicable
conditions set forth in Sections 7.3 and 7.4, make a Subsequent
Purchase of all such remaining shares from the Company (and the
Company shall sell to Buyer) on or before the earlier of eighteen
months after Stockholder Approval and June 30, 1999, or as soon
thereafter as all conditions to Buyer's obligation to effect the
Subsequent Purchase hereunder shall have been satisfied or waived;
provided, however, that Buyer may waive the foregoing requirement that
such shares be purchased by such date.
Section 2.5 Additional Agreements and Closing Deliveries.
(a) Concurrently with the execution of this Agreement, (i)
the Company, Buyer and the Advancing Party shall enter into a
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 a stockholders
agreement substantially in the form attached as Exhibit B (the
"Stockholders Agreement") and (iii) Buyer shall have entered into the
Voting Agreements with Gary L. Davidson, John A. Booty, David P.
Collins, Graham P. Espley-Jones among other persons.
(b) In addition to the other things required to be done
hereby, at each Closing the Company shall deliver or cause to be
delivered to Buyer the following: (i) certificates representing the
number of shares of Company Common Stock to be issued and delivered at
such Closing, free and clear of all Liens (unless created by Buyer or
any of its Affiliates), with all necessary share transfer and other
documentary stamps attached, (ii) a certificate, dated the relevant
Closing Date and validly executed on behalf of the Company, as
contemplated by Section 7.3(a), (iii) evidence or copies of any
consents, approvals, orders, qualifications or waivers required
pursuant to Section 7.3(d), (iv) all certificates and other
instruments and documents required by this Agreement to be delivered
by the Company to Buyer at or prior to each Closing and (v) 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 delivery of the Purchase Price and
the other things required to be done hereby, at each Closing, Buyer
shall deliver, or cause to be delivered, to the Company the following:
(i) a certificate, dated the relevant Closing Date and validly
executed by Buyer, as contemplated by Section 7.4(a), (ii) 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 each Closing and (iii)
such other instruments reasonably requested by the Company as may be
necessary or appropriate to confirm or carry out the provisions of
this Agreement.
<PAGE> 79
Section 2.6 Time and Place of Closings. Each Closing shall take
place on the relevant Closing Date at such place and time as the
Company and Buyer shall mutually agree.
Section 2.7 Right to Assign. Buyer and the Advancing Party may
assign their rights and delegate their obligations created hereby to
purchase Company Common Stock in accordance with the provisions of
Section 10.5.
Section 2.8 Limited Transfer Option. In the event that the
Company does not receive Stockholder Approval by December 31, 1997
(other than solely as a result of Buyer's material breach of any of
its obligations hereunder), Buyer will have the right to transfer
Purchased Shares purchased at the Initial Closing subject to the
transfer restrictions set forth in Section 5.2 of the Stockholders
Agreement.
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
<PAGE> 80
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.
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, subject
only to Stockholder Approval. 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 and determined to recommend that the
stockholders of the Company vote in favor of and approve the issuance
of Company Common Stock pursuant to this Agreement subject to the
fiduciary duty provisions of Section 5.6.
(c) The shares of Company Common Stock to be acquired
pursuant to this Agreement have been duly authorized for issuance and
upon issuance will be duly and validly issued, fully paid and
nonassessable.
(d) The issue and sale of the shares of Company Common Stock
hereunder will not give any stockholder of the Company the right to
demand payment for its shares under California law or give rise to any
preemptive or similar rights.
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 9,662,990 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 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 as set forth in
Schedule 3.3(a) to this 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
<PAGE> 81
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)-A (with respect to the Initial
Closing), and Schedule 3.4(d)-B (with respect to each Subsequent
Closing), 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 ("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),
<PAGE> 82
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, 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,
<PAGE> 83
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 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.
<PAGE> 84
(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 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:
<PAGE> 85
(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);
(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
<PAGE> 86
(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-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
<PAGE> 87
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 inter- ests 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.
(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
<PAGE> 88
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 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
<PAGE> 89
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 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.
<PAGE> 90
(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.
(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
<PAGE> 91
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 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
<PAGE> 92
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").
"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
<PAGE> 93
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 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
<PAGE> 94
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.
(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
<PAGE> 95
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
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
<PAGE> 96
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 but not 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
hereon (and with each share of Company Common Stock entitled to one
vote per share) is the only vote of the holders of any class or series
of Company Stock necessary to approve this Agreement, the Transaction
Documents and the transactions contemplated hereby and thereby. The
record date for such vote will be established on or after the date of
the Initial Closing.
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
<PAGE> 97
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 Gary L. Davidson, 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 Delivery of Schedules. The Company hereby covenants
that all schedules to be delivered pursuant to this Article 3 shall be
delivered by the Company on or prior to the date 7 Business Days from
the date hereof (such date, the "Schedule Delivery Date").
Section 3.23 Certain Information. If Buyer obtains knowledge
prior to the Initial Closing that any of representations or warranties
of the Company set forth in this Article 3 are untrue in any respect
and Buyer nevertheless elects to acquire Company Common Stock at the
Initial 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, (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 3.23
or (iii) Buyer has actual knowledge of such matter a result of its due
diligence review contemplated by this Agreement.
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
<PAGE> 98
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 any 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 Common Stock 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 shares of Company Common Stock, provided that the
disposition of Company Common Stock owned by Buyer shall at all times
be and remain within its control, subject to the provisions of this
Agreement and the Transaction Documents.
(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. At the
Initial Closing and at each subsequent Closing, 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.
<PAGE> 99
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 Closings
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.
(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 issuance of shares
of Company Common Stock contemplated hereby. 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 required to be included or incorporated by reference in
the Proxy Statement or any Other Filing and shall otherwise
<PAGE> 100
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. Subject
to the provisions of Section 5.6, the Proxy Statement shall include
the recommendation of the Board of Directors of the Company that the
stockholders of the Company vote in favor of and approve the Amended
Company Charter and the issuance of Company Common Stock pursuant to
this Agreement.
(c) The Company shall call a meeting of its stockholders to
be held as promptly as practicable (and in no event later than
December 31, 1997) for the purpose of voting upon the transactions
(including the issuance of Company Common Stock) contemplated hereby;
provided that should a quorum not be obtained at such meeting of the
stockholders, the meeting of the stockholders shall be postponed or
adjourned (but in no event to a date later than December 31, 1997) in
order to permit additional time for soliciting and obtaining
additional proxies or votes.
(d) The Company shall obtain the consents set forth in each
of Schedules 3.4(d)-A and 3.4(d)-B.
(e) Except as provided on Schedule 5.1(e), from the date
hereof until the sooner to occur of (A) the date on which the Investor
Nominees (as defined in the Stockholders Agreement) first become
members of the Board, and (B) if the Stockholder Approval vote fails,
the date of the stockholder meeting at which the Stockholder Approval
failed, (i) no grant or award of options or other similar
equity-related or incentive compensation shall be made pursuant to or
by amendment to the agreements listed on Schedule 3.9(e), and (ii) any
employment, stock option or other agreement entered into and which
contains a change-of-control or similar provision shall contain only
a change-of-control provision approved by Buyer.
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 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,
<PAGE> 101
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 non- confidential 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) When requested by the Company, Buyer shall immediately
return or destroy (and confirm in writing to the Company such fact)
the confidential information, including all copies, reproductions,
summaries, or extracts thereof, then in Buyer's or its
representatives' possession, excluding this Agreement and the
Transaction Documents, and shall not retain any copies, extracts or
other reproductions in whole or in part of such material, other than
this Agreement and the Transaction Documents. Such return shall not
abrogate Buyer's continuing obligations under this Agreement. This
provision shall not survive the Initial Closing.
(d) 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 it 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.
(e) 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 Conduct of the Business.
(a) Except for transactions contemplated hereby, during the
period from the date of this Agreement to the earlier of (A) the date
on which the Investor Nominees (as defined in the Stockholders
Agreement) first become members of the Board and (B) if the
Stockholder Approval vote fails, the date of the stockholder meeting
at which the Stockholder Approval failed, each of the Company and each
Subsidiary, except as otherwise consented to or approved by Buyer in
writing or as permitted or required hereby or set forth
<PAGE> 102
on Schedule 5.5(a), (x) will conduct its business and will engage in
transactions only in the ordinary course consistent with past
practice, and (y) will not:
(i) acquire in a single transaction or group of related
transactions, whether by merger, consolidation, purchase of stock
or assets or other business combination, any business or assets
having a value in excess of 1% of the Company's assets;
(ii) sell or dispose in a single transaction or group of
related transactions, whether by merger, consolidation, sale of
stock or assets or other business combination, any business or
assets having a value in excess of 1% of the Company's assets;
(iii) incur or issue any additional indebtedness (including
for this purpose any indebtedness evidenced by notes, debentures,
bonds, leases or other similar instruments, or secured by any
lien on any property, conditional sale obligations, obligations
under any title retention agreement (but excluding trade accounts
payable and other accrued current liabilities arising in the
ordinary course of business) and obligations under letters of
credit or similar credit transactions) in a single transaction or
group of related transactions, enter into a guaranty, or engage
in any other financing arrangement having a value in excess of 1%
of the Company's assets;
(iv) approve any annual operating budgets of the Company;
(v) make any material change in the executive management of
the Company or enter into any material agreement or arrangement
with any members of the executive management of the Company;
(vi) except for grants of options or the issuance of shares
of Company Common Stock pursuant to the agreements listed on
Schedule 3.3(a), change the number of shares of the authorized or
issued capital stock of the Company or issue or grant any option,
warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to the authorized or issued
capital stock of the Company, or any securities convertible into
shares of such stock, or split, combine or reclassify any shares
of the capital stock of the Company or declare, set aside or pay
any extraordinary dividend, other distribution (whether in cash,
stock or property or any combination thereof) in respect of the
capital stock of the Company, or redeem or otherwise acquire any
shares of such capital stock other than, (i) to a wholly owned
Subsidiary thereof or (ii) to directors or employees of the
Company or a Subsidiary in connection with any employee benefit
plan approved by the shareholders of the Company (provided,
however, that in connection with any transaction described in
this clause, Buyer shall be entitled, to the extent so provided
in Section 4.2 of the Stockholders Agreement, to a participation
right on the terms set forth in Section 4.2 of the Stockholders
Agreement as if all of the Purchased Shares were issued and owned
by Buyer at the time of such transaction, with any additional
shares of capital stock (as such term is used in Section 4.2 of
the Stockholders Agreement) which Buyer shall have the right to
purchase by virtue of such participation right to be issued and
purchased only at the time of the Subsequent Closing, and subject
to the satisfaction or waiver of the conditions applicable to the
purchase of Purchased Shares thereat);
(vii) change the Company's dividend policy;
<PAGE> 103
(viii) amend or otherwise modify, or terminate, any material
Contract, or enter into any joint venture, lease or management
agreement or other material agreement of the Company;
(ix) request any Subsequent Purchases;
(x) transact with Affiliates;
(xi) enter into any business other than the ownership,
management, operation and development of assisted living
facilities and businesses related thereto;
(xii) pursuant to or within the meaning of any bankruptcy
law, (i) commence a voluntary case, (ii) consent to the entry of
an order for relief against it in an involuntary case, (iii)
consent to the appointment of a custodian of it or for all or
substantially all of its property, (iv) make a general assignment
for the benefit of its creditors;
(xiii) subject to the right of the Company to terminate this
Agreement pursuant to Section 9.1(b)(iii) hereof, (i) sell,
lease, transfer, convey or otherwise dispose (other that by way
of merger or consolidation), in one or a series of related
transactions, all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any person, (ii)
adopt a plan relating to the liquidation or dissolution of the
Company, or (iii) the consummate any transaction (including,
without limitation, any merger or consolidation) the result of
which is that any person other than the Buyer, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of
stock having more than 50% of the voting power of the Company;
(xiv) change any provision of the Company Charter or the
Company By-laws;
(xv) purchase or lease or enter into a binding agreement to
purchase or lease any real property without Buyer's prior written
consent, including the purchase of any of the properties which
are the subject of the purchase agreements, letters of intent or
other arrangements described in Schedule 3.11(b) or the other
Schedules hereto;
(xvi) enter into any employment agreement, or permit any of
its Subsidiaries to enter into any employment agreement with any
officer or other employee;
(xvii) make or change any tax election, change any annual
tax accounting period, adopt or change any method of tax
accounting, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund or fail to make any Tax payments or
consent to any extension or waiver of the limitations period
applicable to any Tax claim or assessment if any such actions,
individually or in the aggregate, would have the effect of
materially increasing the Tax liability of or reducing any Tax
Asset of the Company or any of its Subsidiaries or Affiliated
Limited Partnerships; or
(xviii) adopt any "poison pill" or other similar
shareholders' rights plan.
