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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 8)*
ARV Assisted Living, Inc.
(Name of Issuer)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
00204C107
(CUSIP Number)
Marjorie L. Reifenberg, Esq. With a copy to
Prometheus Assisted Living LLC Kevin J. Grehan, Esq.
LF Strategic Realty Investors II L.P. Cravath, Swaine & Moore
LFSRI II Alternative Partnership L.P. 825 Eighth Avenue
LFSRI II-CADIM Alternative Partnership New York, New York 10019
Lazard Freres Real Estate Investors L.L.C. (212) 474-1490
30 Rockefeller Plaza
New York, NY 10020
(212) 632-6000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 1, 1999
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this Schedule 13D, and
is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or
240.13d-1(g), check the following box [ ].
NOTE: Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See ss.
240.13d-7(b) for other parties to whom copies are sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to the subject
class of securities, and for any subsequent amendment containing information
which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall
not be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
Continued on following pages
Page 1 of 42 pages
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<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107
1 Name of Reporting Persons. I.R.S. Identification Nos. of Above
Persons (entities only).
Prometheus Assisted Living LLC
2 Check the Appropriate Box If a Member of a Group
(See Instructions) (a) [ ]
(b) [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
OO
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
0 shares of Common Stock
Number of Shares 8 Shared Voting Power
Beneficially Owned by Each 7,595,069 shares of Common Stock
Reporting Person with
9 Sole Dispositive Power
0 shares of Common Stock
10 Shared Dispositive Power
7,595,069 shares of Common Stock
11 Aggregate Amount Beneficially Owned by Each Reporting Person
7,595,069 shares of Common Stock
12 Check if the Aggregate Amount in Row (11) Excludes
Certain Shares (See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
47.85% based on the number of shares of Common Stock outstanding
on August 2, 1999
14 Type of Reporting Person (See Instructions)
OO
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107
1 Name of Reporting Persons. I.R.S. Identification Nos. of Above
Persons (entities only).
LF Strategic Realty Investors II L.P.
2 Check the Appropriate Box If a Member of a Group
(See Instructions) (a) [ ]
(b) [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
OO, BK
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
0 shares of Common Stock
8 Shared Voting Power
Number of Shares 7,595,069 shares of Common Stock
Beneficially Owned by Each
Reporting Person with 9 Sole Dispositive Power
0 shares of Common Stock
10 Shared Dispositive Power
7,595,069 shares of Common Stock
11 Aggregate Amount Beneficially Owned by Each Reporting Person
7,595,069 shares of Common Stock
12 Check if the Aggregate Amount in Row (11) Excludes Certain
Shares (See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
47.85% based on the number of shares of Common Stock outstanding
on August 2, 1999
14 Type of Reporting Person (See Instructions)
PN
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107
1 Name of Reporting Persons. I.R.S. Identification Nos. of Above
Persons (entities only).
LFSRI II Alternative Partnership L.P.
2 Check the Appropriate Box If a Member of a Group
(See Instructions) (a) [ ]
(b) [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
OO, BK
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
0 shares of Common Stock
8 Shared Voting Power
7,595,069 shares of Common Stock
Number of Shares
Beneficially Owned By Each 9 Sole Dispositive Power
Reporting Person with 0 shares of Common Stock
10 Shared Dispositive Power
7,595,069 shares of Common Stock
11 Aggregate Amount Beneficially Owned by Each Reporting Person
7,595,069 shares of Common Stock
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
47.85% based upon number of shares of Common Stock outstanding on
August 2, 1999
14 Type of Reporting Person (See Instructions)
PN
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107
1 Name of Reporting Persons. I.R.S. Identification Nos. of Above
Persons (entities only).
LFSRI II - CADIM Alternative Partnership
2 Check the Appropriate Box If a Member of a Group
(See Instructions) (a) [ ]
(b) [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
OO, BK
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
0 shares of Common Stock
Number of Shares 8 Shared Voting Power
Beneficially Owned By Each 7,595,069 shares of Common Stock
Reporting Person with
9 Sole Dispositive Power
0 shares of Common Stock
10 Shared Dispositive Power
7,595,069 shares of Common Stock
11 Aggregate Amount Beneficially Owned by Each Reporting Person
7,595,069 shares of Common Stock
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
47.85% based upon number of shares of Common Stock outstanding
on August 2, 1999
14 Type of Reporting Person (See Instructions)
PN
<PAGE>
SCHEDULE 13D
CUSIP No. 00204C107
1 Name of Reporting Persons. I.R.S. Identification Nos. of Above
Persons (entities only).
Lazard Freres Real Estate Investors L.L.C.
2 Check the Appropriate Box If a Member of a Group
(See Instructions) (a) [ ]
(b) [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
OO, BK
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
New York
7 Sole Voting Power
0 shares of Common Stock
Number of Shares 8 Shared Voting Power
Beneficially Owned By Each 7,595,096 shares of Common Stock
Reporting Person with
9 Sole Dispositive Power
0 shares of Common Stock
10 Shared Dispositive Power
7,595,069 shares of Common Stock
11 Aggregate Amount Beneficially Owned by Each Reporting Person
7,595,069 shares of Common Stock
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions) [ ]
13 Percent of Class Represented by Amount in Row (11)
47.85% based upon number of shares of Common Stock outstanding on
August 2, 1999
14 Type of Reporting Person (See Instructions)
OO
<PAGE>
This Amendment No. 8 to Schedule 13D (this "Amendment") is filed
by Prometheus Assisted Living LLC, a Delaware limited liability company
("Prometheus"), LF Strategic Realty Investors II L.P., a Delaware limited
partnership ("LFSRI"), LFSRI II Alternative Partnership L.P., a Delaware
limited partnership ("LFSRI II AP"), LFSRI II-CADIM Alternative
Partnership, a Delaware limited partnership ("LFSRI CADIM"), and Lazard
Freres Real Estate Investors L.L.C., a New York limited liability company
("LFREI", and together with Prometheus, LFSRI, LFSRI II AP and LFSRI CADIM,
the "Reporting Persons"). Capitalized terms used herein but not defined
shall have the meanings ascribed thereto in the Schedule 13D, as amended,
originally filed by Prometheus and LFREI on July 23, 1997 (as amended, the
"Initial Schedule 13D").
This Amendment relates to a Settlement Agreement dated as of
September 29, 1999 (the "Settlement Agreement") among the Reporting
Persons, Atria Communities, Inc., Kapson Senior Quarters Corp. and ARV
Assisted Living, Inc. (the "Company") settling all outstanding litigation
between the parties and providing mutual releases of certain claims that
the parties may have had against each other. All references to the
Settlement Agreement are qualified in their entirety by the full text of
such Settlement Agreement, a copy of which is attached hereto as Exhibit 1
and is incorporated by reference herein. The Initial Schedule 13D is hereby
amended as follows:
Item 2. Identity and Background.
(a), (b), (c) and (f). The name, business address and principal
occupation or employment of the executive officers of LFREI are set forth
on Schedule I hereto and incorporated by reference herein. LFREI is a New
York limited liability company. Each person noted on such Schedule I is a
citizen of the United States other than Douglas N. Wells, who is a Canadian
citizen. Prometheus, LFSRI, LFSRI II AP and LFSRI CADIM have no officers.
(d) and (e). To the best knowledge of the Reporting Persons,
during the last five years none of the persons listed in Schedule I hereto
(i) has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) has been a party to any civil
proceeding of a judicial or administrative body of competent jurisdiction,
and is or was, as a result of such proceeding, subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws, or
finding any violation with respect to such laws.
Item 4. Purpose of Transaction.
(d). Pursuant to the terms of the Settlement Agreement, the
Company's Board of Directors (the "Board") has reduced the number of
members on the Board to five. Until 90 days after the date on which the
Reporting Persons and their respective Controlled Affiliates (as such term
is defined in the Settlement Agreement) no longer beneficially own a number
of shares of Common Stock equal to at least 10% of the shares of common
stock, par value $.01 share, of the Company (the "Common Stock")
outstanding on the date of the Settlement Agreement, (1) the number of
directors on the Board shall not exceed ten at any time, (2) if the number
of directors on the Board is six or less, Prometheus shall have the right
(but not the obligation) to nominate (x) two directors to the Board if the
Board is a single class and (y) one Class A nominee and one Class B nominee
if the Board is divided into three classes, and (3) if the number of
directors on the Board is more than six, Prometheus shall have the right
(but
<PAGE>
not the obligation) to nominate (x) three directors to the Board if the
Board is a single class and (y) one Class A nominee, one Class B nominee
and one Class C nominee if the Board consists of three classes. The
Settlement Agreement requires the Company and Prometheus to take all lawful
action necessary to appoint Prometheus's nominees to the Board. The
Settlement Agreement also requires the Company to support the nomination
and election of each director nominated by Prometheus pursuant to the terms
of the Settlement Agreement and to solicit proxies in favor of such
Prometheus nominees at each meeting of stockholders of the Company at which
directors are to be elected.
As conditions to the closing of the Settlement Agreement, (x)
John A. Moore will continue as a Class B member of the Board as one of
Prometheus's two directors, subject to reelection at the Company's annual
meeting in 2002 and (y) John Booty and Murry N. Gunty have resigned as
members of the Board. Pursuant to the terms of the Settlement Agreement,
Prometheus has the right to fill the existing Class A vacancy on the Board
created by the resignation of Robert P. Freeman unless such vacancy is
earlier filled by the Company's stockholders at an annual meeting. In
addition, according to the terms of the Settlement Agreement, if any
director nominated by Prometheus pursuant to the terms of the Settlement
Agreement ceases to serve on the Board for any reason, Prometheus has the
right to fill the resulting vacancy.
The foregoing discussion of the Settlement agreement is qualified
in its entirety by the full text of such Agreement, a copy of which is
attached hereto as Exhibit 1, and is incorporated by reference herein. See
also Item 4(g) and Item 6.
(g). As a condition to the closing of the Settlement Agreement,
the Company's By-laws (the "By-laws") have been amended as follows:
Section 3.1 of the Company of the By-laws has been amended
to provide that the Board shall consist of a minimum of five and
a maximum of ten members. The number of members on the Board may
not exceed ten without the written consent of Prometheus for so
long as the provisions of Section 2.01 of the Settlement
Agreement remain in effect. The Board will consist of five
persons unless otherwise determined by resolution and will be
divided into classes as specified in the Company's certificate of
incorporation.
Section 3.2 of the By-laws has been amended to provide that
for so long as the provisions of Section 2.01 of the Settlement
Agreement remain in effect, (i) if any Investor Designee (as such
term is defined in the Settlement Agreement) ceases to serve on
the Board for any reason, the resulting vacancy shall be filled
by a person designated by Prometheus until such time as a
stockholder vote is held to fill such vacancy and (ii) if the
number of members on the Board is increased to exceed six
persons, at least one of the vacancies created as a result of
such increase shall be filled by a person designated by
Prometheus until such time as a stockholder vote is held to fill
such vacancy.
Section 7.1 of the By-laws has been amended to prohibit the
amendment of Section 3.1 or Section 3.2 of the By-laws without
the consent of all of the members of the Board nominated by
Prometheus.
The Settlement Agreement also requires the Company and the
Reporting Persons to take or cause to be taken all lawful action necessary
to ensure at all times that
<PAGE>
the Company's certificate of incorporation and the By-laws are not
inconsistent with the provisions of the Settlement Agreement; provided that
the Company is not required to amend Article Fifth of its certificate of
incorporation.
The foregoing discussion of the Settlement Agreement, including
the amendment to the By-laws, is qualified in its entirety by the full text
of such agreement, a copy of which is attached hereto as Exhibit 1, and is
incorporated by reference herein. See Schedule 2.01(d) to the Settlement
Agreement for the full text of the Form of Amendment to the By-laws. See
also Item 4(d) and Item 6.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of
the Issuer.
Pursuant to the terms of the Settlement Agreement, none of the
Reporting Persons nor any of their respective Controlled Affiliates may
acquire or agree to acquire any shares of Common Stock in addition to the
shares of Common Stock owned by the Reporting Persons on the date of the
Settlement Agreement, except (i) if the Company has received an opinion in
customary form of a reputable investment banking firm mutually agreeable to
the Company and Prometheus to the effect that the consideration to be paid
for such Common Stock is fair, from a financial point of view, (ii) in
accordance with the participation rights granted to Prometheus in the
Settlement Agreement or (iii) after the occurrence of certain termination
events specified in the Settlement Agreement.
The Settlement Agreement grants Prometheus a participation right,
subject to certain exceptions, to purchase or subscribe for up to that
number of additional shares of capital stock to be issued or sold by the
Company which represents the same proportion of capital stock to be issued
or sold by the Company as is represented by the number of shares of Common
Stock beneficially owned by Prometheus prior to such sale or issuance
relative to the number of shares of Common Stock outstanding prior to such
sale or issuance (but in no event more than 35.8% of the total number of
shares of capital stock to be issued or sold by the Company at all
subsequent offerings). The Settlement Agreement requires that the purchase
or subscription by Prometheus or an affiliate thereof pursuant to the
participation rights granted by the Settlement Agreement must be at the
same price and on the same other terms and conditions, subject to certain
exceptions, 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.
Pursuant to the terms of the Settlement Agreement, Prometheus
agreed to accept an expense note issued on October 1, 1999 in the amount of
$1,500,000 (the "Expense Note") as payment in full for certain transaction
and litigation expenses owed by the Company. Interest begins accruing on
the principal amount of the Expense Note on April 1, 2001 at a rate equal
to the 30-day Treasury bill rate quoted by the Wall Street Journal as of
the most recent auction date prior to such date. The Company is required to
begin making monthly interest payments on such principal amount beginning
on May 1, 2001. The Expense Note matures on April 1, 2002.
As described in Item 4 above, the terms of the Settlement
Agreement require the Company to support the nomination and election of
each director nominated by Prometheus pursuant to the terms of the
Settlement Agreement and to solicit proxies
<PAGE>
in favor of such Prometheus nominees at each meeting of stockholders of the
Company at which directors are to be elected. See Item 4 for a further
description of certain provisions of the Settlement Agreement, including
Prometheus's right to nominate directors to the Board and fill certain Board
vacancies
The foregoing discussion of the Settlement Agreement, including
the provisions of the Expense Note, is qualified in its entirety by the
full text of such agreement, a copy of which is attached hereto as Exhibit
1, and is incorporated by reference herein. See Schedule 4.02 to the
Settlement Agreement for the full text of the Form of the Expense Note. See
also Item 4.
Item 7. Materials to be Filed as Exhibits.
Exhibit 1 -- Settlement Agreement dated as of September 29,
1999, among ARV Assisted Living, Inc., Prometheus
Assisted Living LLC, Lazard Freres Real Estate
Investors L.L.C., LF Strategic Realty Investors II
L.P., LFSRI II Alternative Partnership L.P., LFSRI
II - CADIM Alternative Partnership L.P., Atria
Communities, Inc. and Kapson Senior Quarters Corp.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: October 4, 1999
PROMETHEUS ASSISTED LIVING LLC,
by LF Strategic Realty Investors II L.P.,
its managing member,
by Lazard Freres Real Estate
Investors L.L.C.,
its general partner,
by /s/ John A. Moore
--------------------------------
Name: John A. Moore
Title: Principal & Chief
Financial Officer
LF STRATEGIC REALTY INVESTORS II L.P.,
by Lazard Freres Real Estate Investors
L.L.C., its general partner,
by /s/ John A. Moore
--------------------------------
Name: John A. Moore
Title: Principal & Chief
Financial Officer
LFSRI II ALTERNATIVE PARTNERSHIP L.P.,
by Lazard Freres Real Estate
Investors L.L.C., its general partner,
by /s/ John A. Moore
--------------------------------
Name: John A. Moore
Title: Principal & Chief
Financial Officer
LFSRI II - CADIM ALTERNATIVE
PARTNERSHIP L.P.,
by Lazard Freres Real Estate
Investors L.L.C., its general partner,
by /s/ John A. Moore
--------------------------------
Name: John A. Moore
Title: Principal & Chief
Financial Officer
<PAGE>
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.,
by /s/ John A. Moore
--------------------------------
Name: John A. Moore
Title: Principal & Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
1 Settlement Agreement dated as of 15
September 29, 1999, among ARV
Assisted Living, Inc., Prometheus
Assisted Living LLC, Lazard Freres
Real Estate Investors L.L.C., LF
Strategic Realty Investors II L.P.,
LFSRI II Alternative Partnership
L.P., LFSRI II - CADIM Alternative
Partnership L.P., Atria Communities,
Inc., and Kapson Senior Quarters
Corp.
<PAGE>
SCHEDULE I
The following is a list of the principals and executive
officers of LFREI on the date hereof, setting forth the present and
principal occupation for each such person and the corporation or other
organization in which such employment is conducted. The business address of
each such person is 30 Rockefeller Plaza, New York, NY 10020.
LFREI
Name Present and Principal Occupation
Robert C. Larson Managing Director of Lazard Freres &
Co. LLC and Chairman of LFREI.
Michael G. Medzigian Managing Director of Lazard Freres &
Co. LLC, and Chief Executive Officer
of LFREI.
Mark S. Ticotin Chief Operating Officer of LFREI.
John A. Moore Principal and Chief Financial Officer
of LFREI.
Marjorie L. Reifenberg Principal, General Counsel and
Secretary of LFREI.
Douglas T. Healy Principal of LFREI.
Douglas N. Wells Vice President of LFREI.
Paul A. Froning Vice President of LFREI.
Ellery W. Roberts Vice President of LFREI.
Gregory L. Weinberger Vice President of LFREI.
Henry C. Herms Controller of LFREI.
<PAGE>
SETTLEMENT AGREEMENT (this "Agreement") dated as of
September 29, 1999, among ARV Assisted Living, Inc., a
Delaware corporation (the "Company"), Prometheus Assisted
Living LLC, a Delaware limited liability company
("Investor"), and the Investor Affiliates (as defined
below).
WHEREAS the Company (as plaintiff and cross-defendant) and
Investor and Lazard Freres Real Estate Investors L.L.C. ("LFREI") (as
defendants and cross- plaintiffs) are parties to Case No. 794211 in the
Superior Court of the State of California for the County of Orange (the
"California Litigation");
WHEREAS Investor (as plaintiff) and the Company, Howard G.