The Buyer will use reasonable efforts to approve any matter as to
which the Company has requested Buyer's consent under this Section;
provided, however, that Buyer shall be
<PAGE> 104
deemed to have consented to such matter if Buyer has not approved or
disapproved such matter within ten calendar days of receipt (by any
means other than facsimile transmission) of all documents related to
such matter accompanied by a notice to Buyer stating that if Buyer
fails to approve or disapprove such matter within ten (10) calendar
days Buyer shall be deemed to have approved such matter.
(b) During the period from the date of this Agreement until
the earlier of (i) a Termination Event and (ii) if the Stockholder
Approval vote fails, the date of the stockholder meeting at which the
Stockholder Approval failed, each of the Company and each Subsidiary
will not engage in the actions set forth in Section 5.5(a)(xii)
through (xiv), except as otherwise consented to or approved by Buyer
in writing. The provisions of this Section 5.5(b) shall survive until
a Termination Event, if any, shall have occurred.
Section 5.6 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
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 5.7 Information and Access. From the date hereof until
the date on which the Remaining Equity Commitment shall be zero, (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
<PAGE> 105
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.
Section 5.8 Notification of Certain Matters. Each of Buyer and
the Company shall use its good faith efforts to notify the other party
in writing of its discovery of any matter that would render any of
such party's or the other party's representations and warranties
contained herein untrue or incorrect in any material respect, but the
failure of either party to so notify the other party shall not be
deemed a breach of this Agreement.
Section 5.9 HSR Filing. Each of Buyer and the Company shall use
its best faith efforts to comply as soon as possible with the
requirements of the HSR Act to the extent applicable to the
transactions contemplated by this Agreement and the Transactions
Documents and shall make their initial filings with the Federal Trade
Commission and the United States Department of Justice as soon as
practical. Each of Buyer and the Company agrees to use its best faith
efforts to satisfy any requests for additional information or other
requirements imposed by the Federal Trade Commission or the Department
of Justice in connection with the transactions contemplated by this
Agreement and the Transactions Documents as soon as practical and, if
requested by any party to this Agreement, to request early termination
of any waiting period otherwise imposed by statute.
Section 5.10 Amendment of Company By-laws. The Company shall take
all action necessary to amend the Company By-laws to provide that,
from and after the date on which the Investor Nominees (as defined in
the Stockholders Agreement) first become members of the Board until a
Termination Event, if any, (i) the Board will be increased to eleven
members, (ii) any action other than in the ordinary course and the
appointment of members of the Company's audit and compensation
committees, including without limitation actions described in Section
5.5(a), will require (x) the affirmative vote of at least eight
members of the board acting at a duly convened meeting of the Board or
(y) with respect to certain matters to be agreed upon by the Company
and Buyer prior to the Initial Closing, will require the affirmative
vote or at least four members of the Executive Committee acting at a
duly convened meeting of the Executive Committee and (iii) the
Investor Nominees (as such term is defined in the Stockholders
Agreement) shall be entitled to vote in favor of directing the Company
to make any Subsequent Closing but shall not be entitled to vote if a
proposed request to make any Subsequent Closing has been otherwise
approved by a majority of the members of the Board who are not
Investor Nominees. The Company By-laws shall also provide that to the
maximum extent permitted by law the Executive Committee shall be
delegated the authority to approve any matter described in clause (ii)
of the immediately preceding sentence.
<PAGE> 106
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale. Buyer acknowledges and agrees that the
Company Common Stock that Buyer will acquire in any Stock Purchase
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 registration requirements of
the Securities Act and, where applicable, such state securities laws
is available, and Buyer agrees that the certificates representing such
Company Common Stock 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 Purchased
Shares, 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 Purchased Shares 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 Purchased Shares 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 Purchased Shares are no longer subject to
transfer restrictions under the Securities Act. Upon original issuance
thereof, and until such time as the same 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 the Purchased Shares shall bear any restricted securities legend
required pursuant to the Stockholders Agreement, unless such legend is
no longer required thereunder.
Section 6.2 Use of Funds. The Company shall use the funds
received from Stock Purchases to (i) reduce indebtedness of the
Company, (ii) fund the acquisition, development and redevelopment of
assisted living facilities and (iii) pay expenses pursuant to Section
9.3.
Section 6.3 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.
Section 6.4 Loan. The Advancing Party will arrange a $15 million
bank loan for the Company on commercially reasonable terms by August
15, 1997, which loan will be repaid in full by the Company from
proceeds of the sale of Purchased Shares at the Initial Closing.
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing. The
obligation of Buyer to purchase and pay for the Purchased Shares at
the Initial Closing is subject to satisfaction or waiver of each of
the following conditions precedent:
(a) HSR Filing. Buyer and the Company shall have received
authorization under the HSR Act to enter into the transactions
contemplated by this Agreement.
(b) Due Diligence. Buyer shall have completed its due
diligence investigations of the Company and shall not have elected to
terminate this Agreement as provided in Section 9.1(a).
<PAGE> 107
(c) Loan Repayment. The Company shall repay in full any
loans made pursuant to Section 6.4 from the proceeds of the sale of
Purchased Shares at the Initial Closing.
Section 7.2 Conditions to Purchase at Second Closing. The
obligations of Buyer to purchase and pay for the Purchased Shares at
the Second Closing are subject to satisfaction or waiver of each of
the following conditions precedent:
(a) Stockholder Approval. The issuance of Company Common
Stock pursuant to this Agreement and the other transactions
contemplated by this Agreement and the Transaction Documents shall
have been approved by the majority vote (including Company Common
Stock owned by the Advancing Party and its Controlled Affiliates (as
defined in the Stockholders Agreement) for purposes of determining a
quorum but not for determining a majority) of the Company's
stockholders ("Stockholder Approval").
(b) Company Charter. The Company Charter shall be amended to
allow the expansion of the Board of Directors as provided for in the
Stockholders Agreement.
(c) Company By-laws. The Company By-laws shall be amended
substantially in the form attached hereto as Exhibit C, which form (i)
amends Section 3.10 of the Company By-laws to require a supermajority
vote of the Board for all actions taken by the Board and (ii) requires
Board approval for all actions specified in Section 5.10 of this
Agreement.
Section 7.3 Conditions of Purchase at All Closings. The
obligations of Buyer to purchase and pay for the Purchased Shares at
each Closing (including the Initial Closing and any Subsequent
Closing, except where otherwise indicated) are subject to satisfaction
or waiver of each of the following conditions precedent:
(a) 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 relevant 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 such 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 7.3(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 relevant Closing Date
in accordance with this Agreement shall have been duly performed in
all respects, other than (except for the Company's obligation to
deliver the relevant shares of Company Common Stock at the relevant
Closing and in, the case of the Initial Closing, the covenants set
forth in Sections 5.1(e), 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 to Material Adverse Effect set
forth immediately prior to this proviso)). As to each Closing other
than the Initial Closing, no condition to the
<PAGE> 108
obligations of Buyer to purchase and pay for the Purchased Shares at
the Initial Closing, and that was not duly waived by Buyer, shall have
failed to be satisfied as of the Initial Closing. The Company shall
have delivered to Buyer at the relevant Closing a certificate of an
appropriate officer in form and substance reasonably satisfactory to
Buyer dated the relevant Closing Date to such effect. In making any
determination as to Material Adverse Effect under this Section 7.3(a),
the matters set forth in such Section shall be aggregated and
considered together.
(b) No Material Breach. The Company shall be in compliance
in all material respects with its covenants and other obligations
under this Agreement and the Transaction Documents. The Company shall
have satisfied the conditions of Section 7.3(a), except in each case
for any Breaching Matters waived by Buyer in accordance with the terms
hereof.
(c) No Injunction. There shall not be in effect any final
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby and there shall be no pending Actions
which would reasonably be expected to have a material adverse effect
on the ability of the Company to consummate the transactions
contemplated hereby or to issue the Purchased Shares.
(d) Consents. The Company shall have obtained (i) the
consents set forth in Schedule 3.4(d)-A in the case of the Initial
Closing, (ii) the consents set forth in Schedule 3.4(d)-B in the case
of Subsequent Closings and (iii) with respect to any Subsequent
Closing that would result in Buyer owning more than 48.9% of then
outstanding Company Common Stock, the written consent of Meditrust
Acquisition Corporation III satisfactory in form and substance to
Buyer.
(e) No Material Adverse Change. Since March 31, 1997, there
shall not have been any change, circumstance or event which has had or
would reasonably be expected to have a Material Adverse Effect.
Section 7.4 Conditions of Sale. The obligation of the Company to
issue and sell any Purchased Shares at any Closing (including the
Initial Closing and each Subsequent Closing, except where otherwise
indicated below) is subject to satisfaction or waiver of each of the
following conditions precedent:
(a) 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 relevant Closing Date with the same effect
as though such representations and warranties had been made on and as
of the relevant Closing Date (except for representations and
warranties that speak as of a specific date or time other than such
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 7.4(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 relevant Closing Date in
accordance with this Agreement shall have been duly performed in all
respects, other than (except for Buyer's obligation to pay the
relevant Purchase Price at
<PAGE> 109
the relevant Closing, and, as to the Initial Closing, 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)).
Buyer shall have delivered to the Company at the relevant Closing a
certificate of an appropriate officer in form and substance reasonably
satisfactory to the Company dated the relevant Closing Date to such
effect.
(b) Stockholder Approval. Except in the case of the Initial
Closing, the issuance of the Company Common Stock pursuant to this
Agreement shall have received Stockholder Approval.
(c) No Injunction. There shall not be in effect any final
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby and there shall be no pending Actions
which would reasonably be expected to have a material adverse effect
on the ability of Buyer to consummate the transactions contemplated
hereby or to acquire the Purchased Shares.
(d) Consents. The Company shall have obtained (i) the
consents set forth in Schedule 3.4(d)-A in the case of the Initial
Closing, (ii) the consents set forth in Schedule 3.4(d)-B in the case
of Subsequent Closings and (iii) with respect to any Subsequent
Closing resulting in Buyer acquiring more than 48.9% of then
outstanding Company Common Stock, the consent of Meditrust Acquisition
Corporation III with respect to that portion of the Subsequent Closing
that exceeds 48.9% of then outstanding Company Common Stock, provided,
however, that such consent will only be required with respect to
Purchased Shares of the Subsequent Closing exceeding 48.9% and failure
to receive such consent will be a condition precedent only with
respect to such Purchased Shares.
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 Initial Closing and any Subsequent Closing
until the first anniversary of the latest of the Initial Closing and
any Subsequent Closing. No Action or proceeding may be brought with
respect to any of the representations and warranties, or any of the
<PAGE> 110
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 measured with respect to all of Buyer's
purchases of Company Common Stock hereunder and not with respect only
to Buyer's purchases hereunder 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 Initial Closing
(including Section 5.5(b)) 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 any 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 any 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 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 indemnification
hereunder except to the extent the indemnifying party from whom such
<PAGE> 111
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 Initial 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;
(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;
(iv) Buyer, acting in its sole discretion, shall have
elected to terminate this Agreement for any reason by notice to
the Company given on or before the later to occur of July 23,
1997 and six Business Days after the date on which all the
schedules contemplated by Section 3.22 are delivered to Buyer; or
(v) either the Company or Buyer, if the Initial Closing
shall not occur prior to December 31, 1997, unless the failure of
such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe any material
covenant or agreement set forth herein required to be performed
or observed by such party on or before the date of the Initial
Closing.
(b) This Agreement may be terminated at any time by:
(i) either the Company or Buyer, in the event that the
stockholders of the Company vote upon and fail to approve the
issuance of Company Common Stock contemplated hereby (it being
understood that the Initial Closing shall have occurred
<PAGE> 112
prior to the date of the meeting of holders of shares of Company
Stock to so approve);
(ii) Buyer, (1) if the Board shall have withdrawn, modified
or failed to make or refrained from making its recommendation
that the stockholders of the Company approve the issuance of
Company Common Stock pursuant to this Agreement as provided for
in Section 3.2(b) and Section 5.1(b) or (2) if the Board of
Directors of the Company at any time refuses to reaffirm, at
Buyer's request, such recommendation and its determination to
make such recommendation to the stockholders of the Company,
except, in each case, as permitted by Section 5.6, or (3) if no
meeting at which the stockholders of the Company are asked to
vote upon the transactions contemplated by this Agreement shall
have duly occurred on or prior to December 31, 1997; or
(iii) The Company, if the Board in compliance with Section
5.6 hereof determines in good faith to terminate in favor of a
Competing Transaction, subject to the Company's obligation to pay
Buyer certain fees pursuant to Section 9.3 hereof.
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), 9.3 (Expenses), 10.2 (Governing law),
and 10.4 (Notices), and, in the event of any termination following any
Closing hereunder, the provisions of Article 8 (Survival;
Indemnification), 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.
Section 9.3 Expenses.
(a) Except as set forth in this Agreement, whether or not
any Stock Purchase is consummated and regardless of any reason for
which this Agreement may have been terminated pursuant to Section 9.1
(other than Section 9.1(a)(iv)), 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. In the event this Agreement
shall be terminated pursuant to Section 9.1(a)(iv), the Company's
obligation to pay Buyer's Expenses shall be limited to the first
$250,000 of Buyer's Expenses and one-half of the next $750,000 of
Buyer's Expenses.
(b) In addition to the rights of Buyer pursuant to Section
2.8 of this Agreement, if (i) the Board shall have not recommended
stockholder approval of this Agreement and the transactions
contemplated hereby (or shall have withdrawn or modified such a
recommendation) and the Company's stockholders shall have failed for
any reason (other than as a result of Buyer's breach of any of its
material obligations hereunder) to approve the same by the requisite
vote (as set forth in the definition of the term "Stockholder
Approval") at the Company's stockholders' meeting held in accordance
with
<PAGE> 113
the terms hereof, (ii) the Company shall have failed to duly convene
such stockholders' meeting on or prior to December 31, 1997 or (iii)
the Board shall have not recommended stockholder approval of this
Agreement and the transactions contemplated hereby (or shall have
withdrawn or modified such a recommendation) and the Second Closing
has not occurred on or before January 31, 1997 (provided that Buyer is
not in material default under this Agreement, that Buyer has not
breached any of its representations and warranties in any material
respect, and that Buyer has satisfied in all material respects its
covenants relating to the Second Closing and contemplated by the terms
hereof to be performed at or prior to the time of the Company's
stockholders' meeting), then the Company shall make payment to Buyer
by wire transfer, within five Business Days after the earliest to
occur of the conditions set forth in clauses (i) through (iii) above,
of the amount equal to the sum of (1) all amounts due Buyer pursuant
to Section 9.3(a), (2) $6,000,000 as an adjustment to the purchase
price of the Initial Number of Shares and (3) a breakup fee in the
amount equal to $7,000,000 (the "Breakup Fee"). Alternatively, if the
Board shall have recommended stockholder approval of this Agreement
and the transactions contemplated hereby (and not withdrawn or
modified such a recommendation) and either (i) the Company's
stockholders shall have failed for any reason (other than as a result
of Buyer's breach of any of its material obligations hereunder) to
approve the same or (ii) the Second Closing has not occurred on or
before January 31, 1998 (provided that Buyer is not in material
default under this Agreement, that Buyer has not breached any of its
representations and warranties in any material respect, and that Buyer
has satisfied in all material respects its covenants relating to the
Second Closing and contemplated by the terms hereof to be performed at
or, prior to the Company's stockholder meeting) then the Company shall
make payment to Buyer by wire transfer, within five Business Days
after the stockholders' vote, of an amount equal to the sum of (1) all
amounts due Buyer pursuant to Section 9.3(a) and (2) $8,650,000 as an
adjustment to the purchase price of the Initial Number of Shares. If
the transactions contemplated by this Agreement do not close as the
result of the Company's knowing and wilful breach of a material
representation, warranty or covenant contained herein or in any of the
Transaction Documents (and Buyer shall not be in breach of any of its
material obligations hereunder), the Company shall make payment to
Buyer by wire transfer, within five Business Days after notice from
Buyer to the Company of the occurrence of such event, of an amount
equal to the sum of (1) all amounts due Buyer pursuant to Section
9.3(a) and (2) $13,000,000 as an adjustment to the purchase price of
the Initial Number of Shares and as a breakup fee.
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.
<PAGE> 114
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: Gary L. Davidson and Sheila Muldoon
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
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 for the purpose of
securing bona fide indebtedness of any Buyer and which has agreed to
be
<PAGE> 115
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 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.
<PAGE> 116
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> 117
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/ Gary L. Davidson
-----------------------------------
Name: Gary L. Davidson
Title: Chairman
& Chief Executive Officer
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
<PAGE> 118
AMENDMENT TO STOCK PURCHASE AGREEMENT (this
"Amendment"), dated as of July 20, 1997, 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"),
amending that certain Stock Purchase Agreement
dated as of July 14, 1997, made by and between the
parties hereto (the "Agreement")(terms used herein
but not defined have the meanings assigned to such
terms in the Agreement).
WHEREAS, the parties hereto have entered into the Agreement
and now desire to modify certain terms thereof.
NOW, THEREFORE, in consideration of the provisions and
agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, notwithstanding anything to the contrary in the
Agreement and the Transaction Documents, the parties hereto hereby
agree as follows:
1. Section 5.9, Section 6.4, Section 7.1(a) and Section
7.1(c) of the Agreement are hereby deleted.
2. Section 2.3 of the Agreement is hereby replaced in its
entirety as follows:
"Section 2.3 Initial Closing. Subject to the terms and
conditions hereof, immediately following the date on which the
applicable conditions set forth in Sections 7.1, 7.3 and 7.4
shall have been satisfied or duly waived, Buyer will purchase and
acquire (and the Advancing Party shall advance sufficient funds
for such purchase) from the Company, and the Company will sell,
convey, assign, transfer and deliver to Buyer, the Initial Number
of Shares of Company Common Stock, and Buyer will pay to the
Company the Purchase Price for such shares of Company Common
Stock (the "Initial Closing"); provided, however, that if the
applicable conditions set forth in Sections 7.1, 7.3 and 7.4
shall have been duly satisfied or waived prior to July 31, 1997,
Buyer shall have the option, at its sole discretion, to
consummate the Initial Closing by purchasing (i) 1,064,286 of the
Initial Number of Shares on the date such conditions are
satisfied or waived and (ii) 856,726 of the Initial Number of
Shares on a date to be determined at Buyer's election but which
date shall be prior to August 1, 1997 (unless expressly provided
for herein, each such date on which shares are purchased pursuant
to clauses (i) and (ii) of this proviso shall be separately
considered an Initial Closing for purposes of this Agreement)."
3. The last sentence of Section 3.19 of the Agreement is
hereby replaced in its entirety as follows:
<PAGE> 119
"The record date for such vote will be established on or
after the latest date that shares are purchased at the
Initial Closing."
4. The first sentence of Section 3.23 of the Agreement is
hereby replaced in its entirety as follows:
"If Buyer obtains knowledge prior to the first date on which
shares are purchased at the Initial Closing that any of
representations or warranties of the Company set forth in
this Article 3 are untrue in any respect and Buyer
nevertheless elects to acquire Company Common Stock at the
Initial 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."
5. The last sentence of Section 5.4(c) of the Agreement is
hereby replaced in its entirety as follows:
"This provision shall not survive the first date on which
shares are purchased at the Initial Closing."
6. Section 5.10(ii)(y) of the Agreement is hereby replaced
in its entirety as follows:
"(y) with respect to certain matters to be agreed upon by
the Company and Buyer prior to the latest date which shares
are purchased at the Initial Closing, the affirmative vote
or at least four members of the Executive Committee acting
at a duly convened meeting of the Executive Committee and"
7. Section 9.1(a) of the Agreement is hereby replaced in its
entirety as follows:
"This Agreement may be terminated at any time prior to the
first date on which shares are purchased at the Initial
Closing by:"
8. Section 9.1(b)(iii) of the Agreement is hereby replaced
in its entirety as follows:
"(iii) the Company at any time after the latest date that
shares are purchased at the Initial Closing, if the Board in
compliance with Section 5.6 hereof determines in good faith
to terminate in favor of a Competing Transaction, subject to
the Company's obligation to pay Buyer certain fees pursuant
to Section 9.3 hereof."