Phanstiel and John A. Booty (as defendants) are parties to Civil Action No.
16846NC in the Court of Chancery of the State of Delaware in and for New
Castle County (the "Delaware Litigation"); and
WHEREAS the parties desire to compromise and settle certain
disputes among them, including their respective claims in the California
Litigation and the Delaware Litigation, in accordance with this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Certain Defined Terms. For purposes of this
Agreement, the following capitalized terms have the following meanings:
"Affiliate" has the meaning ascribed thereto in Rule 12b-2
promulgated under the Exchange Act, and as in effect on the date hereof.
"Beneficially Own" means, with respect to any security, to be the
"beneficial owner" of that security as determined pursuant to Rule 13d-3
under the Exchange Act.
"Board" means the Company's board of directors.
"Common Stock" means the common stock, par value $.01 per share,
of the Company.
"Control" means 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" has a correlative meaning.
"Disputes" means the claims arising out of and/or giving rise to
the California Litigation and the Delaware Litigation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Investor Affiliates" means Lazard Freres Real Estate Investors
L.L.C., a New York limited liability company, LF Strategic Realty Investors
II L.P., a Delaware
<PAGE>
limited partnership, LFSRI II Alternative Partnership L.P., a Delaware
limited partnership, LFSRI II-CADIM Alternative Partnership L.P., a
Delaware limited partnership, and each of them.
"Person" means any natural person, corporation, partnership
(whether general, limited or limited liability), limited liability company,
joint venture, estate, trust, association, governmental entity, or any
other entity or organization.
"Securities Act" means the Securities Act of 1933.
SECTION 1.02. Other Defined Terms. For purposes of this
Agreement, the following capitalized terms have the meanings given in the
following sections:
Term Section
Additional Investor Designee 2.01(a)
Amendment 2.01(d)
Agreement First Paragraph
Audit Committee 2.03(a)
Buyer's Expenses 4.02(a)
By-laws 2.01(a)
California Litigation First Recital
capital stock 3.02(a)
Closing 6.01
Company Charter 3.01
Company Claims 5.01(a)
Company Releasees 5.02(a)
Company First Paragraph
Compensation Committee 2.03(a)
Covered Transaction 3.01
Delaware Dismissal 4.04(b)
Delaware Litigation Second Recital
Emeritus Litigation 3.01
Exercise Notice 3.02(b)
Expense Amount 4.02(a)
Expense Note 4.02(a)
Financial Advisor 3.01
Group 3.01
Investor Claims 5.02(a)
Investor Designees 2.01(a)
Investor Releasees 5.01(a)
Investor First Paragraph
Investor Class A Designee 2.01(a)
Joint Stipulation 4.04(a)
Kapson Letter 7.15
LFREI First Recital
Litigation Expenses 4.02(a)
Material Adverse Effect 3.01
Participation Notice 3.02(b)
Rights Agreement 5.01(c)
shareholder percentage 3.02(a)
<PAGE>
Stockholders Agreement 7.15
Stock Purchase Agreement 7.15
ARTICLE II
Corporate Governance
SECTION 2.01. Board of Directors. (a) Effective as of the
Closing, the Company and Investor will take all actions necessary to cause
the Board to be structured to consist of five directors, of which two
directors (one Class A director and one Class B director) shall be
designees of Investor (the "Investor Designees"). The Company and Investor
shall take all actions necessary to cause John A. Moore to be elected as a
Class B member of the Board as one of the two Investor Designees, subject
to reelection at the Company's annual meeting in the year 2002, as of the
Closing. Beginning on the later of (x) the date of the Closing or (y) the
first date on which Robert P. Freeman is no longer a member of the Board,
Investor shall have the right (but not the obligation) to nominate one
Class A member of the Board which shall constitute the other Investor
Designee (the "Investor Class A Designee"), and the Company and Investor
shall take all lawful action necessary to appoint the Investor Class A
Designee to the Board as promptly as practicable following Investor's
exercise of such right. Prior to the exercise of Investor's right to
nominate the Investor Class A Designee, no person may be elected or
appointed to fill the Class A vacancy on the Board reserved for the
Investor Class A Designee except by the stockholders of the Company at an
annual meeting. If necessary to effectuate the placement of the Investor
Designees on the Board, the Company shall solicit the resignation of the
appropriate number of directors to the extent necessary to permit the
Investor Designees to serve. Thereafter, at each annual or special meeting
of stockholders of the Company, 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 the obligation)
pursuant to this Agreement and pursuant to the By-laws of the Company (the
"By-laws") to designate (i) if the Board consists of less than seven
directors, (x) two nominees to the Board if the Board is a single class and
(y) one Class A nominee and one Class B nominee if the Board is divided
into three classes and (ii) if the Board consists of seven or more
directors, (x) three nominees to the Board if the Board is a single class
and (y) one Class A nominee, one Class B nominee and one Class C nominee if
the Board is divided into three classes. If the number of directors on the
Board is increased to exceed six directors, then (x) Investor shall be
entitled to nominate one additional Investor Designee (the "Additional
Investor Designee") to serve as a director and (y) such Additional Investor
Designee shall be appointed to the Board to serve as a director until such
time as a stockholder vote is held to fill such vacancy. The Company and
Investor shall take all lawful action necessary to appoint the Additional
Investor Designee to the Board.
(b) Investor will not name any person as an Investor Designee 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)(2), (3), (4), (5) or (6) of Regulation S-K of the Exchange Act
has occurred with respect to such person.
<PAGE>
(c) If any Investor Designee ceases to serve on the Board for any
reason (including, without limitation, due to death, resignation or
removal), Investor shall have the right to fill the resulting vacancy with
an Investor Designee.
(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 ten at any time. Effective as of
the Closing, the Company shall adopt an amendment to the By-laws (the
"Amendment") substantially in the form attached hereto as Schedule 2.01(d).
Each of the Company and Investor shall take or cause to be taken all lawful
action necessary to ensure at all times that the Company's certificate of
incorporation and the By-Laws are not at any time inconsistent with the
provisions of this Agreement; provided that the Company shall not be
required to amend Article Fifth of its certificate of incorporation.
(e) The Company will support the nomination of and the election
of each Investor Designee, including the Investor Class A Designee, to the
Board and will exercise all authority under applicable law to cause each
Investor Designee, including the Investor Class A Designee, to be elected
to the Board. In addition, the Company will exercise all authority under
applicable law to cause (i) if the Board consists (or would consist
immediately following the election contemplated in this clause (i)) of five
directors, any slate of directors presented to stockholders of the Company
for election to the Board to consist of such nominees that, if elected,
would result in the Board consisting of two Investor Designees and three
additional directors, (ii) if the Board consists (or would consist
immediately following the election contemplated in this clause (ii)) of six
directors, any slate of directors presented to stockholders of the Company
for election to the Board to consist of such nominees that, if elected,
would result in the Board consisting of two Investor Designees and four
additional directors, (iii) if the Board consists (or would consist
immediately following the election contemplated in this clause (iii)) of
seven directors, any slate of directors presented to stockholders of the
Company for election to the Board to consist of such nominees that, if
elected, would result in the Board consisting of three Investor Designees
and four additional directors, (iv) if the Board consists (or would consist
immediately following the election contemplated in this clause (iv)) of
eight directors, any slate of directors presented to stockholders of the
Company for election to the Board to consist of such nominees that, if
elected, would result in the Board consisting of three Investor Designees
and five additional directors, (v) if the Board consists (or would consist
immediately following the election contemplated in this clause (v)) of nine
directors, any slate of directors presented to stockholders of the Company
for election to the Board to consist of such nominees that, if elected,
would result in the Board consisting of three Investor Designees and six
additional directors and (vi) if the Board consists (or would consist
immediately following the election contemplated in this clause (vi)) of ten
directors, any slate of directors presented to stockholders of the Company
for election to the Board to consist of such nominees that, if elected,
would result in the Board consisting of three Investor Designees and seven
additional directors. 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 Designee.
(f) If the number of directors on the Board is decreased below
seven at any time during which (i) Investor has the right to nominate three
Investor Designees to the Board pursuant to the terms of this Agreement and
(ii) three Investor Designees are actually
<PAGE>
serving as directors, within 15 business days thereafter Investor shall cause
one Investor Designee to resign from the Board.
(g) The provisions of this Section 2.01 and Section 2.03(a) shall
terminate 90 days after the date on which Investor and the Investor
Affiliates and their respective Controlled Affiliates no longer
Beneficially Own a number of shares of Common Stock equal to at least 10%
of the shares of Common Stock outstanding on the date hereof.
SECTION 2.02. Director Compensation. The Company's non-employee
directors shall receive the compensation described on Schedule 2.02 until
changed by the Compensation Committee.
SECTION 2.03. Committee Membership. (a) Subject to the provisions
of Section 2.01(g), at least one Investor Designee shall serve on each
committee of the Board. Effective as of the Closing, there shall be an
audit committee of the Board (the "Audit Committee") and a compensation
committee of the Board (the "Compensation Committee"), each comprised of
three directors, one of whom shall be an Investor Designee and two of whom
shall be designated by the Company. As of the Closing, the Audit Committee
initially shall consist of the directors listed on Schedule 2.03(a)(i) and
the Compensation Committee shall initially consist of the directors listed
on Schedule 2.03(a)(ii).
(b) Notwithstanding the foregoing, no officer or employee of the
Company may serve as a member of the Audit Committee or Compensation
Committee.
SECTION 2.04. Implementation. Prior and as a condition to the
Closing and implementation of the provisions of this Agreement, all of the
Company's directors other than Murry N. Gunty and Robert P. Freeman, at a
duly called and noticed meeting of the Board, shall have approved this
Agreement. In addition, the parties will take all further actions necessary
to implement the provisions of this Article II subject to and effective as
of the Closing, including the adoption of the Amendment and the
establishment of the Audit Committee and the Compensation Committee in
accordance with the terms hereof.
ARTICLE III
Investor's Stock Ownership
SECTION 3.01. Limitation on Acquisition of Additional Shares of
Common Stock. Effective as of the Closing, neither Investor nor any
Investor Affiliate shall, and Investor and the Investor Affiliates shall
cause each of their respective Controlled Affiliates not to, acquire or
agree to acquire any shares of Common Stock in addition to the shares of
Common Stock owned by the Investor and the Investor Affiliates on the date
hereof, except (i) if the Company has received an opinion in customary form
of a reputable investment banking firm (the "Financial Advisor") mutually
agreeable to Investor and the Company to the effect that the consideration
to be paid for such Common Stock is fair, from a financial point of view,
to the holders of Common Stock or (ii) pursuant to and in accordance with
Section 3.02. If Investor and the Company are unable to agree upon a
Financial Advisor to deliver the opinion required pursuant to clause (i) of
the preceding sentence, then Investor and the Company shall each select a
reputable investment banking firm, which firms will then select a third
reputable investment banking firm to deliver such
<PAGE>
opinion. Notwithstanding the foregoing, this Section 3.01 shall terminate
upon the earliest to occur of:
(i) the occurrence of any event of default on the part of the
Company or any of its subsidiaries under any debt agreements,
instruments or arrangements that would reasonably be expected to
result in a material adverse effect on the financial condition,
results of operations or business of the Company and its subsidiaries
(to the extent of the Company's interests therein) taken as a whole (a
"Material Adverse Effect"), and, in the case of a non-monetary event
of default, which event of default cannot be, or is not, cured by the
Company within the applicable cure period under such debt agreement,
instrument or arrangement and that would reasonably be expected to
result in a Material Adverse Effect;
(ii) any breach of this Agreement by the Company or the
occurrence of any Agreement by the Company event of default under the
terms of the Expense Note;
(iii) the authorization by the Company or the Board or any
committee thereof (with all Investor Designees 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"); provided,
however, that this subsection (iii) shall not apply to, and the term
"Covered Transaction" shall not include transactions, discussions,
negotiations, solicitations of offers or proposals or indications of
interest that are approved by Investor or LFREI;
(iv) the written submission by any person or "group" (as such
term is used in Section 13(d)(3) of the Exchange Act) 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 Section 3.01
shall not terminate pursuant to this clause (iv) 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;
(v) in connection with any actual or proposed Covered
Transaction, the removal of any rights plan, provisions of the
Restated Articles of Incorporation of the Company and any amendment or
supplement thereto (the "Company Charter") relating to staggered terms
of office for directors, provisions of the Company Charter or the
By-laws relating to supermajority voting of the Company's
stockholders, "excess share" provisions of the Company Charter or the
By-laws, or any other similar arrangements, agreements, commitments or
provisions in the Company Charter or the By-laws which would
reasonably be expected to impede the consummation of such actual or
proposed Covered Transaction by action of any governmental or any
agency, bureau, board, commission, court, department,
<PAGE>
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,
the Board, the stockholders of the Company or otherwise;
(vi) 90 days after the date on which Investor and the Investor
Affiliates no longer Beneficially Own a number of shares of Common
Stock equal to at least 10% of the shares of Common Stock outstanding
on the date hereof; or
(vii) the commencement of any litigation by or on behalf of the
Company or any of its Affiliates against Investor, the Investor
Affiliates or any of their Affiliates (other than litigation brought
by any stockholder or stockholders of the Company based on any of the
claims described in clause (iii) of Section 5.01(a) of this
Agreement).
SECTION 3.02. Participation Rights. (a) Effective as of the
Closing, Investor shall be entitled to a participation right to purchase or
subscribe for up to that number of additional shares of capital stock
(including as "capital stock" for purposes of this Section 3.02 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 of the Company (and all references in this Section 3.02 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 Common Stock
Beneficially Owned by Investor prior to such sale or issuance relative to
the number of shares of Common Stock outstanding prior to such sale or
issuance (but in no event more than 35.8% of the total number of shares of
capital stock to be issued or sold by the Company at all subsequent
offerings); provided, however, that the provisions of this Section 3.02
shall not apply to (i) the issuance or sale by the Company of any of its
capital stock issued to the Company or any of its subsidiaries or pursuant
to options, rights or warrants or other commitments or securities in effect
or outstanding as of the date of this Agreement, (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
<PAGE>
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 3.02 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 3.02. The provisions of
this Section 3.02 shall apply to the Company's 6-3/4% Convertible
Subordinated Notes due 2006 only upon conversion, in which event the
Company agrees from time to time to issue the number of additional shares
necessary to permit Investor to maintain its shareholder percentage (as
defined above); provided that the purchase price for such shares shall be
the closing price of the Common Stock on the date of each such conversion;
provided further that the Company shall provide the Investor 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
Investor is entitled to purchase hereunder and the purchase price therefor;
and provided further that Investor 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 3.02
shall be deferred by Investor if it would result in Investor's share
percentage exceeding 49.9%.
(b) 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 3.02, 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
Participation 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 3.02. 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 3.02, 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 3.02.
(c) 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 3.02, 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 3.02 shall become null and void, and the
Company shall have no liability or obligation to Investor or any Investor
Affiliate with respect thereto by virtue of such abandonment, rescission,
annulment, withdrawal or termination.
(d) The purchase or subscription by Investor or an Affiliate
thereof, as the case may be, pursuant to this Section 3.02 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
<PAGE>
subscribers of the additional shares of capital stock of the Company whose
purchases or subscriptions give rise to the participation rights (except that
the price to Investor to make such purchase or subscription shall be net of
payment of any underwriting, placement agent or similar fee associated with
such purchase or subscription), which price and other terms and conditions
shall be substantially as stated in the relevant Participation Notice (which
standard shall be satisfied if the price, in the case of a negotiated
transaction, is not greater than 110% of the estimated price set forth in the
relevant Participation Notice or, in the case of an underwritten or privately
placed offering, is not greater than the lesser 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 Securities 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) 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 underwriter's 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 and otherwise on the same terms and
conditions as 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 3.02 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 of
such capital stock 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 3.02.
ARTICLE IV
Other Agreements
SECTION 4.01. Non-Disparagement. (a) The Company agrees not to
directly or indirectly make or ratify any statement, public or private,
oral or written, that disparages, either professionally or personally,
Investor, any Investor Affiliate or any other
<PAGE>
Investor Releasee, or make any statement or engage in any conduct that has
the purpose or effect of disrupting the business of Investor, any Investor
Affiliate or any Investor Releasee.
(b) Investor and the Investor Affiliates agree not to directly or
indirectly make or ratify any statement, public or private, oral or
written, that disparages, either professionally or personally, the Company
or any Company Releasee (including, without limitation, any employee of the
Company), or make any statement or engage in any conduct that has the
purpose or effect of disrupting the business of the Company or any Company
Releasee.
(c) This Section 4.01 shall not apply to or in any way limit (i)
testimony given by a party in any court, arbitral or governmental
proceeding or (ii) a party's private consultations with its attorneys or
other professional advisors.
SECTION 4.02. Certain Expenses. (a) The Company and Investor
hereby acknowledge and agree that the Company owes Investor a total of
$3,670,506.42 (the "Expense Amount"), $3,088,226.22 of which represents all
attorneys' fees, costs and other litigation expenses incurred by Investor,
LFREI and all other defendants and cross- complainants in the California
Litigation ("Litigation Expenses") and $582,280.20 of which represents all
"Buyer's Expenses" owed by the Company pursuant to Section 9.3 of the Stock
Purchase Agreement ("Buyer's Expenses"). Investor hereby agrees to accept
payment of $1,500,000 in accordance with the terms of an expense note (the
"Expense Note") in substantially the form attached hereto as Schedule 4.02
as payment in full for the Expense Amount; provided that if there is a
material breach of the obligations of the Company under the Expense Note,
Investor shall have the right to reassert a claim for payment of the entire
Expense Amount. The Company shall deliver the executed Expense Note to
Investor at the Closing.
(b) In consideration of the agreement of Investor set forth in
Section 4.02(a), the Company shall not seek payment or reimbursement from
Investor, LFREI or any of their Affiliates and waives any rights it may
have to recover from Investor, LFREI or any of their Affiliates all
attorneys' fees, costs and other litigation expenses heretofore or
hereafter incurred (x) by the Company and all other plaintiffs and
cross-defendants in connection with the California Litigation and (y) by
the Company and all other defendants in connection with the Delaware
Litigation.