<PAGE> 120
9. The first sentence of Section 1.84 of the Agreement is
hereby replaced in its entirety as follows:
"'Remaining Equity Commitment' shall mean, on any given date
after the Initial Closing, the Total Equity Commitment minus
the Purchase Price of the shares acquired at the Initial
Closing and, if any Subsequent Purchases shall have
occurred, minus the Subsequent Purchase Prices."
IN WITNESS WHEREOF, this Amendment 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/ Gary L. Davidson
--------------------------------
Name: Gary L. Davidson
Title: Chairman
& Chief Executive Officer
PROMETHEUS ASSISTED LIVING LLC
by: Lazard Freres Real Estate
Investors L.L.C., its sole member
by: /s/ Murry N. Gunty
-----------------------
Name: Murry N. Gunty
Title: Vice President
LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.
by: /s/ Murry N. Gunty
----------------------------
Name: Murry N. Gunty
Title: Vice President
<PAGE> 121
SECOND AMENDMENT TO STOCK
PURCHASE AGREEMENT (this "Amendment") dated as of July
22, 1997, 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"), amending that certain
Stock Purchase Agreement dated as of July 14, 1997, as
amended by the Amendment to Stock Purchase Agreement
dated as of July 20, 1997, made by and between the
parties hereto (as so amended, the "Agreement") (terms
used herein but not defined have the meanings assigned
to such terms in the Agreement).
WHEREAS, the parties hereto have entered into the Agreement and now desire
to modify certain terms thereof.
NOW, THEREFORE, in consideration of the provisions and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, notwithstanding anything to the
contrary in the Agreement and the Transaction Documents, the parties hereto
hereby agree as follows:
1. Section 7.2 of the Agreement is hereby amended to include the following
subsections:
" (d) Title Policies. The Company shall have obtained and
paid for Title Policies relating to each of the following Owned
Properties: Villa Colima, Acacia Villa, Retirement Inn of Daly City and
Retirement Inn of Fullerton.
" (e) Promissory Note. The Company shall have obtained a
promissory note in the aggregate amount of at least $13 million executed
in favor of the Company by Prospect Park Residences, LLC, evidencing loans
of approximately $13.266 million made by the Company to Prospect Park
Residences LLC as of July 21, 1997 in connection with the development of
Prospect Park. The amount of the note shall be increased by accrued and
unpaid interest to date and by any additional indebtedness incurred by
Prospect Park Residences, LLC after July 21, 1997. Such notes will bear
interest at 9% per annum, accruing in arrears, and will have a term of the
<PAGE> 122
2
earlier of (i) a fixed date to be determined and (ii) the date that
permanent financing for the Prospect Park project is obtained.
" (f) Estoppel Certificates. The Company shall have obtained
estoppel certificates addressing certain issues identified in writing to
the Company by Buyer in form and substance satisfactory to Buyer as
determined by Buyer in its sole discretion from the applicable landlords
under the following leases: NHP leases, Meditrust and Healthcare REIT
leases and HCPI leases."
2. The date "January 31, 1997" in Section 9.3(b)(iii) of the Agreement is
hereby replaced with the date "January 31, 1998".
IN WITNESS WHEREOF, this Amendment 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/ Gary L. Davidson
-----------------------------------
Name: Gary L. Davidson
Title: Chairman and Chief Executive Officer
PROMETHEUS ASSISTED LIVING LLC
by: Lazard Freres Real Estate
Investors L.L.C., its sole
member
by: /s/ Murry N. Gunty
----------------------------------
Name: Murry N. Gunty
Title: Vice President
LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.
by: /s/ Murry N. Gunty
----------------------------------
Name: Murry N. Gunty
Title: Vice President
<PAGE> 123
APPENDIX B
STOCKHOLDERS AGREEMENT
B-1
<PAGE> 124
EXECUTION COPY
------------------------------------------------
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
July 14, 1997
------------------------------------------------
<PAGE> 125
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
Definitions.........................................................1
Section 1.1 "Adjusted Fully Diluted"..........................1
Section 1.2 "Affiliate" ......................................1
Section 1.3 "Agreement".......................................2
Section 1.4 "Beneficially Own"................................2
Section 1.5 "Board"...........................................2
Section 1.6 "Buyer"...........................................2
Section 1.7 "Code"............................................2
Section 1.8 "Company".........................................2
Section 1.9 "Company Charter".................................2
Section 1.10 "Company Common Stock"...........................2
Section 1.11 "Control"........................................2
Section 1.12 "Convertible Debt"...............................2
Section 1.13 "Covered Transaction"............................2
Section 1.14 "Director".......................................2
Section 1.15 "Early Standstill Termination Event".............2
Section 1.16 "Exercise Notice"................................2
Section 1.17 "Extraordinary Transaction"......................2
Section 1.18 "Fully Diluted Basis"............................3
Section 1.19 "Government Authority"...........................3
Section 1.20 "Group"..........................................3
Section 1.21 "Investor".......................................3
Section 1.22 "Investor Nominees"..............................3
Section 1.23 "Key Committees".................................3
Section 1.24 "Management".....................................3
Section 1.25 "1933 Act".......................................3
Section 1.26 "1934 Act".......................................3
Section 1.27 "Nominating Committee"...........................3
Section 1.28 "Participation Notice"...........................3
Section 1.29 "person".........................................4
Section 1.30 "Stockholder Approval"...........................4
Section 1.31 "Stockholder Approval Date"......................4
Section 1.32 "Standstill Period"..............................4
Section 1.33 "Stock Purchase Agreement".......................4
Section 1.34 "Termination Event"..............................4
Section 1.35 "13D Group"......................................4
Section 1.36 "Transfer".......................................4
Section 1.37 "Voting Securities"..............................4
ARTICLE 2
Board of Directors..................................................4
Section 2.1 Members of the Board..............................4
Section 2.2 Committee Representation; Subsidiary Boards.......5
Section 2.3 Vacancies.........................................7
Section 2.4 Officers..........................................7
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 3
Voting and Participation Rights.....................................7
Section 3.1 Voting Rights.....................................7
Section 3.2 Participation Rights..............................7
ARTICLE 4
Standstill Provisions..............................................10
Section 4.1 Standstill Period................................10
Section 4.2 Restrictions During Standstill Period............11
Section 4.3 Restrictions on Transfer.........................12
Section 4.4 Notice to Company................................12
Section 4.5 Compliance with Insider Trading Policy...........13
Section 4.6 Investment Company Matters.......................13
Section 4.7 Waiver of Restrictions and Limits................13
ARTICLE 5
Additional Covenants...............................................13
Section 5.1 Restrictions on Investments......................13
Section 5.2 Additional Transfer Restrictions.................13
ARTICLE 6
Miscellaneous......................................................14
Section 6.1 Counterparts.....................................14
Section 6.2 Governing Law....................................14
Section 6.3 Entire Agreement.................................14
Section 6.4 Expenses.........................................14
Section 6.5 Notices..........................................14
Section 6.6 Successors and Assigns...........................15
Section 6.7 Headings.........................................15
Section 6.8 Amendments and Waivers...........................16
Section 6.9 Interpretation; Absence of Presumption...........16
Section 6.10 Severability....................................16
Section 6.11 Further Assurances..............................16
Section 6.12 Specific Performance............................16
Section 6.13 Investor Breach.................................16
Section 6.14 Confidentiality.................................17
Section 6.15 Public Announcements............................17
</TABLE>
<PAGE> 127
THIS STOCKHOLDERS AGREEMENT (the
"Agreement"), dated as of July 14, 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 (the
"Stock Purchase Agreement"), pursuant to which the Company has agreed
to sell, and the Buyer has agreed to purchase, certain shares of
common stock, no par value, of the Company (the "Company Common
Stock") upon the terms and subject to the conditions set forth
therein;
WHEREAS, it is a condition to the transactions contemplated
by the Stock Purchase Agreement and the parties believe it to be in
their best interests that they enter into this Agreement and provide
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 and the Buyer believe that the
combination in a strategic partnership of the leadership, expertise
and experience in the development of assisted living facilities and
operations of the Company and the investment and capital markets
expertise and access to capital of the 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
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 as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have
the following respective meanings:
Section 1.1 "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.
<PAGE> 128
Section 1.2 "Affiliate" shall have the meaning ascribed
thereto in Rule 12b-2 promulgated under the 1934 Act, and as in effect
on the date hereof.
Section 1.3 "Agreement" shall have the meaning set forth in
the first paragraph hereof.
Section 1.4 "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 which the Buyer has agreed to purchase under the Stock
Purchase Agreement but which have not yet been purchased shall be
deemed to be Beneficially Owned by Investor until the Remaining Equity
Commitment is zero.
Section 1.5 "Board" shall mean the board of directors of the
Company.
Section 1.6 "Buyer" shall have the meaning set forth in the
first paragraph hereof.
Section 1.7 "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor thereto, including all of the
rules and regulations promulgated thereunder.
Section 1.8 "Company" shall have the meaning set forth in
the first paragraph hereof.
Section 1.9 "Company Charter" shall have the meaning set
forth in the Stock Purchase Agreement.
Section 1.10 "Company Common Stock" shall have the meaning
set forth in the second paragraph hereof.
Section 1.11 "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.
Section 1.12 "Convertible Debt" shall mean the Company's
6-3/4% Convertible Subordinated Notes due 2006.
Section 1.13 "Covered Transaction" shall have the meaning
set forth in Section 4.1.
Section 1.14 "Director" shall mean a member of the Board.
Section 1.15 "Early Standstill Termination Event" shall have
the meaning set forth in Section 4.1.
Section 1.16 "Exercise Notice" shall have the meaning set
forth in Section 3.2(b).
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Section 1.17 "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.
Section 1.18 "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 the
Convertible Debt, the instruments listed in Schedule 3.3(a) of the
Stock Purchase Agreement and Company Stock issuable under option or
other equity-incentive plans listed on Schedule 3.13(b) of the Stock
Purchase Agreement and awards issued pursuant thereto.
Section 1.19 "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.
Section 1.20 "Group" shall mean a "group" as such term is
used in Section 13(d)(3) of the 1934 Act.
Section 1.21 "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.
Section 1.22 "Investor Nominees" shall have the meaning set
forth in Section 2.1(a).
Section 1.23 "Key Committees" shall have the meaning set
forth in Section 2.2(a).
Section 1.24 "Management" of the Company shall include,
without limitation, the Company's Chairman.
Section 1.25 "1933 Act" shall mean the Securities Act of
1933, as amended.
Section 1.26 "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
Section 1.27 "Nominating Committee" shall mean a committee
of the Board composed of three members, one of whom is an Investor
Nominee, one of whom is an independent director designated by the
Nominating Committee and one of whom is a designee of management of
the Company). The initial members of the Nominating Committee shall be
Gary L. Davidson, Robert P. Freeman, and John J. Rydzewski.
<PAGE> 130
Section 1.28 "Participation Notice" shall have the meaning
set forth in Section 3.2(b).
Section 1.29 "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.