(c) In consideration of the agreement of the Company to deliver
the Expense Note pursuant to Section 4.02(a), none of Investor, LFREI or
any of their Affiliates shall seek payment or reimbursement from the
Company or any of its Affiliates, and each of Investor, LFREI and their
Affiliates waives any right it may have to recover from the Company or any
of its Affiliates any attorneys' fees, costs and other litigation expenses
heretofore or hereafter incurred by Investor, LFREI or any of their
Affiliates in connection with the Delaware Litigation.
SECTION 4.03. Joint Press Release. Promptly following the
execution of this Agreement, the Company, Investor and the Investor
Affiliates shall issue a joint press release in substantially the form
attached hereto as Schedule 4.03.
SECTION 4.04. Litigation. (a) Effective as of the Closing, the
Company waives any right to appeal the California Litigation and shall
dismiss the appeal with
<PAGE>
prejudice. Pursuant to Rule 19 of the California Rules of Court, the
parties shall file a joint stipulation for abandonment of the appeal (the
"Joint Stipulation") in the appropriate court. The Joint Stipulation shall
be substantially in the form attached hereto as Schedule 4.04(a)- 1(A) if
the record for the California Litigation is in the Superior Court of the
State of California for the County of Orange on the Closing Date. The Joint
Stipulation shall be substantially in the form attached hereto as Schedule
4.04(a)-1(B) if the record for the California Litigation is in the Court of
Appeal of the State of California, Fourth Appellate District, Division
Three on the Closing Date. The parties acknowledge and consent to the
judgment entered in the California Litigation, a copy of which is attached
hereto as Schedule 4.04(a)-2
(b) Effective as of the Closing, Investor (as plaintiff) shall
dismiss with prejudice all of its claims against the Company, Howard G.
Phanstiel and John A. Booty (as defendants) in the Delaware Litigation, by
filing a stipulated motion to dismiss in substantially the form attached
hereto as Schedule 4.04(b) (the "Delaware Dismissal").
SECTION 4.05. Confidentiality. The parties hereby agree that the
terms and conditions of this Agreement and the Expense Note and all
information provided to any of them or any of their respective
representatives pursuant to the provisions of this Agreement or the Expense
Note shall be kept confidential, and such parties shall not (a) disclose
such information to any persons other than the directors, officers,
employees, financial advisors, investors, lenders, 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 (b) use such information in a
manner which would be detrimental to any of the parties; provided, however,
the foregoing obligation of any such party shall not (x) relate to any
information that (i) is or becomes publicly available other than as a
result of unauthorized disclosure by such party or by persons to whom such
party has made such information available or (ii) is or becomes available
to such party on a non-confidential basis from a third party that is not,
to such party's knowledge, bound by any other confidentiality agreement
with the parties, (y) prohibit disclosure of any information if required by
law, regulation, court order or other legal or government process,
including disclosures to shareholders or regulators or (z) prohibit the
issuance of the press release attached hereto as Schedule 4.03 or any other
joint press release in such form as may be mutually agreed to by the
Company and LFREI.
SECTION 4.06. Competitive Activities. The Company hereby
specifically acknowledges and agrees that Investor, LFREI and their
Affiliates may engage, directly or indirectly, in other business ventures
of every nature, independently or with others, including without limitation
the ownership, management, development and/or operation of assisted living
facilities wherever located, whether or not competitive with the business
of the Company, including without limitation the ownership of securities of
Atria Communities, Inc. and Kapson Senior Quarters Corp., and neither the
Company nor any of its Affiliates shall have any right in such independent
ventures or to the income and profits derived therefrom.
SECTION 4.07. Further Assurances. Each party shall execute and
deliver such further documents and take such other actions as another party
may reasonably request as being necessary or appropriate to consummate or
implement the releases and the settlement and other transactions
contemplated by this Agreement in accordance with this Agreement.
<PAGE>
ARTICLE V
Mutual Release
SECTION 5.01. Company's Release of Investor. (a) Effective as of
the Closing and subject to the limitations set forth in Section 5.01(c),
the Company, for itself and its subsidiaries, and for its and their
predecessors, successors and assigns, hereby releases and forever
discharges Investor and the Investor Affiliates, their respective
predecessors, successors and assigns, and their respective past, present
and future parents, subsidiaries, affiliates, trustees, executors,
administrators, officers, directors, owners, associates, heirs, agents,
insurers, reinsurers, stockholders, partners, employees, licensees,
representatives, lawyers, consultants, investment bankers, accountants or
any of them and including, without limitation, Robert P. Freeman, Murry N.
Gunty and Kenneth M. Jacobs ("Investor Releasees"), of and from any and all
manner of action or actions, cause or causes of action, in law or equity,
and any suits, debts, liens, liabilities, claims, counter-claims,
cross-claims, demands, rights, obligations, damages, losses, costs,
expenses, attorneys' fees, judgments, orders or indemnities of all and any
nature whatsoever, whether individual or derivative, state or Federal,
known or unknown, fixed or contingent, suspected or unsuspected, and
whether or not concealed or hidden, that against the Investor Releasees, or
any of them, the Company or any of its subsidiaries: (i) may have had or
may now have up to the date of this Agreement, (ii) may hereafter have
based upon, connected with or related to any cause or causes of action that
were or could have been alleged in the Disputes or any of the facts giving
rise or allegedly giving rise to the Disputes or (iii) may have had or may
hereafter have based upon, in connection with or related to any claim or
cause or causes of action as set forth in the letter dated July 29, 1999
from Robert P. Sugarman to the Company's Board of Directors with respect to
Investor's alleged violation of Section 16(b) of the Securities Exchange
Act of 1934 in connection with the Company's 6.75% Convertible Subordinated
Notes Due 2007 or any similar demand arising out of the redemption by the
Company of the Company's 6.75% Convertible Subordinated Notes Due 2007
(clauses (i), (ii) and (iii) collectively, the "Company Claims").
(b) The Company represents and warrants that there has been no
assignment or other transfer of any interest in the Company Claims or in
any claims, counterclaims, cross-claims, demands or causes of action that,
but for such assignment or transfer, would be subject to the releases set
forth in Section 5.01(a) of this Agreement, which it may have against the
Investor Releasees, or any of them, and the Company agrees to indemnify,
defend and hold the Investor Releasees, and each of them, harmless from any
liabilities, action or actions, cause or causes of action in law or equity,
suits, debts, liens and from any claims made upon, demands upon, damages
asserted against, and costs, expenses and attorneys' fees incurred (whether
or not litigation is commenced) by, the Investor Releasees, or any of them,
based on or in connection with or arising out of any such assignment or
transfer made, purported or claimed. It is the intention of the parties
that this indemnity does not require payment as a condition precedent to
recovery by the Investor Releasees against the Company under this
indemnity.
(c) The releases set forth herein shall not extend to or be
construed as releasing Investor, the Investor Affiliates or the Investor
Releasees, or any of them, from their responsibilities, promises,
obligations, covenants, and agreements under or arising out of this
Agreement. The term "Company Claims" shall not extend to or be construed to
include (i) any claims arising out of or in connection with the
responsibilities, promises, obligations, covenants, and agreements of
Investor, the Investor Affiliates or the Investor
<PAGE>
Releasees, or any of them, under or arising out of this Agreement or (ii)
any claims with respect to (w) whether the Stockholders Agreement has
terminated, but only to the extent such claims are based on facts that
occurred prior to the Closing, regardless of when such claims are brought;
(x) if the Stockholders Agreement is not terminated, then any claims or
available defenses that relate to or arise in connection with the
Stockholders Agreement based on facts that occurred prior to the Closing
and that are not otherwise precluded by the decision in the California
Litigation, regardless of when such claims are brought; (y) relating to or
arising out of the Emeritus Litigation; or (z) relating to or arising in
connection with the Rights Agreement dated as of July 14, 1997 between the
Company and Chase Mellon Shareholder Services, L.L.C. as Rights Agent (the
"Rights Agreement"). Investor further acknowledges and agrees that the
Company shall retain the ability to pursue any rights it may have under the
exclusions from the Company's releases as set forth in clauses (i) and (ii)
of the definition of "Company Claims" in this Section 5.01(c) except as may
be barred as a result of the California Litigation.
SECTION 5.02 Investor's Release of Company. (a) Effective as of
the Closing and subject to the limitations set forth in Section 5.02(c),
each of Investor and the Investor Affiliates, for themselves and their
respective predecessors, successors and assigns, hereby release and forever
discharge the Company, its predecessors, successors and assigns, and its
past, present and future parents, subsidiaries, affiliates, trustees,
executors, administrators, officers, directors, owners, associates, heirs,
agents, insurers, reinsurers, stockholders, partners, employees, licensees,
representatives, lawyers, consultants, investment bankers, accountants or
any of them ("Company Releasees"), of and from any and all manner of action
or actions, cause or causes of action, in law or equity, and any suits,
debts, liens, liabilities, claims, counter-claims, cross-claims, demands,
rights, obligations, damages, losses, costs, expenses, judgments, orders,
or indemnities of all and any nature whatsoever, whether individual or
derivative, state or Federal, known or unknown, fixed or contingent,
suspected or unsuspected, and whether or not concealed or hidden, that
against the Company Releasees, or any of them, Investor or any Investor
Affiliate: (i) may have had or may now have up to the date of this
Agreement or (ii) may hereafter have based upon, connected with or related
to any cause or causes of action that were or could have been alleged in
the Disputes or any of the facts giving rise or allegedly giving rise to
the Disputes (clauses (i) and (ii) collectively, the "Investor Claims").
(b) Investor and the Investor Affiliates jointly and severally
represent and warrant that there has been no assignment or other transfer
of any interest in the Investor Claims or in any claims, counterclaims,
cross-claims, demands or causes of action that, but for such assignment or
transfer, would be subject to the releases set forth in Section 5.02(a) of
this Agreement, which they may have against the Company Releasees, or any
of them, and Investor and the Investor Affiliates jointly and severally
agree to indemnify, defend and hold the Company Releasees, and each of
them, harmless from any liabilities, action or actions, cause or causes of
action in law or equity, suits, debts, liens and from any claims made upon,
demands upon, damages asserted against, and costs, expenses and attorneys'
fees incurred (whether or not litigation is commenced) by, the Company
Releasees, or any of them, based on or in connection with or arising out of
any such assignment or transfer made, purported or claimed. It is the
intention of the parties that this indemnity does not require payment as a
condition precedent to recovery by the Company Releasees against Investor
or any Investor Affiliate under this indemnity.
<PAGE>
(c) The releases set forth herein shall not extend to or be
construed as releasing the Company or the Company Releasees, or any of
them, from their responsibilities, promises, obligations, covenants, and
agreements under or arising out of this Agreement, including, without
limitation, their responsibilities, promises, obligations, covenants, and
agreements under or arising out of the Expense Note. The term "Investor
Claims" shall not extend to or be construed to include (i) any claims
arising out of or in connection with the responsibilities, promises,
obligations, covenants and agreements of the Company or the Company
Releasees, or any of them, under or arising out of this Agreement,
including, without limitation, their responsibilities, promises,
obligations, covenants, and agreements under or arising out of the Expense
Note or (ii) any claims with respect to (w) whether the Stockholders
Agreement has terminated, but only to the extent such claims are based on
facts that occurred prior to the Closing, regardless of when such claims
are brought; (x) if the Stockholders Agreement is not terminated, then any
claims or available defenses that relate to or arise in connection with the
Stockholders Agreement based on facts that occurred prior to the Closing
and that are not otherwise precluded by the decision in the California
Litigation, regardless of when such claims are brought; (y) relating to or
arising out of the Emeritus Litigation; or (z) relating to or arising in
connection with the Rights Agreement. The Company further acknowledges and
agrees that each of Investor and the Investor Affiliates shall retain the
ability to pursue any rights it may have under the exclusions from the
releases of Investor and the Investor Affiliates as set forth in clauses
(i) and (ii) of the definition of "Investor Claims" in this Section 5.02(c)
except as may be barred as a result of the California Litigation.
SECTION 5.03. Waiver of Statutory Rights. The parties, and each
of them, hereby represents, warrant, and acknowledge to the other parties,
and each of them, that they have received independent legal advice from
their respective attorneys regarding the advisability of executing this
Agreement and giving the releases provided for herein, and hereby
acknowledge the provisions of Section 1542 of the California Civil Code,
which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
The parties and each of them, being aware of Section 1542, hereby expressly
waive and relinquish any rights or benefits they have or may have
thereunder in connection with the releases provided herein, as well as
under any other California or any Federal or state statute or common law
principle or similar effect. Each party acknowledges that it is aware that
it or its attorney may hereafter discover facts different from or in
addition to the facts which it or its attorney now knows or believes to be
true with respect to the subject matter of this Agreement, but that it is
their intention hereby to settle and release fully, finally, absolutely and
forever any and all claims, disputes and differences, known or unknown,
suspected or unsuspected, which now exist, may hereafter exist, or
heretofore have existed arising from, related to, or in any way connected
with the Company Claims or the Investor Claims, and without regard to the
subsequent discovery or existence or such different or additional facts
except as expressly set forth herein, which do now exist or heretofore have
existed between the Company, on the one hand, and Investor or any of the
Investor Affiliates, on the other hand. In furtherance of this intention,
the releases herein given shall be and remain in effect as full and
complete releases, except as set forth herein,
<PAGE>
notwithstanding discovery of any such different or additional facts. The
parties, and each of them, hereby further represent, warrant, and
acknowledge to the other parties, and each of them, that there is a risk
that, subsequent to the date of this Agreement, they will incur damage or
loss based upon, connected with or related to the Company Claims or the
Investor Claims, as the case may be, but which are unknown and
unanticipated as of the date of this Agreement, or that damages presently
known may become progressive, greater or more serious than is now known,
expected or anticipated, or that facts alleged in the Company Claims or the
Investor Claims are found to be different from the facts now believed by
them to be true. The parties hereby expressly accept such risks and agree
that this Agreement is and will remain effective notwithstanding such
risks, if they occur.
ARTICLE VI
Closing
SECTION 6.01. Time and Place. The closing of the transactions
contemplated by this Agreement shall take place at the offices of Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019, on
such date and at such time as shall be mutually agreed upon by the parties
(the "Closing"); provided that such Closing shall not occur later than
October 6, 1999.
SECTION 6.02. Closing. At the Closing, the parties shall execute
and deliver such documents, and take such other actions, as are necessary
to consummate the transactions contemplated by this Agreement and to
effectuate all actions that, pursuant to this Agreement, are to be taken
effective as of the Closing, including: (a) the delivery of the executed
Expense Note, (b) the withdrawal of all filings with the court supporting
the appeal of the California Litigation, (c) the filing of the Joint
Stipulation, (d) the filing of the Delaware Dismissal, (e) the adoption of
the Amendment, (f) the resignations of John Booty and Murry N. Gunty from
the Board, (g) the appointment of the Compensation Committee and Audit
Committee members and (h) the Board approval contemplated by Section 2.04.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All notices and other communications to a
party under this Agreement shall be in writing and shall be deemed given if
personally delivered, sent by fax (with confirmation), sent by a
nationally-recognized overnight delivery service (with confirmation) or
mailed by certified mail (return receipt requested), in each case to that
party's address and fax number set forth below (or to such other address
and fax number as that party may designate by notice to the other parties):
If to the Company: ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, CA 92626-4539
Fax: 714-751-1743
Attention: Douglas M. Pasquale
<PAGE>
With a copy to: O'Melveny & Myers LLP
610 Newport Center Drive,
17th Floor
Newport Beach, CA 92660-6429
Fax: 949-823-6994
Attention: Gary J. Singer, Esq.
If to Investor or any
Investor Affiliate: c/o Lazard Freres Real Estate
Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-332-5980
Attention: Jeff Koblentz
With copies to: c/o Lazard Freres Real Estate
Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-632-6060
Attention: General Counsel
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax: 212-474-3700
Attention: Kevin J. Grehan
SECTION 7.02. Advice of Counsel. The parties acknowledge that
they have been represented in the negotiations for and in the performance
of this Agreement by counsel of their own choice; that they have read this
Agreement; that they have had it fully explained to them by such counsel;
and that they are fully aware of and understand the contents of this
Agreement and of its legal effect.
SECTION 7.03. Voluntary Execution. This Agreement is executed
voluntarily by each of the parties hereto without any duress or undue
influence on any of them. Nothing in this Agreement is, nor will it be
deemed to be, an admission of liability, fault or wrongdoing by any party.
SECTION 7.04. Joint Drafting. Each of the parties hereto has
cooperated in the drafting and preparation of this Agreement and has been
advised by their attorneys regarding the terms, effects, and consequences
of this Agreement. Accordingly, in any construction to be made of this
Agreement, this Agreement shall not be construed as having been drafted
solely by or on behalf of any one or more of the parties hereto. This
Agreement shall not be construed in favor of or against any particular
party.
SECTION 7.05. Governing Law. This Agreement shall be governed by,
and shall be construed and enforced in accordance with, the laws of the
State of Delaware, without regard to conflicts of law principles.
<PAGE>
SECTION 7.06. Attorneys' Fees. If any party to this Agreement
brings an action or proceeding to enforce its rights hereunder, the
prevailing party shall be entitled to recover its costs and expenses,
including court costs and attorneys' fees, if any, incurred in connection
with such action or proceeding.
SECTION 7.07. Specific Enforcement. Each party acknowledges that
each other party would not have an adequate remedy at law for money damages
in the event that this Agreement is not performed in accordance with its
terms, and therefore agrees that each other party shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which it may be entitled, at law or in equity.
SECTION 7.08. Binding Effect. This Agreement shall bind, and
inure to the benefit of, the respective subsidiaries, parent and affiliated
corporations, successors, assigns and heirs of the parties.
SECTION 7.09. Amendment. This Agreement may be amended only by
agreement in writing signed by the Company and Investor and the Investor
Affiliates.
SECTION 7.10. Waiver. No waiver of any provision nor consent to
any exception to the terms of this Agreement or any other agreement
contemplated hereby shall be effective unless in writing and signed by the
party to be bound, and then only for the specific purposes, extent and
instance so provided. Failure by any party to enforce any rights under this
Agreement shall not be construed as a waiver of such rights, and a waiver
by either party of a default hereunder in any instance shall not be
construed as constituting a continuing waiver or as a waiver in other
instances.