Section .30 "Stockholder Approval" shall have the meaning
set forth in the Stock Purchase Agreement.
Section 1.31 "Stockholder Approval Date" shall mean the date
on which a duly called and held meeting of stockholders of the Company
is held at which meeting (i) a quorum is present and (ii) Stockholder
Approval is obtained.
Section 1.32 "Standstill Period" shall have the meaning set
forth in Section 4.1(a).
Section 1.33 "Stock Purchase Agreement" shall have the
meaning set forth in the second paragraph hereof.
Section 1.34 "Termination Event" shall mean the date on
which the Remaining Equity Commitment is zero and 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.
Section 1.35 "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 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.
Section 1.36 "Transfer" shall have the meaning set forth in
Section 4.3.
Section 1.37 "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) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), from and
after the Stockholder Approval Date, if any, the Company shall amend
its By-laws, and the Company and Investor will take all actions
necessary to cause the Board to be structured to consist of
<PAGE> 131
eleven members, of which four 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 soon as practicable
after the Stockholder Approval Date. 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, 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
nominees to the Board (subject to right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a)) such
that Investor shall have on the Board of Directors a number of
representatives equal to a percentage of the total number of members
of the Board of Directors that is equal to the percentage of Company
Common Stock Beneficially Owned by Investor, on a Fully Diluted Basis;
provided, however, that (i) if the Investor would be entitled to a
fractional number of representatives, the Investor shall instead be
entitled to a number of representatives equal to the next higher
number, (ii) in no event shall the Investor be entitled to more than
four representatives and (iii) after the occurrence of a Termination
Event, if any, Investor shall not be entitled to any representatives
on the Board of Directors.
(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) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), 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 eleven members at any time.
(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, including
the timing and amounts of Stock Purchases under the Stock Purchase
Agreement, shall be subject only to the approval of a majority of non-
<PAGE> 132
Investor Nominee Directors, notwithstanding the supermajority
provisions of the Company Charter and the By-laws required by the
Stock Purchase Agreement but subject to the provisions of Section 5.10
of the Stock Purchase Agreement.
Section 2.2 Committee Representation; Subsidiary Boards
(a) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least four Investor Nominees on the
Board, the Company shall amend its By-laws to provide that,
unless Investor chooses not to exercise its rights under this
Section 2.2(a), at least one Director who is an Investor Nominee
shall serve on each of the audit committee, the compensation
committee, any special committee(s) of the Board, and any other
committees which shall be charged with exercising substantial
authority on behalf of the Board (other than any committee
charged with the approval of the transactions contemplated by the
Stock Purchase Agreement or this Agreement, or any committee
charged with evaluating any Competing Transaction) (the
foregoing, together with the Executive Committee, the "Key
Committees"). As contemplated by the Stock Purchase Agreement,
Investor will have the right to have two Directors designated by
it serve on the Board's Executive Committee.
During such time as Investor is entitled to have at least
one Investor Nominee on the Board, unless Investor chooses not to
exercise its rights under this Section 2.2(a), at least one
Director who is an Investor Nominee shall serve on the Nominating
Committee of the Board. In addition, the Company's By-laws shall
be amended to provide that (i) the unanimous consent of the
Nominating Committee shall be required prior to the appointment
of a Chairman, Chief Executive Officer or President of the
Company, (ii) the Board of Directors of the Company shall not
make any recommendation or appointment for Directors who are
Chairman, Chief Executive Officer or President without the
unanimous approval of the Nominating Committee as set forth
herein and (iii) notwithstanding (ii) above, all nominees to the
Board of Directors (other than Investor Nominees) will require
the unanimous approval of the Nominating Committee. If the
Nominating Committee cannot, after a reasonable period of good
faith discussions (not to exceed 30 days), unanimously agree on a
nominee pursuant to the foregoing clause (iii), the nomination
will be referred to the entire Board of Directors, which shall
decide the matter based on a simple majority vote notwithstanding
the supermajority provisions of the Company Charter and the
By-laws required by the Stock Purchase Agreement.
Notwithstanding the foregoing, if none of the Directors who
are Investor Nominees would be considered "independent" of the
Company, "disinterested," "non-employee directors" and "outside
directors" (i) for purposes of any applicable rule of NASDAQ
National Market or any securities exchange or other self-
regulating organization (such as the National Association of
Securities Dealers) requiring that members of the audit committee
of the Board be independent of the Company, (ii) for purposes of
any law or regulation that requires, in order to obtain or
maintain favorable tax, securities, corporate law or other
material legal benefits with respect to any plan or arrangement
for employee compensation or benefits, that the members of the
committee of the Board charged with responsibility for such plan
or arrangement be "independent" of the Company, "disinterested,"
"non- employee directors" or "outside directors," or (iii) for
purposes of any special committee formed in connection with any
transaction
<PAGE> 133
or potential transaction involving the Company and any of
Investor, its Affiliates or any Group of which Investor is a
member or such other transaction or potential transaction which
would involve an actual or potential conflict of interest on the
part of the Directors who are Investor Nominees, then a Director
who is an Investor Nominee shall not be required to be appointed
to any such committee; provided, however, that the committees of
the Board shall be organized such that, to the extent
practicable, the only items to be considered by a Key Committee
on which no Director who is an Investor Nominee may serve will be
those items which prevent the Director who is an Investor Nominee
from serving on such Key Committee. Any members of any Key
Committee who are Investor Nominees shall, in the event of any
vacancy in such membership, be replaced by a Director who is an
Investor Nominee elected by a majority of the directors who are
Investor Nominees.
(b) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least one Investor Nominee on the
Board, unless Investor chooses not to exercise its rights under
this Section 2.2(b), one individual designated by Investor shall
serve as a member of the board of directors or comparable
governing body of each Subsidiary of the Company, if any, that is
a corporation or other person with a board of directors or board
of trustees.
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.
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 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
49.9% 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 Directors
nominated by the Nominating Committee or the Board, as set forth in
Section 2.1(a).
<PAGE> 134
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 owned by Investor prior
to such sale or issuance (and including for this purpose any shares of
Company Common Stock to be acquired pursuant to the Stock Purchase
Agreement, but not yet issued) relative to the number of shares of
Company Common Stock outstanding prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be
acquired pursuant to the Stock Purchase Agreement, but not yet issued)
(but in no event more than 49.9% 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 on the date of the Stock Purchase
Agreement (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
<PAGE> 135
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), 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
<PAGE> 136
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 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 Stockholder Approval
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 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;
<PAGE> 137
(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");
(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 material violation of any material covenant of the
Company set forth in Section 5.5 of the Stock Purchase Agreement;
(vii) any breach by the Company of the Stock Purchase
Agreement (other than as contemplated by clause (vi) above) 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
(viii) 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 Section 4.1(a) shall be an "Early Standstill
Termination Event."
<PAGE> 138
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;
(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) 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
(vii) 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. Until the earlier of
(i) a Termination Event or (ii) two years after the Stockholder
Approval Date, the Advancing Party, the Buyer, and Investor will not,
and will cause each of their Controlled Affiliates not to, directly or
<PAGE> 139
indirectly, sell, transfer or otherwise dispose of (collectively,
"Transfer") any shares of Company Common Stock. Thereafter, and during
the remaining term, if any, of 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 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.
Section 4.4 Notice to Company. During the period specified
in Section 4.3, if any party wishes to sell pursuant to subsection
4.3(a), (b) or (c) any shares of Company Common Stock, 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 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. 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 representing more than 2% of the then
outstanding shares of Company Common Stock.
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. Provided that
Stockholder Approval is obtained, 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 49.9% 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
49.9% of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis, the Company shall take all
<PAGE> 140
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. From the date of
this Agreement until the occurrence of a 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.
Section 5.2 Additional Transfer Restrictions. In the event
that Stockholder Approval is not obtained on or prior to December 31,
1997, the Advancing Party, the Buyer, Investor and their Controlled
Affiliates shall have the right to Transfer the shares purchased from
the Company at the Initial Closing, provided, that until December 31,
2000 any such Transfer shall be made in a manner permitted by clause
(a) through (e) of the second sentence of Section 4.3.
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.
<PAGE> 141
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: Gary L. Davidson and Sheila Muldoon
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
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
<PAGE> 142
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 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
<PAGE> 143
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 Company
Common Stock pursuant to the Stock Purchase Agreement which breach is
neither cured nor desired from within 30 days of receipt of written
notice of such breach, 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
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.
<PAGE> 144
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/ Gary L. Davidson
-------------------------------------
Name: Gary L. Davidson
Title: Chairman
& Chief Executive Officer
<PAGE> 145
APPENDIX C
REGISTRATION RIGHTS AGREEMENT
C-1
<PAGE> 146
EXECUTION COPY
-------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and among
ARV ASSISTED LIVING, INC.
and
PROMETHEUS ASSISTED LIVING LLC
dated as of
July 14, 1997
-------------------------------------------------------
<PAGE> 147
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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"....................................1
(h) "Exchange Act"...........................................1
(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"...........................2
Section 2. Demand Registration....................................2
(a) Obligation to File.......................................2
(b) Black-Out Periods of Buyer...............................3
(c) Number of Demand Registrations...........................4
(d) Size of Demand Registration..............................4
(e) Notice...................................................4
(f) Expenses.................................................4
(g) Selection of Underwriters................................4
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..................................10
(d) Other Indemnification...................................11
(e) Indemnification Payments................................11
(f) Contribution............................................11
Section 8. Covenants Relating to Rule 144........................11
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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..................................13
(h) Interpretation; Absence of Presumption..................13
(i) Severability............................................14
</TABLE>
<PAGE> 149
REGISTRATION RIGHTS AGREEMENT (the
"Agreement") dated as of July 14, 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
(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
WHEREAS, in order to induce Buyer to enter into the Stock
Purchase Agreement, the Company has agreed to provide the registration
rights set forth herein;
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 as follows:
Section 1. Definitions. As used herein, the following terms
shall have the following meanings:
(a) "Agreement" shall have the meaning set forth in the
first paragraph hereof.
(b) "Buyer" shall mean Buyer together with any other
Investor as defined in the Stockholders Agreement.
(c) "Commencement Date" shall mean the second anniversary of
the date of this Agreement.
(d) "Commission" shall mean the Securities and Exchange
Commission, and any successor thereto.
(e) "Company" shall have the meaning set forth in the first
paragraph hereof.
(f) "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 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.
<PAGE> 150
(g) "Demand Registration" shall have the meaning set forth
in Section 2(a).
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any successor thereto, and the rules and
regulations thereunder.
(i) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(j) "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 pursuant to Section 3.2 of the Stockholders Agreement, and
(iii) any securities issued or issuable with respect to any
Company Common Stock or other securities referred to in clause
(i) or (ii) 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).
(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.
(l) "Registration Suspension Period" shall have the meaning
set forth in Section 2(b).
(m) "Securities Act" shall mean the Securities Act of 1933,
as amended, and any successor thereto, and the rules and
regulations thereunder.
(n) "Stock Purchase Agreement" shall have the meaning set
forth in the second paragraph hereof.
(o) "Suspension Notice" shall have the meaning set forth in
Section 2(b).