SECTION 7.11. Severability. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable, the remaining
provisions of this Agreement shall remain in full force and effect. In the
event of any such determination, the parties agree to negotiate in good
faith to modify this Agreement to fulfill as closely as possible the
original intent and purposes hereof. To the extent permitted by law, the
parties hereby to the same extent waive any provisions of law that render
any provision hereof prohibited or unenforceable in any respect.
SECTION 7.12. Counterparts. This Agreement may be executed and
delivered in counterparts, and by each party in a separate counterpart,
each of which when so executed and delivered shall constitute an original
and all of which taken together shall constitute one and the same
instrument.
SECTION 7.13. Headings. The headings used herein are for
reference purposes only and shall not affect the construction of this
Agreement.
SECTION 7.14. Exhibits and Schedules. The exhibits and schedules
referred to in this Agreement hereby are incorporated herein and made part
of this Agreement.
SECTION 7.15. Entire Agreement. This Agreement (including the
schedules and exhibits attached hereto) and the Expense Note represent the
sole and entire agreement between the parties with respect to the
settlement set forth herein and the other subject matters covered hereby
and supersede all prior agreements, negotiations, and discussions among the
parties hereto or their respective counsel with respect to the subject
<PAGE>
matters covered hereby (including, without limitation, that certain Amended
and Restated Stockholders Agreement (the "Stockholders Agreement"), that
certain Amended and Restated Stock and Note Purchase Agreement (the "Stock
Purchase Agreement"), and that certain letter regarding the investment by
an affiliate of LFREI in Kapson Senior Quarters Corp. (the "Kapson
Letter"), each by and among the Company, Investor and LFREI, each dated as
of October 29, 1997. Notwithstanding the foregoing, the parties acknowledge
and agree that each party hereto shall retain the ability to pursue claims
that are specifically excluded under clause (i) or (ii) of Section 5.01(c)
or clause (i) or (ii) of Section 5.02(c) of this Agreement. Nothing in this
Agreement shall be deemed to terminate the Amended and Restated
Registration Rights Agreement among the Company and Investor dated October
29, 1997, which shall survive until it is terminated or expires in
accordance with its terms.
SECTION 7.16. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, INCLUDING THE EXPENSE NOTE, OR ANY ACTIONS CONTEMPLATED HEREBY
OR THEREBY. THE PROVISIONS OF THIS SECTION 7.16 SHALL SURVIVE ANY
TERMINATION OF THIS AGREEMENT OR THE EXPENSE NOTE.
SECTION 7.17. Consent to Jurisdiction; Service of Process. (a)
All disputes, litigation, proceedings or legal actions by any party to this
Agreement in connection with or relating to this Agreement or the Expense
Note or any matters described or contemplated in this Agreement or the
Expense Note shall be instituted in the Court of Chancery of the State of
Delaware in and for New Castle County. Each party to this Agreement
irrevocably submits to the exclusive jurisdiction of the Court of Chancery
of the State of Delaware in and for New Castle County in connection with
any such dispute, litigation, action or proceeding arising out of or
relating to this Agreement or the Expense Note.
(b) Each party to this Agreement agrees that service of all
writs, process and summonses in any dispute, litigation or proceeding
pursuant to Section 7.17(a) may be effected by mailing the copies thereof
by registered or certified mail, postage prepaid and return receipt
requested, to it at its address set forth in Section 7.01 (with copies to
such other Persons as specified therein), such service to become effective
10 days after such mailing; provided that nothing contained in this Section
7.17(b) shall affect the rights of the parties to serve process in any
other manner permitted by law.
(c) Each party to this Agreement irrevocably waives, to the
fullest extent permitted by applicable law, any defense or objection it may
now or hereafter have to the laying of venue of any proceeding under this
Agreement or the Expense Note brought in the Court of Chancery of the State
of Delaware in and for New Castle County and any claim that any proceeding
under this Agreement brought in any such court has been brought in an
inconvenient forum.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Settlement
Agreement as of the date first above written.
THE COMPANY:
ARV Assisted Living, Inc., a Delaware
corporation,
By /s/ Douglas M. Pasquale
--------------------------------------
Name: Douglas M. Pasquale
Title: President and Chief Executive Officer
INVESTOR:
Prometheus Assisted Living LLC, a Delaware
limited liability company,
By LF Strategic Realty Investors II L.P.,
its Managing Member,
By Lazard Freres Real Estate
Investors L.L.C., its General
Partner
By /s/ Mark S. Ticotin
----------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
INVESTOR AFFILIATES:
Lazard Freres Real Estate Investors L.L.C., a
New York limited liability company,
By /s/ Mark S. Ticotin
--------------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
<PAGE>
LF Strategic Realty Investors II L.P., a
Delaware limited partnership,
By Lazard Freres Real Estate Investors
L.L.C., its General Partner
By /s/ Mark S. Ticotin
-------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
LFSRI II Alternative Partnership L.P., a
Delaware limited partnership,
By Lazard Freres Real Estate Investors
L.L.C., its General Partner
By /s/ Mark S. Ticotin
-------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
LFSRI II-CADIM Alternative Partnership L.P., a
Delaware limited partnership,
By Lazard Freres Real Estate Investors
L.L.C., its General Partner
By /s/ Mark S. Ticotin
-------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
Atria Communities, Inc., a Delaware corporation,
By /s/ W.P. Mulloy II
--------------------------------------
Name: W.P. Mulloy II
Title: President and Chief Executive Officer
Kapson Senior Quarters Corp., a Delaware
corporation,
By /s/ W.P. Mulloy II
--------------------------------------
Name: W.P. Mulloy II
Title: President and Chief Executive Officer
<PAGE>
Schedule 2.01(d)
Form of Amendment to By-laws
The Bylaws (the "Bylaws") of ARV Assisted Living, Inc., a
Delaware corporation, are hereby amended as follows:
1. Section 3.1 of the Bylaws is hereby amended and restated to
read in its entirety as follows:
"Section 3.1. Number, Election and Tenure. The Board shall
consist of a minimum of five and a maximum of ten members. The number of
members on the Board shall not exceed ten without the written consent of
Prometheus Assisted Living LLC ("Prometheus") for as long as the provisions
of Section 2.01 of the Settlement Agreement dated as of September 29, 1999
between the corporation and Prometheus (the "Settlement Agreement") shall
remain in effect. Until otherwise determined by resolution of the Board,
the Board shall consist of five (5) persons. The Board will be divided into
classes as specified in the Certificate of Incorporation."
2. Section 3.2 of the Bylaws is hereby amended and restated to
read in its entirety as follows:
"Section 3.2. Vacancies. Vacancies on the Board of Directors may
be filled in the manner provided in the Certificate of Incorporation;
provided that, for so long as the provisions of Section 2.01 of the
Settlement Agreement remain in effect, (i) if any Investor Designee (as
such term is defined in the Settlement Agreement) ceases to serve on the
Board for any reason (including, without limitation, due to death,
resignation or removal), the resulting vacancy shall be filled by a person
designated by Prometheus until such time as a stockholder vote is held to
fill such vacancy and (ii) if the number of members on the Board is
increased to exceed six (6) persons, at least one of the vacancies created
as a result of such increase shall be filled by a person designated by
Prometheus until such time as a stockholder vote is held to fill such
vacancy."
3. Section 7.1 of the Bylaws is hereby amended to add the
following sentence at the end of the first sentence of such Section:
"; provided that neither Section 3.1 nor Section 3.2 of these
Bylaws may be amended without the consent of all of the members of the
Board nominated by Prometheus."
<PAGE>
Schedule 4.02
Form of Promissory Note
Promissory Note
U.S. $1,500,000.00 , 1999
Costa Mesa, California
FOR VALUE RECEIVED, the undersigned, ARV Assisted Living, Inc., a
Delaware corporation (the "Company"), does hereby promise to pay to the
order of Prometheus Assisted Living LLC, a Delaware limited liability
company (the "Investor"), at c/o Lazard Freres Real Estate Investors
L.L.C., 30 Rockefeller Plaza, New York, New York 10020, or such other place
as the Investor may from time to time designate in writing, the principal
amount of One Million Five Hundred Thousand United States Dollars (U.S.
$1,500,000.00) on April , 2002 (the "Stated Maturity Date"), or upon any
earlier maturity of this Note, whether by acceleration, prepayment or
otherwise. Interest shall accrue on such principal amount beginning on
April , 2001, at a rate equal to the 30-day Treasury bill rate quoted by
the Wall Street Journal as of the most recent auction date prior to such
date, and the Company shall make monthly interest payments on such
principal amount on the first day of each month beginning on May 1, 2001
through and including the Stated Maturity Date (or until the earlier
maturity of this Note, whether by acceleration, prepayment or otherwise);
provided that from and after the occurrence of any Event of Default (as
defined herein), and during the continuation thereof, interest shall accrue
at a rate per annum equal to a rate that is 4% above the interest rate
otherwise in effect; and provided further that notwithstanding any
provision contained herein, the total liability of the Company for payment
of interest on this Note shall not exceed the maximum amount permitted by
law to be charged, collected or received from the Company.