(p) "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.
<PAGE> 151
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
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
<PAGE> 152
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).
(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
<PAGE> 153
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 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
<PAGE> 154
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, 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
<PAGE> 155
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
(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
<PAGE> 156
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 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
<PAGE> 157
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 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
<PAGE> 158
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.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a
<PAGE> 159
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 (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.
<PAGE> 160
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> 161
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: Gary L. Davidson and
Sheila Muldoon
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.
<PAGE> 162
(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 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/ Gary L. Davidson
-----------------------
Name: Gary L. Davidson
Title: Chairman & Chief
Executive Officer
PROMETHEUS ASSISTED LIVING LLC
by /s/ Robert P. Freeman
-----------------------
Name: Robert P. Freeman
Title: President
<PAGE> 163
APPENDIX D
AMENDMENT TO RESTATED ARTICLES OF
INCORPORATION OF ARV ASSISTED LIVING, INC
D-1
<PAGE> 164
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
ARV ASSISTED LIVING, INC.,
A CALIFORNIA CORPORATION
Gary L. Davidson and Sheila M. Muldoon certify that:
1. They are the President and Secretary, respectively, of ARV Assisted
Living, Inc. (the "Corporation"), a California corporation.
2. Article 6, Section 2 of the Articles of Incorporation of this
Corporation is amended to read in its entirety as follows:
"Section 2. Number. The number of Directors shall be not less than
five nor more than eleven.
The Directors shall be divided into two or three classes. So long as
there are seven or eight Directors, the Directors shall be divided into two
classes. The members of each such class shall hold office until their
successors are duly elected and qualified. At each annual meeting of
shareholders of the Corporation, the successors to a class of Directors
whose term expires at such meeting will be elected to hold office for a
term expiring at the annual meeting of shareholders held in the second year
following the year of their election. In the event there are nine or more
Directors, the Directors shall be divided into three classes. The members
of each such class shall hold office until their successors are duly
elected and qualified. At each annual meeting of shareholders of the
Corporation, the successors to a class of Directors whose term expires at
such meeting will be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election.
The exact number of Directors shall be fixed within these specified
limits by the Board of Directors and appointment of Directors to their
respective classes shall be in the manner provided in the Bylaws."
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of this Corporation.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of this
Corporation is . The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50% of the outstanding shares.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment at Costa Mesa, California on , 1997.
Gary L. Davidson
Chairman of the Board, President and
Chief Executive Officer
Sheila M. Muldoon
Vice President, Secretary and General
Counsel
D-2
<PAGE> 165
APPENDIX E
AGREEMENT AND PLAN OF MERGER
E-1
<PAGE> 166
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ARV DELAWARE, INC.,
A DELAWARE CORPORATION
AND
ARV ASSISTED LIVING, INC.,
A CALIFORNIA CORPORATION
This Agreement and Plan of Merger (this "Agreement") dated as of
, 1997, is by and between ARV DELAWARE, INC., a Delaware corporation
(hereinafter sometimes called "ARV Delaware"), and ARV ASSISTED LIVING, INC., a
California corporation (hereinafter called "ARV California"). ARV Delaware and
ARV California are sometimes hereinafter referred to as the "constituent
corporations."
STIPULATIONS AND RECITALS
A. ARV Delaware is a corporation duly organized and existing under the laws
of the State of Delaware, with its principal office located at Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
ARV Delaware has a capitalization of one hundred ten million (110,000,000)
authorized shares divided into two classes designated "Common Stock" and
"Preferred Stock"; (a) 100,000,000 shares of Common Stock, par value $.01 per
share, and (b) 10,000,000 shares of Preferred Stock, par value $.01 per share.
ARV Delaware has 100 shares of Common Stock issued and outstanding, all of which
are owned by ARV California.
B. ARV California is a corporation duly organized and existing under the
laws of the State of California, with its principal office located at 245
Fischer Avenue, D-1, Costa Mesa, California 92626.
ARV California also has a capitalization of 110,000,000 authorized shares
divided into two classes designated "Common Stock" and "Preferred Stock"; (a)
100,000,000 shares of Common Stock, no par value, and (b) 10,000,000 shares of
Preferred Stock, no par value. ARV California has 11,584,272 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued and
outstanding.
C. ARV Delaware and ARV California have entered into this Agreement in
accordance with Section 252 of the General Corporation Law of the State of
Delaware (the "DGCL") and Section 1108 of the California Corporations Code (the
"CCC") providing for the merger of ARV California with and into ARV Delaware
(the "Merger"), which Agreement has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 252(c) of the DGCL.
D. The boards of directors of the constituent corporations deem it
desirable and in the best interests of the corporations and their shareholders
that ARV California be merged into ARV Delaware in accordance with the
provisions of Section 252 of the DGCL and Chapter 11 of the CCC, in order that
the transaction qualify as a "reorganization" within the meaning of Sections
368(a)(1)(A) and 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended.
E. The CCC permits a merger of a business corporation of the State of
California with and into a business corporation of another jurisdiction.
F. The DGCL permits the merger of a business corporation of another
jurisdiction with and into a business corporation of the State of Delaware.
G. The Agreement has been approved and adopted by the requisite percentages
of the outstanding voting stock of ARV California and ARV Delaware.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by ARV
Delaware and approved by resolutions adopted by its Board
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of Directors and by its sole stockholder and being thereunto duly entered into
by ARV California and approved by resolutions adopted by its Board of Directors
and by the requisite vote of its shareholders at its 1997 Annual Meeting of
Shareholders, the Merger and the terms and conditions thereof and the mode of
carrying the same into effect, together with any provisions required or
permitted to be set forth herein are hereby determined and agreed upon as
follows:
SECTION ONE -- STATEMENT OF MERGER
ARV California shall, pursuant to the provisions of the DGCL, be merged
with and into ARV Delaware, and from and after the effective date of the Merger,
ARV California shall cease to exist and ARV Delaware shall continue to exist
pursuant to the provisions of the DGCL. ARV Delaware, as the surviving
corporation from and after the effective date of the Merger, is sometimes
hereinafter referred to as the "Surviving Corporation."
SECTION TWO -- TERMS AND CONDITIONS
(a) On the effective date of the Merger, the separate existence of ARV
California shall cease, and ARV Delaware shall succeed to all the rights,
privileges, immunities, and franchises, and all the property, real, personal and
mixed, of ARV California, without the necessity for any separate transfer. ARV
Delaware shall thereafter be responsible and liable for all liabilities and
obligations of ARV California, and neither the rights of creditors nor any liens
on the property of ARV California shall be impaired by the Merger.
(b) Upon approval of this Agreement by shareholders of ARV California and
the sole stockholder of ARV Delaware, the sole stockholder of ARV Delaware shall
be deemed to have adopted and approved (i) the stock option plans of ARV
California, (ii) all options that are outstanding under such stock options plans
immediately prior to the Merger, and (iii) all warrants of ARV California that
are outstanding immediately prior to the Merger. Such plans, options and
warrants shall be deemed adopted and approved on the same terms and conditions
existing under such plans, options and warrants immediately prior to the Merger.
SECTION THREE -- CONVERSION OF SHARES
The manner and basis of converting the shares of ARV California into shares
of ARV Delaware upon the effective date of the Merger shall be as follows:
(a) Each share of the 11,584,272 shares of Common Stock of ARV
California issued and outstanding on the effective date of the Merger shall
be converted into one share of Common Stock of the Surviving Corporation,
which shall thereafter be issued and outstanding shares of Common Stock of
the Surviving Corporation.
(b) Each share of the 100 shares of Common Stock of ARV Delaware
issued and outstanding on the effective date of the Merger shall be
cancelled and shall cease to exist.
(c) After the effective date of the Merger, the conversion and
exchange of shares provided by this Section Three shall be effected as
follows:
(i) No certificates for shares of the Surviving Corporation's
Common Stock will be issued to holders of any of the shares of ARV
California's Common Stock upon consummation of the Merger.
(ii) Certificates representing shares of ARV California's Common
Stock shall upon the consummation of Merger be deemed for all purposes
to represent that number of shares of Common Stock of the Surviving
Corporation receivable in exchange therefor as provided in Section 3(a)
hereof.
(iii) ARV California, as the holder of a certificate for shares of
Common Stock in ARV Delaware described in paragraph (b) of this Section
Three, shall surrender such certificate for cancellation.
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(d) Each option under ARV California's stock option plans outstanding
immediately prior to the Merger shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and become
an option or right to purchase a number of shares of the Surviving
Corporation's Common Stock equal to the number of shares of Common Stock of
ARV California subject to such option, without change in the exercise price
therefor and otherwise upon the same terms and conditions of such option.
(e) Each warrant issued by ARV California and outstanding immediately
prior to the Merger shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into and become a warrant
to purchase a number of shares of the Surviving Corporation's Common Stock
equal to the number of shares of Common Stock of ARV California subject to
such warrant, without change in the exercise price therefor and otherwise
upon the same terms and conditions of such warrant.
SECTION FOUR -- CERTIFICATE OF INCORPORATION
Attached hereto as Exhibit A and made a part hereof is a copy of the
Certificate of Incorporation of ARV Delaware (the "Certificate") as the same
shall be in force and effect at the effective time of the Merger. The
Certificate shall continue to be the certificate of incorporation of the
Surviving Corporation following the effective date of the Merger until the same
shall be thereafter altered or amended; provided, however, that on the effective
date, Article FIRST of the Certificate shall be amended to read, in its
entirety, as follows:
"FIRST: The name of the Corporation (hereinafter the "Corporation")
is:
ARV Assisted Living, Inc."
SECTION FIVE -- BYLAWS
The bylaws of ARV Delaware shall continue to be the bylaws of the Surviving
Corporation following the effective date of the Merger until the same shall be
thereafter altered or amended.
SECTION SIX -- DIRECTORS
The directors of ARV California as of the effective date of the Merger
shall be the directors of the Surviving Corporation from and after the effective
date of the Merger. All of such directors shall hold their directorships until
the election and qualification of their respective successors, or until their
prior resignation, removal or death.
SECTION SEVEN -- OFFICERS
The officers of ARV California as of the effective date of the Merger shall
be the officers of the Surviving Corporation from and after the effective date
of the Merger. All of such officers shall hold their offices until the election
and qualification of their respective successors or until their tenure is
otherwise terminated in accordance with the bylaws of the Surviving Corporation,
or until their prior resignation or death.
SECTION EIGHT -- DEFERRAL, TERMINATION AND AMENDMENT
The parties hereto may amend, modify, supplement or terminate this
Agreement at any time prior to the effective date of the Merger, whether prior
to or after approval of the Merger and this Agreement by the shareholders of ARV
California and the sole stockholder of ARV Delaware, without shareholder or
stockholder approval, in such manner as may be agreed upon by ARV California and
ARV Delaware in writing.
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SECTION NINE -- AGREEMENT ON FILE
An executed copy of this Agreement is on file at the principal place of
business of ARV Delaware located in the State of California, 245 Fischer Avenue,
D-1, Costa Mesa, California 92626.
SECTION TEN -- FURTHER ASSURANCES
In the event that this Agreement shall have been fully approved and adopted
on behalf of ARV California in accordance with the provisions of the CCC and on
behalf of ARV Delaware in accordance with the provisions of the DGCL, the
constituent corporations agree that they will cause to be executed and filed and
recorded any document or documents prescribed by the laws of the State of
California and by the laws of the State of Delaware, and that they will cause to
be performed all necessary acts within the State of California and the State of
Delaware and elsewhere to effectuate the Merger.
The boards of directors and the proper officers of ARV California and of
ARV Delaware are hereby authorized, empowered and directed to do any and all
acts and things, and to make, execute, deliver, file and record any and all
instruments, papers and documents which shall be or become necessary, proper or
convenient to carry out or put into effect any of the provisions of this
Agreement.
SECTION ELEVEN -- EFFECTIVE DATE
The Merger shall have become effective on the date of filing of a
certificate of merger with the Secretary of State of the State of Delaware in
accordance with Sections 252(c) and 103 of the DGCL.
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IN WITNESS WHEREOF, ARV Delaware and ARV California, as duly authorized by
their respective boards of directors, have caused this Agreement to be executed
as of the date first set forth above.
ARV DELAWARE, INC.,
a Delaware corporation
By:
------------------------------------
Gary L. Davidson,
President
ARV ASSISTED LIVING, INC.,
a California corporation
By:
------------------------------------
Gary L. Davidson,
President
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APPENDIX F
ARV DELAWARE, INC.
CERTIFICATE OF INCORPORATION
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CERTIFICATE OF INCORPORATION
OF
ARV DELAWARE, INC.,
A DELAWARE CORPORATION
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter the "Corporation") is:
ARV Delaware, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, New Castle County, Delaware 19801
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares which the Corporation shall have the
authority to issue is 110,000,000 shares, of which 100,000,000 shares shall be
Common Stock, par value $.01 per share, and 10,000,000 shares shall be Preferred
Stock, par value $.01 per share.
The Board of Directors of this corporation is hereby empowered to cause the
Preferred Stock to be issued from time to time for such consideration as it may
from time to time fix, to cause such Preferred Stock to be issued in series with
such voting powers and such designations, preferences, privileges and relative,
participating, optional or other special rights as designated by the Board of
Directors in the resolution providing for the issuance of such series and,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of such
series then outstanding), the number of shares of any such series subsequent to
the issue of shares of that series. Shares of Preferred Stock of any one series
shall be identical in all respects.
All shares of any series of Preferred Stock which shall have been redeemed,
converted, exchanged or otherwise surrendered to or acquired by the Corporation
pursuant to its terms, shall be cancelled and have the status of authorized but
unissued shares of Preferred Stock of the Corporation.
FIFTH: In addition to the other powers expressly granted by statute, the
Board of Directors shall have the power to adopt, repeal, alter, amend and
rescind the Bylaws of the Corporation.
SIXTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly called and may not be taken by
written consent of the stockholders.
SEVENTH: At an annual meeting of stockholders, only such business shall be
conducted and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, a majority of
the Directors, or (b) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Article SEVENTH. For a proposal to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to, or mailed and
received at, the
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principal executive offices of the Corporation not less than 180 days prior to
the scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than 180 days' notice or prior public disclosure of the date of the scheduled
annual meeting is given or made, notice by the stockholder, to be timely, must
be so delivered or received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business and any other stockholders known by such stockholder to be
supporting such proposal, (c) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (d) any financial interest of the stockholder in such proposal.
In addition, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders by or at the direction of the Board of Directors, by
any nominating committee or person appointed by the Board or by any stockholder
of the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Article SEVENTH. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation not less than
180 days prior to the scheduled annual meeting, regardless of any later date;
provided, however, that if less than 180 days' notice or prior public disclosure
of the date of the scheduled annual meeting is given or made, notice by the
stockholder, to be timely, must be so delivered or received not later than the
close of business on the tenth day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day on
which such public disclosure was made. A stockholder's notice to the Secretary
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iii) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of the stockholder and (ii) the class and number of
shares of the Corporation's stock which are beneficially owned by the
stockholder on the date of such stockholder notice. The Corporation may require
any proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
The presiding officer of the annual meeting shall determine and declare at
the annual meeting whether the stockholder proposal or nomination was made in
accordance with the terms of this Article SEVENTH. If the presiding officer
determines that a stockholder proposal or nomination was not made in accordance
with the terms of this Article SEVENTH, he or she shall so declare at the annual
meeting and any such proposal or nomination shall not be acted upon at the
annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, Directors and
committees of the Board of Directors, but, in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
EIGHTH: The name and the mailing address of the incorporator are as
follows:
Kasey R. Hume
650 Town Center Drive
Twentieth Floor
Costa Mesa, California 92626
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NINTH: The Corporation is to have perpetual existence.
TENTH: The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented.
ELEVENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
TWELFTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article TWELFTH.
Signed on , 1997
Kasey R. Hume
Incorporator
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RESIGNATION OF INCORPORATOR
The undersigned hereby resigns as the incorporator of ARV Delaware, Inc., a
Delaware corporation, effective immediately.
Dated: , 1997
#
KASEY R. HUME
<PAGE> 176
APPENDIX G
BYLAWS OF ARV DELAWARE, INC.
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BYLAWS
OF
ARV DELAWARE, INC.,
A DELAWARE CORPORATION
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I OFFICES...................................................................... 1
Section 1.1 Registered Office...................................................... 1
Section 1.2 Other Offices.......................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS.................................................... 1
Section 2.1 Place of Meetings...................................................... 1
Section 2.2 Annual Meeting of Stockholders......................................... 1
Section 2.3 Quorum; Adjourned Meetings and Notice Thereof.......................... 1
Section 2.4 Voting................................................................. 1
Section 2.5 Proxies................................................................ 2
Section 2.6 Special Meetings....................................................... 2
Section 2.7 Notice of Stockholder's Meetings....................................... 2
Section 2.8 Maintenance and Inspection of Stockholder List......................... 2
Section 2.9 Stockholder Action by Written Consent Without a Meeting................ 2
ARTICLE III DIRECTORS.................................................................. 3
Section 3.1 Number, Election and Tenure............................................ 3
Section 3.2 Vacancies.............................................................. 3
Section 3.3 Powers................................................................. 3
Section 3.4 Directors' Meetings.................................................... 3
Section 3.5 Regular Meetings....................................................... 3
Section 3.6 Special Meetings....................................................... 3
Section 3.7 Quorum................................................................. 3
Section 3.8 Action Without Meeting................................................. 4
Section 3.9 Telephonic Meetings.................................................... 4
Section 3.10 Committees of Directors................................................ 4
Section 3.11 Minutes of Committee Meetings.......................................... 4
Section 3.12 Compensation of Directors.............................................. 4
Section 3.13 Indemnification........................................................ 5
ARTICLE IV OFFICERS.................................................................... 7
Section 4.1 Officers............................................................... 7
Section 4.2 Election of Officers................................................... 7
Section 4.3 Subordinate Officers................................................... 7
Section 4.4 Compensation of Officers............................................... 7
Section 4.5 Term of Office; Removal and Vacancies.................................. 7
Section 4.6 Chairman of the Board.................................................. 7
Section 4.7 President.............................................................. 7
Section 4.8 Vice President......................................................... 7
Section 4.9 Secretary.............................................................. 8
Section 4.10 Assistant Secretaries.................................................. 8
Section 4.11 Chief Financial Officer................................................ 8
Section 4.12 Assistant Treasurer.................................................... 8
ARTICLE V CERTIFICATES OF STOCK........................................................ 8
Section 5.1 Certificates........................................................... 8
Section 5.2 Signatures on Certificates............................................. 9
</TABLE>
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Section 5.3 Statement of Stock Rights, Preferences, Privileges..................... 9
Section 5.4 Lost Certificates...................................................... 9
Section 5.5 Transfers of Stock..................................................... 9
Section 5.6 Fixing Record Date..................................................... 9
Section 5.7 Registered Stockholders................................................ 10
ARTICLE VI GENERAL PROVISIONS.......................................................... 10
Section 6.1 Dividends.............................................................. 10
Section 6.2 Payment of Dividends................................................... 10
Section 6.3 Checks................................................................. 10
Section 6.4 Fiscal Year............................................................ 10
Section 6.5 Corporate Seal......................................................... 10
Section 6.6 Manner of Giving Notice................................................ 10
Section 6.7 Waiver of Notice....................................................... 10
Section 6.8 Annual Statement....................................................... 10
ARTICLE VII AMENDMENTS................................................................. 11
Section 7.1 Amendment by Directors or Stockholders................................. 11
</TABLE>
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BYLAWS
OF
ARV DELAWARE, INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2 Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. Meetings of stockholders shall be held at
any place within or without the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2.2 Annual Meeting of Stockholders. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
SECTION 2.3 Quorum; Adjourned Meetings and Notice Thereof. A majority of
the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.
SECTION 2.4 Voting. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these Bylaws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
SECTION 2.5 Proxies. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing subscribed
by such stockholder and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period. All proxies must
be filed with the Secretary of the corporation at the beginning of each meeting
in order to be counted in any vote at the meeting. Each stockholder shall have
one vote for each share of stock having voting power, registered in his name on
the books of the corporation on the record date set by the Board of Directors as
provided in Article V, Section 5.6 hereof. All elections shall be had and all
questions decided by a plurality vote.
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SECTION 2.6 Special Meetings. Special meetings of the stockholders, for
any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 2.7 Notice of Stockholder's Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
SECTION 2.8 Maintenance and Inspection of Stockholder List. The officer
who has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 2.9 Stockholder Action by Written Consent Without a
Meeting. Unless otherwise provided in the Certificate of Incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 Number, Election and Tenure. The Board shall consist of one or
more members. The exact number shall be determined from time to time by
resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of seven (7) persons. Until otherwise determined by
resolution of the Board, the Board will be divided into classes. The appointment
of Directors to their respective classes shall be made by the Board. Each class
shall contain at least one Director who is not affiliated with the Company (an
"Independent Director"). Directors shall be elected at the annual meeting of
stockholders and each director shall serve until such person's successor is
elected and qualified or until such person's death, retirement, resignation or
removal.
SECTION 3.2 Vacancies. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided
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by statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
SECTION 3.3 Powers. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
SECTION 3.4 Directors' Meetings. The directors may hold their meetings and
have one or more offices, and keep the books of the corporation outside of the
State of Delaware.
SECTION 3.5 Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
SECTION 3.6 Special Meetings. Special meetings of the Board of Directors
may be called by the President on forty-eight hours' notice to each director,
either personally or by mail, by facsimile or by telegram; special meetings
shall be called by the President or the Secretary in like manner and on like
notice on the written request of two directors unless the Board consists of only
one director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.
SECTION 3.7 Quorum. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum.
SECTION 3.8 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
SECTION 3.9 Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
SECTION 3.10 Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers
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which may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 3.11 Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
SECTION 3.12 Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
SECTION 3.13 Indemnification.
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no such indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
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(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (a) and (b). Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in paragraph (d) upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Section 13.
(f) The indemnification provided by this Section 13 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Section 13.
(h) For the purposes of this Section 13, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
ARTICLE IV
OFFICERS
SECTION 4.1 Officers. The officers of this corporation shall be chosen by
the Board of Directors and shall include a President, a Secretary, and a Chief
Financial Officer. The corporation may also have at the discretion of the Board
of Directors such other officers as are desired, including a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 4.3 hereof. In the event there are two or more
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Vice Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
SECTION 4.2 Election of Officers. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the corporation.
SECTION 4.3 Subordinate Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
SECTION 4.4 Compensation of Officers. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
SECTION 4.5 Term of Office; Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
SECTION 4.6 Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
Bylaws. If there is no President, the Chairman of the Board shall in addition be
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 4.7 of this Article IV.
SECTION 4.7 President. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
SECTION 4.8 Vice President. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall have such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors.
SECTION 4.9 Secretary. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep in
safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
SECTION 4.10 Assistant Secretaries. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
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SECTION 4.11 Chief Financial Officer. The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys, and other valuable effects in the name
and to the credit of the corporation, in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If required by the Board of Directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
SECTION 4.12 Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Chief Financial Officer, perform the duties and exercise the
powers of the Chief Financial Officer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 5.1 Certificates. Every holder of stock of the corporation shall
be entitled to have a certificate signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.
SECTION 5.2 Signatures on Certificates. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
SECTION 5.3 Statement of Stock Rights, Preferences, Privileges. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
SECTION 5.4 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity
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against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 5.5 Transfers of Stock. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5.6 Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 5.7 Registered Stockholders. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 6.2 Payment of Dividends. Before payment of any dividend there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interests
of the corporation, and the directors may abolish any such reserve.
SECTION 6.3 Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
SECTION 6.4 Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SECTION 6.5 Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.6 Manner of Giving Notice. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
SECTION 6.7 Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the
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person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed to be equivalent.
SECTION 6.8 Annual Statement. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VII
AMENDMENTS
SECTION 7.1 Amendment by Directors or Stockholders. These Bylaws may be
altered, amended or repealed or new Bylaws may be adopted by the stockholders or
by the Board of Directors, when such power is conferred upon the Board of
Directors by the Certificate of Incorporation, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon
the Board of Directors by the Certificate of Incorporation it shall not divest
or limit the power of the stockholders to adopt, amend or repeal Bylaws.
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CERTIFICATE OF SECRETARY
OF
ARV DELAWARE, INC.,
A DELAWARE CORPORATION
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of ARV Delaware,
Inc., a Delaware corporation; and
(2) That the foregoing bylaws, comprising twelve (12) pages,
constitute the bylaws of said corporation as duly adopted by an Action by
Unanimous Written Consent of the Board of Directors of said corporation as
of , 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this day of
, 1997.
--------------------------------------
Sheila M. Muldoon
Secretary
<PAGE> 190
APPENDIX H
OPINION OF SALOMON BROTHERS INC
H-1
<PAGE> 191
APPENDIX H
[Salomon Brothers Inc Letterhead]
Board of Directors
ARV Assisted Living, Inc.
245 Fischer Avenue
Costa Mesa, California 92626
Members of the Board:
We understand that ARV Assisted Living, Inc. (the "Company") proposes to
enter into a stock purchase agreement dated as of July 14, 1997 (the
"Agreement") with Lazard Freres Real Estate Investors L.L.C. and its affiliate,
Prometheus Assisted Living LLC (collectively, the "Purchaser"), pursuant to
which the Purchaser will purchase from the Company up to 9,653,325 shares of the
Company's Common Stock, no par value (the "Common Stock"). The Agreement
provides that, among other things, subject to certain conditions precedent, (i)
on or before August 29, 1997, the Company will issue and sell, and the Purchaser
will purchase (the "Initial Purchase") 1,921,012 shares of Common Stock for
$14.00 per share (the "Subscription Price"), (ii) subject to shareholder
approval, the Company will issue and sell, and the Purchaser will purchase (the
"Second Purchase") 3,078,988 shares of Common Stock at the Subscription Price,
and (iii) after the date of the Second Purchase, the Company will be required to
issue and sell to the Purchaser, and the Purchaser will be required to purchase
from the Company, in one or more transactions (the "Subsequent Purchases", and
together with the Initial Purchase and the Second Purchase, the "Investment"),
an additional 4,653,325 shares of Common Stock at the Subscription Price. The
Agreement requires such additional shares to be purchased by June 30, 1999.
Subsequent to the Initial Purchase, the Agreement requires the Company to
prepare and distribute a proxy statement (the "Proxy Statement") to its
shareholders which will, among other things, seek the consent of its
shareholders to approve the purchases of Common Stock by the Purchaser as
contemplated by the Agreement.
The Agreement further provides that in the event shareholder approval with
respect to the Second Purchase and the Subsequent Purchases is not obtained by
December 31, 1997, the Purchaser will be entitled to a repayment by the Company
of a certain portion of the Subscription Price as an adjustment thereto and, in
certain circumstances, will be entitled to the payment by the Company of certain
expenses and additional fees. The terms and conditions of the Investment are set
forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion as to whether the cash of $14.00 per share of Common Stock to be
received by the Company pursuant to the Investment is fair to the Company from a
financial point of view.
In connection with this opinion, we reviewed and analyzed, among other
things (i) the Agreement and the specific terms of the Investment, (ii) the
Annual Reports to Shareholders and Annual Reports on Form 10-K for each of the
years ended March 31, 1997 and 1996 and such other publicly available
information concerning Company as we believed to be relevant to our inquiry,
(iii) financial and operating information with respect to the business,
operations and prospects of the Company furnished to us by the Company, (iv) a
trading history of the Company's Common Stock from October 1995 (the date of the
Company's initial public offering of its Common Stock) to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (v) a comparison of the historical financial results and present
financial condition of the Company with those of other companies that we deemed
relevant, and (vi) a comparison of the financial terms of the Investment with
the financial terms of certain other transactions that we deemed relevant. We
have also reviewed the terms of the Registration Rights Agreement between the
Company and the Purchaser pursuant to which the Company has agreed to cause the
shares of Common Stock acquired by the Purchaser to be registered for sale under
the Securities Act of 1933 and the terms of the Stockholders Agreement between
the Company and the Purchaser pursuant to which certain rights and obligations
with respect to the Purchaser's ownership of the shares of Common Stock is set
forth. In addition, we have considered the pro forma effects of the Investment
on the Company's capitalization ratios and forecasted earnings and cash flow,
had discussions with the management of the Company
<PAGE> 192
concerning the business, operations, assets, financial condition and prospects
of the Company, and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial projections of the Company, upon
advice of management of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of management of the Company as to the future financial
performance of the Company and that the Company will perform in accordance with
such projections. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company and have not made or
obtained any evaluations or appraisals of the assets or liabilities of the
Company. We have assumed that consummation of all or any portion of the
Investment will not result in any default or similar event, or trigger any
change-in-control payment or offer to be made, under any of the Company's loan
agreements, instruments of indebtedness or other agreements, which have not been
or will not be waived. In addition, pursuant to the terms of our engagement by
the Company, you have not authorized us to solicit, and we have not solicited,
any indications of interest from any third party with respect to a similar
investment in the shares of the Company's Common Stock or the purchase of all or
a part of the business of the Company. Our opinion relates only to the
Investment and does not address the merits of any other proposal or indication
of interest that has been or might be received. Our opinion necessarily is based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in connection with the
proposed Investment and will receive fees for our services that are contingent
upon the consummation of the purchases of Common Stock by the Purchaser as
contemplated by the Agreement. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering of this opinion.
We also have performed various investment banking services for the Company and
its affiliates in the past and have received customary commissions and fees for
such services. In the ordinary course of our business, we actively trade in the
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing and such other matters as we
considered relevant, we are of the opinion as of the date hereof that, the cash
of $14.00 per share of Common Stock to be received by the Company pursuant to
the Investment, is fair to the Company from a financial point of view.
Very truly yours,
Salomon Brothers Inc
<PAGE> 193
PROXY
ARV ASSISTED LIVING, INC.
Annual Meeting of Shareholders -- October 14, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of ARV Assisted Living, Inc. does hereby
nominate, constitute and appoint Gary L. Davidson and Graham P. Espley-Jones or
either of them, the true and lawful proxies, agents and attorneys of the
undersigned, with full power of substitution, to vote for the undersigned all
of the common stock of said corporation standing in the name of the
undersigned on its books at the close of business on August 19, 1997 at the
Annual Meeting of Shareholders to be held at The Doubletree Hotel, Suite ____,
3050 Bristol Street, Costa Mesa, California, on Tuesday, October 14, 1997 or at
any adjournment thereof, with all of the powers which would be possessed by the
undersigned if personally present as follows.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 194
Please mark
votes as in this [X]
sample.
NOTE: The effectiveness of each of Proposals 1 and 2 is conditioned upon the
approval of both of Proposals 1 and 2. Accordingly, failure of the shareholders
to approve either of Proposals 1 or 2 may result in the ineffectiveness of both
Proposals.
<TABLE>
<S> <C> <C> <C>
1. Approval of the Transactions contemplated by the Stock Purchase FOR AGAINST ABSTAIN
Agreement. [ ] [ ] [ ]
2. Approval of the Amendment to the Restated Articles of Incorporation of FOR AGAINST ABSTAIN
the Company to increase the maximum number of authorized directors [ ] [ ] [ ]
from nine to 11.
3. Approval of the reincorporation of the Company as a Delaware corpora- FOR AGAINST ABSTAIN
tion, which will also be named ARV Assisted Living, Inc., pursuant to a [ ] [ ] [ ]
merger of the Company into a wholly-owned Delaware subsidiary and
the conversion of the Common Stock of the Company into the common
stock, par value $.01 per share, of the surviving corporation and of all of
the provisions set forth in the Certificate of Incorporation and Bylaws of
the surviving corporation.
FOR ALL WITHHOLD
nominees AUTHORITY
listed below in that to vote for all nomi-
4. Elect members of the Board of Directors of ARV Assisted Living, Inc. class indicated. nees listed below
[ ] [ ]
Class A Directors (to serve until the annual meeting of shareholders in 1998):
John A. Booty, R. Bruce Andrews and James M. Peters.
Class B Directors (to serve until the annual meeting of shareholders in 1999):
David P. Collins, Gary L. Davidson, Maurice J. DeWald and John J. Rydzewski.
(Instruction: To WITHHOLD AUTHORITY to vote for any individual nominee, draw a line through
(or otherwise strike out) the nominee's name in the list above.)
5. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
</TABLE>
Mark here for address change [ ]
and note below
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders dated October 14, 1997 and the Proxy Statement furnished therewith.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Signature(s):_____________________________________________ Date:________________
NOTE: Please sign name exactly as your name (or names) appear on the stock
certificate. When signing as attorney, executor, administrator, trustee or
guardian please give full title. If more than one trustee, all should sign. All
joint owners must sign.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