This Note has been issued in accordance with the Settlement
Agreement dated as of September 29, 1999 (the "Settlement Agreement"),
among the Company, the Investor and the Investor Affiliates (as defined
therein), and is the "Expense Note" referred to therein.
All payments of principal of and interest on this Note shall be
made in lawful money of the United States of America in same day funds.
Whenever any payment on this Note shall be stated to be due on a day that
is not a business day, such payment shall instead be made on the next
succeeding business day, and such extension of time shall be included in
the computation of interest payable on this Note. Any amount payable under
this Note shall be payable without deduction or offset and shall be made
free and clear of any taxes, withholdings, or deductions of any nature
whatsoever. In the event that any withholding or deduction from any payment
to be made by the Company hereunder is required by law, then the Company
shall pay to the Investor such additional amount as is necessary to ensure
that the net amount actually received by the Investor after such
withholding or deduction (including withholdings or deductions on amounts
payable under this sentence) will equal the full amount the Investor would
have received had no such withholding or deduction been required.
Upon the occurrence of an Event of Default (as defined below),
the entire unpaid principal balance of this Note and all interest accrued
thereon shall be automatically and
<PAGE>
immediately due and payable, without presentment, demand, notice, protest
or other requirement of any kind (all of which are hereby expressly waived
by the Company). In addition, upon the occurrence of any Event of Default,
the Investor, acting in its sole discretion and without the necessity of
any consent of or notice to any other person, may proceed to protect and
enforce its rights hereunder in any manner or order it deems expedient
without regard to any equitable principles of marshaling or otherwise.
An "Event of Default" shall mean the occurrence of any of the
following events:
(a) the Company fails to pay any principal with respect to this
Note, when and as the same shall become due and payable;
(b) the Company fails to pay any interest with respect to this
Note, when and as the same shall become due and payable, and such
failure is not cured within 3 days;
(c) any representation, warranty, certification or other
statement of the Company made in the Settlement Agreement or in any
statement or certificate at any time given in writing pursuant hereto
or thereto or in connection herewith or therewith shall be false in
any material respect on the date as of which made;
(d) the Company fails to observe or perform any covenant or
agreement contained in this Note, the Settlement Agreement (other than
Section 2.01 of the Settlement Agreement) or any future agreement
between the Company and/or any of its affiliates, on the one hand, and
the Investor, Lazard Freres Real Estate Investors L.L.C. and/or any of
its or their affiliates, on the other hand, that specifies any event
or condition that shall be an Event of Default hereunder, and such
failure is not cured within 30 days after notice thereof from Investor
to the Company;
(e) there is a default (other than defaults listed on Annex I to
the Settlement Agreement (the "GECC Defaults"), so long as there is no
reasonable likelihood that such GECC Defaults could result in a
material adverse effect on the financial condition, results of
operations or business of the Company and its subsidiaries (to the
extent of the Company's interests therein) taken as a whole) under any
mortgage, indenture, instrument or other agreement under which there
may be issued or by which there may be secured or evidenced any
Indebtedness (as defined below) of the Company or any subsidiary of
the Company (or the payment of which is guaranteed by the Company or
any subsidiary of the Company), whether such Indebtedness or guarantee
now exists or is created after the date hereof, which default enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Indebtedness or any trustee or
agent on its or their behalf to cause any Indebtedness to become due,
or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity;
(f) one or more judgments (other than any judgment in favor of
Emeritus Corporation in Case No. 793420 (BWS) in the Superior Court of
the State of California in the County of Orange between Emeritus
Corporation (as plaintiff) and the Company (as defendant)) for the
payment of money in an aggregate amount of $100,000 or more shall be
rendered against the Company, any of the Company's subsidiaries or any
combination thereof and the same shall remain undischarged for a
period of 30 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a
<PAGE>
judgment creditor to attach or levy upon any assets of the Company or
any of its subsidiaries to enforce any such judgment;
(g) the Company or any of its subsidiaries shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter
in effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this definition, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any of its
subsidiaries or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of
effecting any of the fore going;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Company or any of its
subsidiaries or its debts, or of a substantial part of its assets,
under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any of its
subsidiaries or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Company or any of its subsidiaries shall become unable,
admit in writing its inability or fail generally to pay its debts as
they become due; or
(j) the Company fails to observe or perform any covenant or
agreement contained in Section 2.01 of the Settlement Agreement.
"Indebtedness" means, with respect to any person, all principal,
interest, penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
indebtedness, whether or not contingent, of such person (i) (a) for
borrowed money (including, but not limited to, any indebtedness secured by
a security interest, mortgage or other lien on the assets of such person
which is (1) given to secure all or part of the purchase price of property
subject thereto, whether given to the vendor of such property or to
another, or (2) existing on property at the time of acquisition thereof),
(b) evidenced by a note, debenture, bond or other written instrument, and
including, but not limited to, the Company's 6.75% Convertible Subordinated
Notes due 2007 and the Company's 6-3/4% Notes due 2006, (c) under a lease
required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles in the United States or under any
lease or related document (including a purchase agreement) which provides
that such person is contractually obligated to purchase or to cause a third
party to purchase such leased property, (d) under any lease pursuant to
which the Company or any affiliate thereof (including any affiliated
partnerships in which the Company owns an interest) is the tenant relating
to an assisted living facility or skilled nursing facility, whether
denominated as fixed rent, additional rent or other charges, (e) in respect
of letters of credit, bank guarantees, bankers' acceptances or guarantees
related to any partnerships formed by the Company or any of its
subsidiaries for the purpose of acquiring or developing affordable
apartments and to accrue related tax benefits under the
<PAGE>
Federal Law Income Housing Tax Credit program, (f) with respect to
indebtedness secured by a mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the
obligation secured thereby shall have been assumed or Guaranteed by or
shall otherwise be such person's legal liability, (g) in respect of the
balance of deferred and unpaid purchase price of any property or assets,
and (h) under interest rate or currency swap agreements, cap, floor and
collar agreements, spot and forward contracts and similar agreements and
arrangements; (ii) with respect to any obligation of others of the type
described in the preceding clause (i) or under clause (iii) below, assumed
by or Guaranteed in any manner by such person or in effect Guaranteed by
such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
Guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing. "Guarantee" means a
guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner (including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness.
The Company shall have the right at any time and from time to
time to prepay this Note in whole or in part at a prepayment price equal to
91% of the aggregate principal amount of this Note on such prepayment date
if prepaid prior to November , 1999. Such prepayment price shall increase
by 0.5% of the aggregate principal amount of this Note on the 10th day of
each month thereafter until April , 2001. From April , 2001 until the
Stated Maturity Date, the prepayment price shall equal 100% of the
aggregate principal amount of this Note on such prepayment date plus
accrued and unpaid interest through the prepayment date.
In the event any one or more of the provisions contained in this
Note should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.
No failure or delay on the part of the Investor or any other
holder of this Note to exercise any right, power or privilege under this
Note and no course of dealing between the Company and the Investor shall
impair such right, power or privilege or operate as a waiver of any default
or an acquiescence therein, nor shall any single or partial exercise of any
such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein expressly provided are cumulative to, and not exclusive
of, any rights or remedies which the Investor would otherwise have. No
notice to or demand on the Company in any case shall entitle the Company to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of the Investor to any other or further
action in any circumstances without notice or demand. Every right and
remedy granted to the Investor under this Note may be exercised from time
to time and as often as shall be deemed appropriate by the Investor, acting
in its sole discretion and without the necessity of any consent of or
notice to any other Person, or any other holder hereof.
<PAGE>
The Company waives any asserted lack of diligence by the Investor
in taking any action to collect any sums owing under this Note or in
proceeding against any of the rights or interests in or to any collateral
or guarantee securing payment of this Note. The Company has consented to
jurisdiction and service of process with respect to this Note, and has
waived a jury trial with respect to any claim concerning this Note.
The words "Investor" and the "Company" whenever occurring herein
shall be deemed and construed to include the respective successors and
assigns of the Investor and the Company. No assignment by the Company of
its obligations under this Note shall be permitted without the prior
written consent of the Investor.
All notices and other communications to a party under this Note
shall be in writing and shall be deemed given if personally delivered, sent
by fax (with confirmation), sent by a nationally-recognized overnight
delivery service (with confirmation) or five days after being mailed by
certified mail (return receipt requested), in each case to that party's
address and fax number set forth below (or to such other address and fax
number as that party may designate by notice to the other parties):
If to the Company: ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, CA 92626-4593
Fax: 714-751-1743
Attention: Douglas M. Pasquale
With a copy to: O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660-6429
Fax: 949-823-6994
Attention: Gary J. Singer, Esq.
If to Investor: c/o Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-332-5980
Attention: Jeff Koblentz
With copies to: Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-632-6060
Attention: General Counsel
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax: 212-474-3700
Attention: Kevin J. Grehan, Esq.
<PAGE>
No provision of this Note may be waived, amended or modified
except pursuant to a written agreement entered into among the Company and
the Investor.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be
executed on the date and year first above written.
ARV ASSISTED LIVING, INC., a Delaware
corporation,
by
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Name:
Title:
