<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 0-26980
ARV ASSISTED LIVING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0160968
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
245 FISCHER AVENUE, D-1
COSTA MESA, CA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of outstanding shares of the Registrant's Common Stock, no par value,
as of May 8, 2000 was 17,459,689.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 12,417 $ 14,570
Accounts receivable and amounts due from affiliates........... 1,519 2,165
Prepaids and other current assets............................. 3,016 2,772
Properties held for sale, net................................. 3,571 4,301
-------- --------
Total current assets.................................. 20,523 23,808
Property, furniture and equipment, net.......................... 101,502 102,185
Goodwill, net................................................... 19,284 19,430
Operating lease security deposits............................... 12,169 12,164
Other non-current assets........................................ 15,546 15,700
-------- --------
$169,024 $173,287
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 2,193 $ 1,503
Accrued liabilities........................................... 8,537 10,270
Notes payable, current portion................................ 1,352 1,363
Accrued interest payable...................................... 1,864 1,292
Net current liabilities from discontinued operations.......... 2,951 2,510
-------- --------
Total current liabilities............................. 16,897 16,938
Notes payable, less current portion............................. 106,314 114,369
Lease liabilities............................................... 1,933 1,922
Other non-current liabilities................................... 898 934
-------- --------
126,042 134,163
-------- --------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, no par value. Authorized
8,000 shares, none issued and outstanding................... - -
Common stock, no par value. Authorized
100,000 shares; issued and outstanding
17,460 and 16,679 shares at March 31, 2000
and December 31, 1999, respectively........................ 145,512 144,280
Accumulated deficit........................................... (102,530) (105,156)
-------- --------
Total shareholders' equity............................ 42,982 39,124
-------- --------
$169,024 $173,287
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 3
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Assisted living community revenue:
Rental revenue ............................................ $ 28,289 $ 28,623
Assisted living and other services ........................ 6,389 6,876
Management fees from others ............................... -- 143
Management fees from affiliates ........................... 215 237
-------- --------
Total revenue .............................. 34,893 35,879
-------- --------
Operating expenses:
Assisted living community operating expense ................. 22,686 21,822
Assisted living community lease expense ..................... 8,388 8,075
General and administrative .................................. 2,863 4,278
Depreciation and amortization ............................... 2,109 2,257
-------- --------
Total operating expenses .................. 36,046 36,432
-------- --------
Loss from operations .......................................... (1,153) (553)
-------- --------
Other income (expense):
Interest income ............................................. 314 145
Other income, net ........................................... 4 55
Interest expense ............................................ (2,212) (2,008)
-------- --------
Total other expense ....................... (1,894) (1,808)
-------- --------
Loss from continuing operations before income tax expense,
minority interest in income of majority owned entities,
extraordinary item and change in accounting principle ......... (3,047) (2,361)
Income tax expense ............................................ 8 --
-------- --------
Loss from continuing operations before minority interest in
income of majority owned entities, extraordinary item and
change in accounting principle ................................ (3,055) (2,361)
Minority interest in (income) loss of majority owned entities.. 67 (415)
-------- --------
Loss from continuing operations before extraordinary item
and change in accounting principle ........................... (2,988) (2,776)
Extraordinary gain from early extinguishment of debt, net
of income tax ............................................... 5,613 --
-------- --------
Income (loss) from continuing operations before change in
accounting principle ........................................ 2,625 (2,776)
Cumulative effect of change in accounting principle ........... -- (1,259)
-------- --------
Net income (loss) .................................... $ 2,625 $ (4,035)
======== ========
Basic and diluted loss per common share:
Loss from continuing operations before extraordinary item
and change in accounting principle ......................... $ (0.18) $ (0.17)
Extraordinary gain from early extinguishment of debt, net
of income tax .............................................. 0.33 --
Cumulative effect of change in accounting principle ......... -- (0.08)
-------- --------
Net income (loss) .................................... $ 0.15 $ (0.25)
======== ========
Weighted average common shares outstanding .................... 17,048 15,873
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net cash used in operating activities of continuing
operations.................................................... $ (946) $ (2,088)
Net cash provided by operating activities of discontinued
operations.................................................... 441 272
-------- --------
Net cash used in operating activities.................. (505) (1,816)
-------- --------
Cash flows used in investing activities:
Proceeds from the sale of partnership, net of cost............ 713 21,260
Purchase of previously leased communities..................... -- (14,636)
Additions to property, furniture and equipment................ (863) (2,205)
Additions to property held for sale........................... (78) --
Increase in leased property security deposits................. (5) (4,582)
Cash contributed to joint venture............................. -- (1,248)
Other......................................................... -- (16)
-------- --------
Net cash used in investing activities.................. (233) (1,427)
-------- --------
Cash flows provided by (used in) financing activities:
Borrowings under notes payable for purchase of previously
leased communities........................................... -- 14,678
Repayments of notes payable................................... (271) (9,813)
Repayments of subordinated debt............................... (984) --
Distributions from majority owned entities.................... (149) (195)
Loan fees..................................................... (11) --
Other......................................................... -- (213)
-------- --------
Net cash provided by (used in) financing activities.... (1,415) 4,457
-------- --------
Net (decrease) increase in cash and cash equivalents... (2,153) 1,214
Cash and cash equivalents at beginning of period................ 14,570 11,885
-------- --------
Cash and cash equivalents at end of period...................... $ 12,417 $ 13,099
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 1,640 $ 3,429
======== ========
Income taxes $ -- $ --
======== ========
Supplemental schedule of non-cash investing activities:
Conversion of subordinated notes to common stock.............. $ 1,232 $ --
Financing of leased property security deposits................ -- 2,033
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
ARV ASSISTED LIVING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
We prepared the accompanying condensed consolidated financial statements of ARV
Assisted Living, Inc. and subsidiaries ("the Company" or "ARV") following the
requirements of the Securities and Exchange Commission ("SEC") for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by generally accepted accounting
principles ("GAAP") can be condensed or omitted. We have reclassified certain
prior year data to conform to the 2000 presentation.
The financial statements include all normal and recurring adjustments that we
consider necessary for the fair presentation of our financial position and
operating results. These are condensed financial statements. To obtain a more
detailed understanding of our results, you should also read the financial
statements and notes in our Form 10-K for 1999, which is on file with the SEC.
The results of operations can vary during each quarter of the year. Therefore,
the results and trends in these interim financial statements may not be the same
as those for the full year.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. Subsidiaries, which include limited partnerships
in which we have controlling interests, have been consolidated into the
financial statements. All significant intercompany balances and transactions
have been eliminated in consolidation.
USE OF ESTIMATES
In preparing the financial statements conforming with GAAP, we have made
estimates and assumptions that affect the following:
~ reported amounts of assets and liabilities at the date of the financial
statements;
~ disclosure of contingent assets and liabilities at the date of the
financial statements; and
~ reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
We have reclassified certain prior period amounts to conform to the March 31,
2000 presentation.
RECENT ACCOUNTING DEVELOPMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up Activities,"
which is effective for fiscal years beginning after December 15, 1998. The SOP
provides guidance on the financial reporting of start-up activities and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed when incurred and, upon adoption, the
write-off as a cumulative effect of a change in accounting principle of any
previously capitalized start-up or organizational costs. We adopted the
provisions of SOP 98-5 on January 1, 1999 and reported a charge of approximately
$1.3 million for the cumulative effect of this change in accounting principle.
There was no effect on income taxes related to the write-off.
The Financial Accounting Standards Board has also issued Statement of Financial
Accounting Standards No.131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). This standard requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise
5
<PAGE> 6
about which separate financial information is available that is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. We evaluate performance and make
resource allocation decisions on a community-by-community basis. Accordingly,
each community is considered an "operating segment" under SFAS 131. However,
SFAS 131 did not have an impact on the financial statements because the
communities have similar economic characteristics, as defined by SFAS 131, and
meet the criteria for aggregation into one "reportable segment."
EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") excludes all dilution and is based upon the
weighted average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, or converted into common stock.
The effect of potentially dilutive securities was not included for any of the
periods presented as the effect was antidilutive. Potentially dilutive
securities include convertible notes and stock options, which convert to
26,081,865 and 3,883,693 shares of common stock for the three-month periods
ended March 31, 2000 and 1999, respectively.
(2) COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
We guarantee indebtedness of certain affiliated partnerships as of March 31,
2000 as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Notes secured by real estate $75,297
Construction loans associated with the
development and construction of
affordable housing apartments secured by
real estate $14,651
</TABLE>
The maximum aggregate amount of guaranteed indebtedness is $89.9 million at
March 31, 2000. We have guaranteed tax credits for certain partnerships in the
aggregate amount of $65.3 million, excluding interest, penalties or other
charges which might be assessed against the partners. We have provided
development and operating deficit guarantees for certain affiliated
partnerships. In our opinion, no claims may be currently asserted under any of
the aforementioned guarantees based on the terms of the respective agreements
other than those accrued nor are any additional accruals anticipated.
LITIGATION
On June 15, 1999, six California limited partnerships of which the Company
is the managing general partner and a majority limited partner - American
Retirement Villas Properties II, American Retirement Villas Properties III, Casa
Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel Retirement Villa,
L.P. (the "ARV Partnerships")-filed an action in the Superior Court for the
State of California, County of Orange, seeking a declaratory judgment and
damages for breach of contract, promissory estoppel, fraud and negligent
misrepresentation against PRN Mortgage Capital, L.L.C. and Red Mountain Funding,
L.L. C. (the "Defendants").
Defendants have filed a counter-claim seeking payment by the ARV
Partnerships of certain loan commitment fees allegedly owed to Defendants. The
ARV Partnerships believe that they have substantial and meritorious defenses to
Defendants' counter-claims. The parties have conducted minimal discovery and
will participate in voluntary mediation in an attempt to resolve their dispute
before discovery continues.
We are from time to time subject to lawsuits and other matters in the normal
course of business. While we cannot predict the results with certainty, we do
not believe that any liability from any such lawsuits or other matters will have
a material effect on our financial position, results of operations, or
liquidity.
6
<PAGE> 7
(3) SALE OF PARTNERSHIP INTEREST
In December 1999, we entered into a sale agreement for ARV's partnership
interest in the partnership WHW. WHW was the general partner of Sterling Court,
a community we managed through February 29, 2000. On March 1, 2000, we completed
the sale of the partnership interest. As of December 31, 1999, this partnership
was included in assets held for sale at its sales price. The resulting gain or
loss was insignificant in 2000.
(4) RELATED PARTY TRANSACTIONS
On April 24, 2000, the Company entered into a Term Loan Agreement with LFSRI
II Assisted Living LLC ("LFSRI"), an affiliate of Prometheus. As of April 27,
2000, Prometheus beneficially owned approximately 43.5% of the Company's
outstanding Common Stock. Pursuant to the Term Loan Agreement, the Company may
borrow up to $10,000,000 from LFSRI with a maturity date of April 24, 2002,
which, subject to certain conditions, may be extended by one year if no default
has occurred. The outstanding amount under the loan will bear interest at the
annual rate equal to the LIBOR rate for each interest period plus a 10% margin.
In connection with the Term Loan Agreement, the Company issued to LFSRI a
warrant to purchase up to 750,000 shares of the company's Common Stock at a
price of $3.00 per share, subject to various adjustments exercisable until April
24, 2005. The Company also amended its stockholder rights agreement to prevent
shares that Prometheus may be deemed to beneficially own by reason of LFSRI's
rights under the warrant from causing Prometheus to become an "Acquiring Person"
and thus causing a triggering event under the rights agreement.
(5) SUBSEQUENT EVENTS
The Company began retiring portions of its 6 3/4% convertible
subordinated debt during 1999 and continued retiring debt in the first quarter
of 2000. Subsequent to March 31, 2000 the Company has continued to retire
additional bonds for a total of $23.7 million principal amount resulting in a
$15.6 million extraordinary gain, net of tax. Through these transactions, we
have retired a total of $40.7 million of our public debt yielding extraordinary
gains of $28.0 million to date.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
This 10-Q report contains forward-looking statements, including statements
regarding, among other items:
- our business strategy;
- our liquidity requirements and ability to obtain financing;
- the impact of future acquisitions and developments;
- the anticipated sale of 18 ALCs and other properties during the second
and third quarters of 2000;
- the level of future capital expenditures;
- the impact of inflation and changing prices; and
- the outcome of certain litigation matters.
These forward-looking statements are based on our expectations and are subject
to a number of risks and uncertainties, some of which are beyond our control.
These risks and uncertainties include, but are not limited to:
- access to capital necessary for acquisitions and development;
- our ability to manage growth;
- the successful integration of ALCs into our portfolio;
- governmental regulations;
- competition; and
- other risks associated with the assisted living industry.
Although we believe we have the resources required to achieve our objectives,
actual results could differ materially from those anticipated by these
forward-looking statements. There can be no assurances that events anticipated
by these forward-looking statements will in fact transpire as expected.
OVERVIEW
As of March 31, 2000, we operated 56 assisted living communities ("ALCs")
containing 6,852 units, including 36 ALCs that are leased pursuant to long-term
operating leases ("Leased ALCs"); 15 communities that we own for our own account
("Owned ALCs"); and 5 communities that are managed for related parties ("Managed
ALCs"). As of March 31, 2000, we were in various stages of construction on 3
ALCs with an anticipated total of 403 units.
Since commencing operation of ALCs for our own account in April 1994, we have
focused our growth efforts on the acquisition and development of additional ALCs
and expansion of services to our residents as they "age in place." As of March
31, 2000, a substantial portion of our business and operations was conducted in
California, where 37 of the 56 ALCs we operate are located. We intend to
continue to make California the primary focus of our geographic clustering
strategy. However, we intend to reduce our prior growth rate in order to focus
greater attention on enhancing the profitability of our existing core operations
and on leasing up new developments at an increased rate. In addition, we plan to
divest ALCs that do not expand or enhance one of our geographic clusters or do
not meet our financial objectives. In December 1999 we decided to sell twelve
ALCs outside of the western United States. This decision was in keeping with our
strategy to focus our efforts on occupancy gains and to lease up ALCs faster.
Newly opened ALCs are expected to incur operating losses until sufficient
occupancy levels and operating efficiencies are achieved. Based upon historical
experience, we believe that a typical community will achieve its targeted
occupancy levels 12 - 24 months from the commencement of operations.
Accordingly, we will require substantial amounts of liquidity to maintain the
operations of newly opened ALCs. If sufficient occupancy levels are not achieved
within reasonable periods, our results of operations, financial position and
liquidity could be materially and adversely impacted.
8
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
The following table sets forth a comparison of the three months ended March 31,
2000 ("the 2000 Quarter") and the three months ended March 31, 1999 ("the 1999
Quarter").
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
(DOLLARS IN MILLIONS) ENDED MARCH 31, INCREASE/
2000 1999 (DECREASE)
----- ----- ----------
<S> <C> <C> <C>
Revenue:
Assisted living community revenue .................. $34.7 $35.5 (2.3)%
Management fees from affiliates and others ......... 0.2 0.4 (43.4)%
----- ----- -----
Total revenue .............................. 34.9 35.9 (2.8)%
----- ----- -----
Operating expenses:
Assisted living community operating expense .......... 22.7 21.8 4.0%
Assisted living community lease expense .............. 8.4 8.1 3.9%
General and administrative ........................... 2.9 4.2 (33.1)%
Depreciation and amortization ........................ 2.1 2.3 (6.6)%
----- ----- -----
Total operating expenses ..................... 36.1 36.4 (1.1)%
----- ----- -----
Loss from operations ................................... (1.2) (0.5) 108.5%
Other income (expense):
Interest income ...................................... 0.3 0.1 116.6%
Other income, net .................................... -- -- (92.7)%
Interest expense ..................................... (2.2) (2.0) 10.2%
----- ----- -----
Total other income (expense) ................. (1.9) (1.9) 4.8%
----- ----- -----
Loss from operations before minority interest in
income of majority owned entities, extraordinary
item and cumulative effect of change in accounting
principle ............................................. (3.1) (2.4) 29.4%
Minority interest in income of majority owned
entities............................................... 0.1 (0.4) 116.1%
----- ----- -----
Loss from operations before extraordinary item and
cumulative effect of change in accounting principle.... (3.0) (2.8) 7.6%
Extraordinary gain from early extinguishment of debt,
net of income tax ..................................... 5.6 -- 100.0%
----- -----
Loss from operations before cumulative effect of
change in accounting principle ....................... 2.6 (2.8) 194.6%
Cumulative effect of change in accounting .............. -- (1.2) 100.0%
----- ----- -----
Net income (loss) ............................ $ 2.6 $(4.0) 165.1%
===== ===== =====
</TABLE>
The decrease in assisted living community revenue is attributable to the
following:
- the reduction of the number of ALCs which we own or lease from 55
during the 1999 Quarter to 51 during the 2000 Quarter;
- a decrease in average occupancy for ALCs not in development which we
own or lease from 87.4% for the 1999 Quarter as compared to 86.4%
for the 2000 Quarter; offset by
- an increase in average rate per occupied unit for ALCs which we
owned and leased in both periods to $2,124 for the 2000 Quarter as
compared to $2,026 for the 1999 Quarter; and
- an increase in assisted living penetration to 45.7% for the 2000
Quarter as compared to 44.4% for the 1999 Quarter;
Management fees from affiliates and others decreased due to the decrease in the
number of management contracts to five in 2000 from eight in 1999.
9
<PAGE> 10
Assisted living community operating expense increased $0.9 million due to:
- an increase in the amount of payroll related expenses of $1.6
million;
- an increase in variable expenses, primarily food costs of $0.6
million
- start up costs of $0.5 million for a new community;
- an increase in marketing and related activities of $0.3 million;
- an increase in property taxes of $0.2 million; and
- various other costs of $0.2 million; offset by
- reduced expenses of $2.5 million from the sale of five communities
during 1999.
Assisted living community lease expense increased $0.3 million due to:
- increased lease payments on leased facilities for additional capital
expenditures; and
- additional lease expenses due to improved revenue in 2000 Quarter
compared to the revenue in the base years on certain leases.
General and administrative expenses decreased $1.3 million due to:
- recovery from insurance of cost for proxy fight, $0.5 million;
- $0.2 million reversal of accrual for settlement for outstanding
legal bills;
- 1999 included $0.6 million in proxy fight legal costs which were not
incurred in the 2000 quarter.
Depreciation and amortization expenses decreased due to the sale of five
communities in 1999; partially offset by one new community that opened in
December 1999 and the purchase of 4 previously leased communities in February of
1999.
Interest income increased due to higher average cash balances carried by us
during the 2000 Quarter as compared to the 1999 Quarter as proceeds from the
sale of communities and refinancing flowed through.
Other income decreased slightly for the 2000 Quarter as compared to the 1999
Quarter.
Interest expense increased due to additional debt assumed in connection with the
1999 refinancing and acquisition of previously leased communities.
Minority interest decreased $0.5 million due to the loss incurred in the 2000
Quarter as compared to a gain in the 1999 Quarter by a partnership in which
ARVAL is invested.
LIQUIDITY AND CAPITAL RESOURCES
Our unrestricted cash balances were $12.4 million and $14.6 million at March 31,
2000 and December 31, 1999, respectively.
Working capital decreased to $3.6 million as of March 31, 2000 compared to
working capital of $6.9 million at December 31, 1999. The decrease was due
primarily to cash used in the buy back of subordinated debt, and operating
activities and capital expenditures.
Cash used in operating activities was $0.5 million for the 2000 Quarter,
compared to $1.8 million for the 1999 Quarter. The primary components of cash
used in operating activities for the 2000 Quarter were:
- a net loss before extraordinary item of $3.0 million;
- a $0.7 million decrease in net liabilities; offset by
- $0.4 million of cash provided by operations of discontinued
operations;
- non-cash charges of $2.1 million for depreciation and amortization;
and
- $0.8 million in other non-cash items.
10
<PAGE> 11
Cash used in investing activities was $0.2 million for the 2000 Quarter,
compared to $1.4 million for the 1999 Quarter. The primary components of cash
used in investing activities for the 2000 Quarter were:
- $0.9 million of purchases of property, furniture and equipment;
offset by:
- $0.7 million of proceeds from the sale of our interest in the WHW
partnership.
Net cash used in financing activities was $1.4 million for the 2000 Quarter,
compared to net cash provided by financing activities of $4.5 million for the
1999 Quarter. The primary components of cash used in financing activities for
the 2000 Quarter were:
- $1.0 million for repayments of subordinated debt;
- $0.3 million for repayments of notes payable; and
- $0.1 million for distributions paid from majority owned partnerships
to the minority unit holders.
The various debt and lease agreements contain restrictive covenants requiring us
to maintain certain financial ratios, including current ratio, working capital,
minimum net worth, debt-to-equity and debt service coverage, among others. At
March 31, 2000, we were not in compliance with the current ratio, tangible net
worth, debt service coverage and facility coverage ratio under certain lease
agreements. We have obtained waivers for those covenants with which we were not
in compliance through March 31, 2000. If the waivers for non-compliance had not
been obtained, then we would be in default under certain lease agreements.
We believe that our existing liquidity, our ability to sell ALCs and land sites
which do not meet our financial objectives or geographic clustering strategy,
and our ability to refinance certain Owned ALCs and investments will provide
adequate resources to meet our current operating and investing needs and support
our current growth plans for the next 12 months. We do not currently generate
sufficient cash from operations to fund recurring working capital requirements.
We will be required from time to time to incur additional indebtedness or issue
additional debt or equity securities to finance our growth strategy, including
the acquisition and development of ALCs as well as other capital expenditures
and additional funds to meet increased working capital requirements.
IMPACT OF INFLATION AND CHANGING PRICES
Operating revenue from ALCs we operate is the primary source of our revenue.
These ALCs are affected by rental rates which are highly dependent upon market
conditions and the competitive environments where the communities are located.
Employee compensation is the principal cost element of property operations.
Although there can be no assurance we will be able to continue to do so, we have
been able historically to offset the effects of inflation on salaries and other
operating expenses by increasing rental and assisted living rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our notes payable. Currently, we do not utilize interest rate swaps. The purpose
of the following analysis is to provide a framework to understand our
sensitivity to hypothetical changes in interest rates as of March 31, 2000. You
should be aware that many of the statements contained in this section are
forward looking and should be read in conjunction with our disclosures under the
heading "Forward-Looking Statements."
For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair market value of the debt instrument, but do affect our future
earnings and cash flows. We do not have an obligation to prepay fixed rate debt
prior to maturity, and as a result, interest rate risk and changes in fair
market value should not have a significant impact on the fixed rate debt until
we would be required to refinance such debt. Holding the variable rate debt
balance constant, each one-percentage point increase in interest rates would
result in an increase in variable rate interest incurred for the coming year of
approximately $255,000.
The table below details the principal amount and the average interest rates
of notes payable in each category based upon the expected maturity dates. The
fair value estimates for notes payable are based upon future discounted cash
flows of similar type notes or quoted market prices for similar loans. The
carrying value of our variable rate debt approximates fair value due to the
frequency of re-pricing of this debt. Our fixed rate debt consists of
convertible subordinated notes payable and mortgage payables. The fixed rate
debt bears interest at rates that approximate current market value except for
the convertible subordinated debt which bears interest at 6.75%.
11
<PAGE> 12
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE - MARCH 31,
FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
-------- -------- --------- --------- -------- ---------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt $ 738 $ 41,033 $ -- $ -- $ -- $ 40,428 $ 82,199 $ 82,199
Average interest rate 9.15% 9.15% -- -- -- 6.75%
Variable rate debt $ 614 $ 632 $19,813 $ 4,408 $ -- $ -- $ 25,467 $ 25,467
Average interest rate 8.95% 9.00% 9.06 8.69% -- --
</TABLE>
We do not believe that the future market rate risks related to the above
securities will have a material adverse impact on our financial position,
results of operations or liquidity.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On June 15, 1999, six California limited partnerships of which the Company
is the managing general partner and a majority limited partner - American
Retirement Villas Properties II, American Retirement Villas Properties III, Casa
Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel Retirement Villa,
L.P. (the "ARV Partnerships")-filed an action in the Superior Court for the
State of California, County of Orange, seeking a declaratory judgment and
damages for breach of contract, promissory estoppel, fraud and negligent
misrepresentation against PRN Mortgage Capital, L.L.C. and Red Mountain Funding,
L.L. C. (the "Defendants").
Defendants have filed a counter-claim seeking payment by the ARV
Partnerships of certain loan commitment fees allegedly owed to Defendants. The
ARV Partnerships believe that they have substantial and meritorious defenses to
Defendants' counter-claims. The parties have conducted minimal discovery and
will participate in voluntary mediation in an attempt to resolve their dispute
before discovery continues.
We are from time to time subject to lawsuits and other matters in the normal
course of business. While we cannot predict the results with certainty, we do
not believe that any liability from any such lawsuits or other matters will have
a material effect on our financial position, results of operations, or
liquidity.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<S> <C>
10.1 Term Loan Agreement
10.2 Warrant to Purchase Common Stock of ARV Assisted Living, Inc
10.3 Second Amendment to Rights Agreement
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.4 Term Note
10.5 Waiver
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
13
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARV ASSISTED LIVING, INC.,
A Delaware Corporation
By: /s/ Douglas M. Pasquale
----------------------------------
Douglas M. Pasquale
President and Chief Executive Officer
(Duly authorized officer)
Date: May 12, 2000
By: /s/ Abdo H. Khoury
----------------------------------
Abdo H. Khoury
Senior Vice President and
Chief Financial Officer
(Duly authorized officer)
Date: May 12, 2000
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Term Loan Agreement
10.2 Warrant to Purchase Common Stock of ARV Assisted Living, Inc
10.3 Second Amendment to Rights Agreement
10.4 Term Note
10.5 Waiver
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
EXHIBIT 10.1
$10,000,000
TERM LOAN AGREEMENT
DATED AS OF APRIL 24, 2000
AMONG
ARV ASSISTED LIVING, INC.
AS BORROWER
AND
LFSRI II ASSISTED LIVING LLC
AS LENDER
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
<PAGE> 2
<TABLE>
<S> <C>
Article I Definitions, Interpretation And Accounting Terms................................. 1
Section 1.1. Defined Terms................................................................. 1
Section 1.2. Computation of Time Periods................................................... 13
Section 1.3. Accounting Terms and Principles............................................... 13
Section 1.4. Certain Terms................................................................. 13
Article II The Term Loan Facility........................................................... 14
Section 2.1. The Term Loan Commitment...................................................... 14
Section 2.2. Borrowing Procedures.......................................................... 14
Section 2.3. Repayment of Term Loan, Extension of Maturity Date............................ 14
Section 2.4. Evidence of Debt.............................................................. 14
Section 2.5. Optional Prepayments.......................................................... 15
Section 2.6. Mandatory Prepayments......................................................... 15
Section 2.7. Reduction of Commitment; Extension of Commitment
Termination Date.......................................................... 16
Section 2.8. Interest...................................................................... 16
Section 2.10. Payments and Computations..................................................... 17
Section 2.11. Special Provisions Governing Term Loans....................................... 17
Section 2.12. Taxes......................................................................... 18
Article III Conditions To Term Loans......................................................... 18
Section 3.1. Conditions Precedent to Initial Loans......................................... 18
Section 3.2. Conditions Precedent to Each Term Loan........................................ 20
Article IV Representations and Warranties................................................... 20
Section 4.1. Corporate Existence; Compliance with Law...................................... 20
Section 4.2. Corporate Power; Authorization; Enforceable Obligations....................... 21
Section 4.3. Ownership of Borrower; Subsidiaries........................................... 21
Section 4.4. Financial Statements.......................................................... 22
Section 4.5. Material Adverse Change....................................................... 22
Section 4.6. Solvency...................................................................... 22
Section 4.7. Litigation.................................................................... 22
Section 4.8. Taxes......................................................................... 22
Section 4.9. Full Disclosure............................................................... 23
Section 4.10. Margin Regulations............................................................ 23
Section 4.11. No Burdensome Restrictions; No Defaults....................................... 23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.12. Investment Company Act; Public Utility Holding Company Act.................... 24
Section 4.13. Use of Proceeds............................................................... 24
Section 4.14. Insurance..................................................................... 24
Section 4.15. Labor Matters................................................................. 24
Section 4.16. ERISA......................................................................... 25
Section 4.17. Environmental Matters......................................................... 25
Section 4.18. Intellectual Property......................................................... 26
Section 4.19. Properties.................................................................... 26
Section 4.20. Ranking....................................................................... 27
Article V Reporting Covenants.............................................................. 27
Section 5.1. Financial Statements.......................................................... 27
Section 5.2. Default Notices............................................................... 28
Section 5.3. Litigation.................................................................... 28
Section 5.4. SEC Filings; Press Releases................................................... 28
Section 5.5. Labor Relations............................................................... 29
Section 5.6. Tax Returns................................................................... 29
Section 5.7. ERISA Matters................................................................. 29
Section 5.8. Environmental Matters......................................................... 29
Section 5.9. Other Information............................................................. 30
Article VI Affirmative Covenants............................................................ 30
Section 6.1. Preservation of Corporate Existence, Etc...................................... 30
Section 6.2. Compliance with Laws, Etc..................................................... 30
Section 6.3. Conduct of Business........................................................... 31
Section 6.4. Payment of Taxes, Etc......................................................... 31
Section 6.5. Maintenance of Insurance...................................................... 31
Section 6.6. Access........................................................................ 31
Section 6.7. Keeping of Books.............................................................. 31
Section 6.8. Maintenance of Properties, Etc................................................ 31
Section 6.9. Application of Proceeds....................................................... 32
Section 6.10. Environmental................................................................. 32
Article VII Negative Covenants............................................................... 32
Section 7.1. Indebtedness.................................................................. 32
Section 7.2. Limitation on Liens........................................................... 33
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 7.3. Limitation on Restricted Payments............................................. 34
Section 7.4. Limitation on Transactions with Affiliates.................................... 34
Section 7.5. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. 34
Section 7.6. Limitation on Issuance of Preferred Stock by Subsidiaries..................... 35
Section 7.7. Waiver of Stay, Extension or Usury Laws....................................... 35
Section 7.8. Limitation on Investments, Loans and Advances................................. 35
Section 7.9. Certain Changes............................................................... 35
Section 7.10. Compliance with ERISA......................................................... 35
Section 7.11. Environmental................................................................. 35
Article VIII Events of Default................................................................ 36
Section 8.1. Events of Default............................................................. 36
Section 8.2. Remedies...................................................................... 37
Section 8.3. Rescission.................................................................... 38
Article IX Miscellaneous.................................................................... 38
Section 9.1. Amendments, Waivers, Etc...................................................... 38
Section 9.2. Assignments and Participations................................................ 38
Section 9.3. Costs and Expenses............................................................ 38
Section 9.4. Indemnities................................................................... 39
Section 9.5. Right of Set-off.............................................................. 39
Section 9.6. Notices, Etc.................................................................. 40
Section 9.7. Binding Effect................................................................ 41
Section 9.8. Governing Law................................................................. 41
Section 9.9. Submission to Jurisdiction; Service of Process................................ 41
Section 9.10. Waiver of Jury Trial.......................................................... 42
Section 9.11. Marshaling; Payments Set Aside................................................ 42
Section 9.12. Section Titles................................................................ 42
Section 9.13. Execution in Counterparts..................................................... 42
Section 9.14. Entire Agreement.............................................................. 42
Section 9.15. Confidentiality............................................................... 42
</TABLE>
<PAGE> 5
SCHEDULES
Schedule 4.2 - Consents
Schedule 4.3 - Options, Warrants; Ownership of Subsidiaries
Schedule 4.11 - Defaults
Schedule 4.15 - Labor Matters
Schedule 4.16 - List of Plans
Schedule 4.17 - Environmental Matters
Schedule 7.1 - Existing Indebtedness
Schedule 7.2 - Liens
Schedule 7.8 - Existing Obligations and Investments
EXHIBITS
Exhibit A - Form of Term Note
Exhibit B - Form of Legal Opinion
Exhibit C - Form of Warrant
Exhibit D Form of Payment Direction Letter
<PAGE> 6
TERM LOAN AGREEMENT, dated as of April 24, 2000, among ARV Assisted Living,
Inc., a Delaware corporation (the "Borrower"), and LFSRI II Assisted Living,
LLC, a Delaware limited liability company (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lender make available term loans
for the purposes specified in this Agreement; and
WHEREAS, the Lender is willing to make available to the Borrower such term loans
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Affiliate" means, with respect to any Person, any other Person which, directly
or indirectly, controls, is controlled by or is under common control with such
Person, each officer, director, general partner or joint-venturer of such
Person, and each Person who is the beneficial owner of 10% or more of any class
of Voting Stock of such Person. For the purposes of this definition, "control"
means the possession of the power to direct or cause the direction of management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
"Agreement" means this Term Loan Agreement as amended, supplemented or otherwise
modified from time to time.
"Applicable Margin" means 10% per annum.
"Asset Sale" has the meaning specified in clause (a) of the definition of "Net
Cash Proceeds."
"Borrowing" means Term Loans made on the same day by the Lender. "Borrowing
Extension Fee" means an amount equal to 0.5% of the aggregate unutilized
Commitment extended by the Borrower in accordance with Section 2.7(a).
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day
on which federally insured depository institutions in New York City or
California are authorized or obligated by law, regulation, governmental decree
or executive order to be closed.
"Capital Lease" means, with respect to any Person, any lease of property by such
Person as lessee which would be accounted for as a capital lease on a balance
sheet of such Person prepared in conformity with GAAP.
"Capital Lease Obligations" means, with respect to any Person, the capitalized
amount of all obligations of such Person or any of its Subsidiaries under
Capital Leases, as determined on a consolidated basis in conformity with GAAP.
"Cash Equivalents" means (a) securities issued or fully guaranteed or insured by
the United States government or any agency thereof, (b) certificates of deposit,
eurodollar time deposits, overnight bank deposits and bankers' acceptances of
any commercial bank organized under the laws of the United States, any state
thereof, the District of Columbia, any foreign bank, or its branches or agencies
(fully protected against currency fluctuations) which, at the time of
acquisition, are rated at least "A-1" by Standard & Poor's Rating Services
("S&P") or "P-1" by Moody's Investors Services, Inc. ("Moody's"), (c) commercial
paper of an issuer rated at least "A-1" by S&P or "P-1" by Moody's, and (d)
shares of any money market fund that (i) has at least 95% of its assets invested
continuously in the types of investments referred to in clauses (a) through (c)
above, (ii) has net assets of not less than $500,000,000 and (iii) is rated at
least "A-1" by S&P or "P-1" by Moody's; provided, however, that the maturities
of all obligations of the type specified in clauses (a) through (c) above shall
not exceed 180 days.
<PAGE> 7
"Change of Control" means any of the following: (a) any person or group of
persons (within the meaning of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of 50% or more of the issued and outstanding
Voting Stock of the Borrower, excluding however any such Change of Control where
the Lender's open market purchases of the outstanding Voting Stock of the
Borrower are the immediate cause of the Change of Control; or (b) during any
period of twelve consecutive calendar months, individuals who at the beginning
of such period constituted the board of directors of the Borrower (together with
any new directors whose election by the board of directors of the Borrower or
whose nomination for election by the stockholders of the Borrower was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose elections or
nomination for election was previously so approved) cease for any reason other
than death or disability to constitute a majority of the directors then in
office; or (c) any person or two or more persons acting in concert shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their acquisition of
the power to exercise, directly or indirectly, a controlling influence over the
management or policies of the Borrower; or (d) the sale, transfer, conveyance or
disposal of all or substantially all the assets, property or business of the
Borrower; or (e) the Borrower shall enter into any merger, consolidation or
amalgamation other than any such merger, consolidation or amalgamation permitted
pursuant to Section 7.9.
"Closing Date" means April 24, 2000.
"Code" means the Internal Revenue Code of 1986 (or any successor legislation
thereto), as amended from time to time.
"Commitment" means the Commitment of the Lender to make Term Loans to the
Borrower in the aggregate principal amount not to exceed $10,000,000, subject to
reduction as provided in Section 2.7(b).
"Commitment Fee" has the meaning specified in Section 2.9(a).
"Commitment Termination Date" means the Initial Commitment Termination Date
unless the Commitment Termination Date is extended in accordance with Section
2.7(a), in which event "Commitment Termination Date" means the 90th day
following the Initial Commitment Termination Date.
"Compliance Certificate" has the meaning specified in Section 5.1(h).
"Constituent Documents" means, with respect to any Person, (i) the
articles/certificate of incorporation (or the equivalent organizational
documents) of such Person, (ii) the by-laws (or the equivalent governing
documents) of such Person and (iii) any document setting forth the manner of
election and duties of the directors or managing members of such Person (if any)
and the designation, amount and/or relative rights, limitations and preferences
of any class or series of such Person's Stock.
"Contaminant" means any material, substance or waste that is classified,
regulated or otherwise characterized under any Environmental Law as hazardous,
toxic, a contaminant or a pollutant or by other words of similar meaning or
regulatory effect, including any petroleum or petroleum-derived substance or
waste, asbestos and polychlorinated biphenyls, but excludes any medical products
or devices customarily used in the operation of senior housing facilities to the
extent such products or devices are used in compliance with all Requirements of
Law.
"Contractual Obligation" of any Person means any obligation, agreement,
undertaking or similar provision of any Security issued by such Person or of any
agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or
other instrument (excluding a Loan Document) to which such Person is a party or
by which it or any of its property is bound or to which any of its properties is
subject.
"Debt Issuance" means the incurrence of Indebtedness of the type specified in
clause (a) and (b) of the definition of "Indebtedness" by the Borrower or any of
its Subsidiaries.
"Default" means any event which with the passing of time or the giving of notice
or both would become an Event of Default.
"Determination Date" means with respect to any Interest Period, the date which
is two (2) Eurodollar Business Days before the commencement of such Interest
Period. "Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any event
(other than upon the occurrence of a Change of Control), matures or is
mandatorily redeemable, pursuant to
2
<PAGE> 8
a sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof on or prior to the Maturity Date.
"Dollars" and the sign "$" each mean the lawful money of the United States of
America.
"Environmental Laws" means all applicable Requirements of Law now or hereafter
in effect, as amended or supplemented from time to time, relating to pollution
or the regulation and protection of human health, safety, the environment or
natural resources, including the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. Section
180 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended (7 U.S.C. Section 136 et seq.); the Resource Conservation and Recovery
Act, as amended (42 U.S.C. Section 6901 et seq.); the Toxic Substance Control
Act, as amended (42 U.S.C. Section 7401 et seq.); the Clean Air Act, as amended
(42 U.S.C. Section 740 et seq.); the Federal Water Pollution Control Act, as
amended (33 U.S.C. Section 1251 et seq.); the Occupational Safety and Health
Act, as amended (29 U.S.C. Section 651 et seq.); the Safe Drinking Water Act, as
amended (42 U.S.C. Section 300f et seq.); and their state and local counterparts
or equivalents and any transfer of ownership notification or approval statute.
"Environmental Liabilities and Costs" means, with respect to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any thereof arising under
any Environmental Law, Permit, order or agreement with any Governmental
Authority or other Person, which relate to any environmental, health or safety
condition or a Release or threatened Release, and result from the past, present
or future operations of, or ownership of property by, such Person or any of its
Subsidiaries.
"Environmental Lien" means any Lien in favor of any Governmental Authority for
Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control or treated as a single employer with the Borrower or any of
its Subsidiaries within the meaning of Section 414 (b), (c), (m) or (o) of the
Code.
"ERISA Event" means (i) a reportable event described in Section 4043(b) or
4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a Title IV
Plan or a Multiemployer Plan; (ii) the withdrawal of the Borrower, any of its
Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063
of ERISA during a plan year in which it was a substantial employer, as defined
in Section 4001(a)(2) of ERISA; (iii) the complete or partial withdrawal of the
Borrower, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer
Plan; (iv) notice of reorganization or insolvency of a Multiemployer Plan; (v)
the filing of a notice of intent to terminate a Title IV Plan or the treatment
of a plan amendment as a termination under Section 4041 of ERISA; (vi) the
institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by
the PBGC; (vii) the failure to make any required contribution to a Title IV Plan
or Multiemployer Plan; (viii) the imposition of a lien under Section 412 of the
Code or Section 302 of ERISA on the Borrower or any of its Subsidiaries or any
ERISA Affiliate; or (ix) any other event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Title IV Plan or
Multiemployer Plan or the imposition of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of ERISA.
"Eurodollar Business Day" means a Business Day on which banks in the City of
London, England are open for interbank or foreign exchange transactions.
"Event of Default" has the meaning specified in Section 8.1.
"Existing Indebtedness" has the meaning specified in Section 7.1(d).
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System, or any successor thereto.
"Financial Statements" means the financial statements of the Borrower and its
Subsidiaries delivered in accordance with Sections 4.4 and 5.1.
3
<PAGE> 9
"Fiscal Quarter" means each of the three-month periods ending on March 31, June
30, September 30 and December 31.
"Fiscal Year" means the twelve-month period ending on December 31.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranty Obligation" means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
Indebtedness of another Person, including (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of Indebtedness of another Person and (b) any liability of such Person
for Indebtedness of another Person through any agreement (contingent or
otherwise) (i) to purchase, repurchase or otherwise acquire such Indebtedness or
any security therefor, or to provide funds for the payment or discharge of such
Indebtedness (whether in the form of a loan, advance, stock purchase, capital
contribution or otherwise), (ii) to maintain the solvency or any balance sheet
item, level of income or financial condition of another Person, (iii) to make
take-or-pay or similar payments, if required, regardless of non-performance by
any other party or parties to an agreement, (iv) to purchase, sell or lease (as
lessor or lessee) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, or (v) to supply funds to or in
any other manner invest in such other Person (including to pay for property or
services irrespective of whether such property is received or such services are
rendered). The amount of any Guaranty Obligation shall be equal to the amount of
the Indebtedness so guaranteed or otherwise supported.
"Hedging Contracts" means all Interest Rate Contracts, foreign exchange
contracts, currency swap or option agreements, forward contracts, commodity
swap, purchase or option agreements, other commodity price hedging arrangements,
and all other similar agreements or arrangements designed to alter the risks of
any Person arising from fluctuations in interest rates, currency values or
commodity prices.
"Indebtedness" of any Person means without duplication (a) all indebtedness of
such Person for borrowed money, (b) all obligations of such Person evidenced by
notes, bonds, debentures or similar instruments or which bear interest, (c) all
reimbursement and all obligations with respect to letters of credit, bankers'
acceptances, surety bonds and performance bonds, whether or not matured, (d) all
indebtedness for the deferred purchase price of property or services, other than
trade payables and accruals for expenses incurred in the ordinary course of
business and obligations for post-retirement benefits, (e) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property but
excluding consignments to the extent that such Person's only obligation with
respect to unused consigned property is the return of such property to the
consignor), (f) all Capital Lease Obligations of such Person and the present
value of future rental payments under all synthetic leases, (g) all Guaranty
Obligations of such Person, (h) all obligations of such Person to purchase,
redeem, retire, defease or otherwise acquire for value any Stock or Stock
Equivalents of such Person, valued, in the case of redeemable preferred stock,
at the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends, (i) all payments that such Person would have to
make in the event of an early termination on the date Indebtedness of such
Person is being determined in respect of Hedging Contracts of such Person and
(j) all Indebtedness of the type referred to above of another Person secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or in property (including accounts
and general intangibles) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.
4
<PAGE> 10
"Indemnified Party" has the meaning specified in Section 9.4.
"Indenture" means the Indenture dated as of April 3, 1996 between the Borrower
and The Chase Manhattan Bank N.A., as Trustee providing for the issuance of
6 3/4% Convertible Subordinated Notes Due 2006.
"Initial Commitment Termination Date" means July 24, 2000.
"Initial Maturity Date" means April 24, 2002.
"Interest Period" means, in connection with the calculation of interest payable
on any Payment Date, the period from and including the immediately preceding
Payment Date to but excluding such Payment Date; provided, however, that the
first Interest Period shall be the period from and including the Closing Date to
but excluding May 15, 2000.
"Interest Rate Contracts" means all interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and interest rate insurance.
"Investment" means, with respect to any Person, (a) any purchase or other
acquisition by that Person of (i) any Security issued by, (ii) a beneficial
interest in any Security issued by, or (iii) any other equity ownership interest
in, any other Person, (b) any purchase by that Person of all or a significant
part of the assets of a business conducted by another Person, and (c) any loan,
advance (other than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, accounts receivable, advances to
employees and similar items made or incurred in the ordinary course of business
as presently conducted), or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service of the United States or any successor
thereto.
"Leases" means, with respect to any Person, all of those leasehold estates in
real property of such Person, as lessee, as such may be amended, supplemented or
otherwise modified from time to time.
"Lender" has the meaning specified in the preamble to this Agreement.
"LIBOR Rate" means with respect to each Interest Period, the rate (expressed as
a percentage per annum, rounded to the nearest 100th) for deposits in U.S.
dollars for a one-month period that appears on Telerate Page 3750 (or the
successor thereto) as of 11:00 a.m., London, England time, on the related
Determination Date. If such rate does not appear on Telerate Page 3750 as of
11:00 a.m., London, England time, on such Determination Date, LIBOR shall be the
arithmetic mean of the offered rates expressed as a percentage per annum) for
deposits in U.S. dollars for a one-month period that appear on the Reuters
Screen LIBOR Page as of 11:00 a.m., London, England time, on such Determination
Date, if at least two such offered rates so appear. If fewer than two such
offered rates appear on the Reuters Screen LIBOR Page as of 11:00 a.m., London,
England time, on such Determination Date, the Lender shall request the principal
London, England office of any four major reference banks in the London interbank
market selected by the Lender to provide such bank's offered quotation
(expressed as a percentage per annum) to prime banks in the London interbank
market for deposits in U.S. Dollars for a one-month period as of 11:00 a.m.,
London, England time, on such Determination Date for amounts of not less than
One Million U.S. Dollars (U.S. $1,000,000.00). If at least two such offered
quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Lender shall
request any three major banks in New York City selected by the Lender to provide
such bank's rate (expressed as a percentage per annum) for loans in U.S. Dollars
to leading European banks for a one month period as of approximately 11:00 a.m.,
New York City time on the applicable Determination Date for amounts of not less
than One Million U.S. Dollars (U.S. $1,000,000.00). If at least two such rates
are so provided, LIBOR shall be the arithmetic mean of such rates. If fewer than
two rates are so provided, then LIBOR for the applicable Interest Period shall
be LIBOR that was in effect for the next preceding Interest Period.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, lien (statutory or other), security
interest or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever intended to assure payment of any
Indebtedness or other obligation, including any conditional sale or other title
retention agreement, the interest of a lessor under a Capital Lease, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction naming the owner of the
asset to which such Lien relates as debtor.
5
<PAGE> 11
"Loan Documents" means, collectively, this Agreement, the Note, the Warrant
Documents, the Second Amendment to Rights Agreement and each certificate,
agreement or document executed by the Borrower and delivered to the Lender in
connection with or pursuant to any of the foregoing.
"Material Adverse Change" means a material adverse change in any of (a) the
condition (financial or otherwise), business, performance, prospects,
operations, assets, liabilities (contingent or otherwise) or properties of the
Borrower or the Borrower and its Subsidiaries taken as a whole, (b) the
legality, validity or enforceability of any Loan Document, (c) the ability of
the Borrower to repay the Obligations or perform its obligations under the Loan
Documents, or (d) the rights and remedies of the Lender under the Loan
Documents.
"Material Adverse Effect" means an effect that results in or causes, or could
reasonably be expected to result in or cause, a Material Adverse Change.
"Maturity Date" means the Initial Maturity Date, unless the Maturity Date is
extended in accordance with Section 2.3(b), in which event the Maturity Date
means the third anniversary of the Closing Date.
"Maturity Date Extension Fee" means an amount equal to 2.50% of the aggregate
principal amount of the Term Loans outstanding on the Initial Maturity Date.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any of its Subsidiaries or any ERISA
Affiliate has any obligation or liability, contingent or otherwise.
"Net Cash Proceeds" means (a) proceeds received by the Borrower after the
Closing Date in cash or Cash Equivalents from any sale, lease, transfer or other
disposition of any of its assets (an "Asset Sale"), net of (x) the reasonable
cash costs of sale, assignment or other disposition, (y) taxes paid or payable
as a result thereof and (z) any amount required to be paid or prepaid on
Indebtedness (other than the Obligations) secured by the assets subject to such
Asset Sale; provided, however, that the evidence of each of (x), (y) and (z) are
provided to the Lender in form and substance satisfactory to it; (b) proceeds of
property insurance on account of the loss of or damage to any such assets or
property, and payments of compensation for any such assets or property taken by
condemnation or eminent domain, to the extent that within 360 days after the
receipt thereof, replacement or repair of such asset or property has not
commenced or, in the event that at any time such replacement or repair is
abandoned or otherwise discontinued or is not diligently pursued, the remaining
award or proceeds, as the case may be, net of taxes paid or payable as a result
thereof evidence of which is provided to the Lender, shall constitute Net Cash
Proceeds at such time; and (c) proceeds received after the Closing Date by the
Borrower in cash or Cash Equivalents from any Debt Issuance under Section 7.1,
in each case net of brokers' and advisors' fees and other costs incurred in
connection with such transaction; provided, however, that evidence of such costs
is provided to the Lender.
"Non-Recourse Indebtedness" means Indebtedness as to which (a) neither the
Borrower nor any of its Subsidiaries (i) provides credit support (including any
undertaking, agreement or instrument which would constitute Indebtedness) or
(ii) is directly or indirectly liable (except for any such liability if and to
the extent customarily included in non-recourse real estate loan documentation
entered into by the Borrower and its Subsidiaries in the ordinary course of
business) and (b) no default with respect to such Indebtedness (including any
rights which the holders thereof may have to take enforcement action against the
relevant Non-Recourse Subsidiary or its assets) would permit (upon notice, lapse
of time or both) any holder of any other Indebtedness of the Borrower to declare
a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Non-Recourse Subsidiary" means a Subsidiary of the Borrower (a) whose
properties and assets, to the extent they secure Indebtedness, secure only
Non-Recourse Indebtedness and (b) which has no Indebtedness other than
Non-Recourse Indebtedness and (c) the Investment in such Subsidiary is permitted
hereunder.
"Note" means the promissory note of the Borrower payable to the order of the
Lender in a principal amount equal to $10,000,000.
"Obligations" means the Term Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Lender, any
Affiliate of the Lender or any Indemnitee, of every type and description,
present or future, arising under this Agreement or under any other Loan
Document, by reason of an extension of credit, loan, guaranty, indemnification
or otherwise, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired and whether or not evidenced by any note,
guaranty or other
6
<PAGE> 12
instrument or for the payment of money. The term "Obligations" includes all fees
and all interest, charges, expenses, fees, attorneys' fees and disbursements and
other sums chargeable to the Borrower under this Agreement or any other Loan
Document, but excludes any obligations under the promissory note of the Borrower
to the Lender dated October 1, 1999 in the principal amount of $1,500,000 and
delivered pursuant to the terms of the Settlement Agreement.
"Payment Date" means the 15th day of each calendar month or if in any calendar
month the 15th day is not a Business Day, the Payment Date for such month shall
be the first Business Day immediately preceding such day.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.
"Permit" means any permit, approval, authorization, license, variance or
permission required from a Governmental Authority under an applicable
Requirement of Law.
"Permitted Encumbrances" means the following types of Liens (excluding any such
Lien imposed pursuant to Section 401(a)(29) or Section 412(n) of the Code or by
ERISA, any Environmental Lien, and any such Lien expressly prohibited by any
applicable terms of any of the Loan Documents): (i) Liens for taxes, assessments
or governmental charges or claims the payment of which is not, at the time,
required by Section 6.4; (ii) statutory Liens of landlords, statutory Liens and
rights of set-off of banks, statutory Liens of carriers, warehousemen,
mechanics, repairmen, workmen and materialmen, and other Liens imposed by law,
in each case incurred in the ordinary course of business (a) for amounts not yet
overdue or (b) for amounts that are overdue and that (in the case of any such
amounts overdue for a period in excess of 5 days) are being contested in good
faith by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money); (iv) any attachment or judgment Lien not constituting an Event of
Default under Section 8.1; (v) leases or subleases granted to third parties in
accordance with any applicable terms of the Loan Documents and not interfering
in any material respect with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries or resulting in a material diminution in the
value of the assets of the Borrower and its Subsidiaries taken as a whole; (vi)
easements, rights-of-way, restrictions, encroachments, and other minor defects
or irregularities in title, in each case which do not and will not interfere in
any material respect with the ordinary conduct of the business of the Borrower
or any of its Subsidiaries or result in a material diminution in value of the
assets of the Borrower and its Subsidiaries taken as a whole; (vii) any (a)
interest or title of a lessor or sublessor under any lease not prohibited by
this Agreement, (b) restriction or encumbrance that the interest or title of
such lessor or sublessor may be subject to, or (c) subordination of the interest
of the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (b), so long as the holder of such
restriction or encumbrance agrees to recognize the rights of such lessee or
sublessee under such lease; (viii) Liens arising from filing Uniform Commercial
Code financing statements relating solely to leases not prohibited by this
Agreement; (ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (x) any zoning or similar law or right reserved to or
vested in any governmental office or agency to control or regulate the use of
any real property; (xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating, reciprocal
easement or similar agreements entered into in the ordinary course of business
of the Borrower and its Subsidiaries; and (xii) licenses of intellectual
property (including, but not limited to, permits, patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
copyright applications, franchises and authorizations) granted by the Borrower
or any of its Subsidiaries in the ordinary course of
7
<PAGE> 13
business and not interfering in any material respect with the ordinary conduct
of the business of the Borrower or such Subsidiary.
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, estate, trust, limited liability company,
unincorporated association, joint venture or other entity, or a Governmental
Authority.
"Preferred Stock" means, with respect to any Person, capital stock that has
preferential rights to any other capital stock of such Person with respect to
dividends, redemptions or upon liquidations.
"Release" means, with respect to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration, in each case, of any Contaminant into the indoor or outdoor
environment or into or out of any property owned by such Person, including the
movement of Contaminants through or in the air, soil, surface water, ground
water or property.
"Remedial Action" means all actions required to (a) clean up, remove, treat or
in any other way address any Contaminant in the indoor or outdoor environment,
(b) prevent the Release or threat of Release or minimize the further Release so
that a Contaminant does not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment or (c) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
"Requirement of Law" means, with respect to any Person, all federal, state,
local and foreign laws, rules and regulations, orders, judgments, decrees and
other determinations of any Governmental Authority or arbitrator, applicable to
or binding upon such Person or any of its property or to which such Person or
any of its property is subject, including ERISA, labor and benefit laws and
Environmental Laws.
"Responsible Officer" means, with respect to any Person, any of the principal
executive officers, including chief financial officer, treasurer and controller
of such Person, but in any event, with respect to financial matters generally or
Section 5.1, the chief financial officer of such Person.
"Restricted Payment" means (a) any dividend or other distribution, direct or
indirect, on account of any Stock or Stock Equivalents of the Borrower or any
Subsidiary now or hereafter outstanding, except a dividend payable solely in
Stock or Stock Equivalents (other than Disqualified Capital Stock) or a dividend
or distribution payable solely to the Borrower, (b) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Stock or Stock Equivalents of the Borrower or any Subsidiary
now or hereafter outstanding other than one payable solely in other Stock or
Stock Equivalents of such Person (other than Disqualified Capital Stock) or
solely to the Borrower, or (c) any payment or prepayment of principal or premium
(if any), fees on, or redemption, purchase, retirement, defeasance, sinking fund
or similar payment with respect to, any Indebtedness of the Borrower or any
Subsidiary which is subordinate or junior in right of payment to the Term Loans,
other than one payable solely in Stock or Stock Equivalents of such Person
(other than Disqualified Capital Stock).
"Rights Agreement" means the Rights Agreement dated as of May 14, 1998 between
the Borrower and ChaseMellon Shareholder Services, LLC, as amended.
"Second Amendment to Rights Agreement" means the Second Amendment to Rights
Agreement dated as of April 24, 2000.
"Security" means any Stock, Stock Equivalent, voting trust certificate, bond,
debenture, note or other evidence of Indebtedness, whether secured, unsecured,
convertible or subordinated, or any certificate of interest, share or
participation in, or any temporary or interim certificate for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing, but shall not include any evidence of the Obligations.
"Settlement Agreement" means the Settlement Agreement dated as of September 29,
1999 among the Borrower, the Lender and the other parties named therein.
"Solvent" means, with respect to any Person, that the value of the assets of
such Person (both at fair value and present fair saleable value) is, on the date
of determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date and
that, as of such date, such Person is able to pay all liabilities of such Person
as such liabilities mature and does not have unreasonably small capital. In
computing the amount of contingent or unliquidated liabilities at any time, such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
8
<PAGE> 14
"Stock" means shares of capital stock (whether denominated as common stock or
preferred stock), beneficial, partnership or membership interests,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity,
whether voting or non-voting.
"Stock Equivalent" means any security convertible into or exchangeable for Stock
and any warrant, option or other right to purchase or subscribe for any Stock,
whether or not presently convertible, exchangeable or exercisable.
"Subsidiary" means, with respect to any Person, any corporation, partnership,
limited liability company or other business entity of which (i) an aggregate of
50% or more of the outstanding Voting Stock or interest in participation rights
in profits or capital contribution is, at the time, directly or indirectly,
owned or controlled by such Person and/or one or more Subsidiaries of such
Person or (ii) any such Person is a general partner or manager or may exercise
the powers of a general partner or manager.
"Tax Affiliate" means, with respect to any Person, (a) any Subsidiary of such
Person, and (b) any Affiliate of such Person with which such Person files or is
eligible to file consolidated, combined or unitary tax returns.
"Taxes" has the meaning specified in Section 2.12(a).
"Tax Returns" has the meaning specified in Section 4.8
"Telerate Page 3750" means the display designated as "Page 3750 on the Dow Jones
Telerate Service (or such other page as may replace Page 3750 on that service or
such other service as may be nominated by the British Banker's Association as
the information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for the U.S. Dollar deposits).
"Term Loans" has the meaning specified in Section 2.1
"Title IV Plan" means a pension plan, other than a Multiemployer Plan, which is
covered by Title IV of ERISA to which the Borrower any of its Subsidiaries or
any ERISA Affiliate has any obligation or liability (contingent or otherwise).
"Voting Stock" means Stock of any Person having ordinary power to vote in the
election of members of the board of directors, managers, trustees or other
controlling Persons, of such Person (irrespective of whether, at the time, Stock
of any other class or classes of such entity shall have or might have voting
power by reason of the happening of any contingency) and, in the case of any
partnership, any interest of a general partner.
"Warrants" shall mean the warrant to purchase from the Borrower 750,000 shares
of common stock of ARV Assisted Living, Inc. in the form set forth on Exhibit C
and all warrants issued upon transfer, division or combination of, or in
substitution for, any thereof. All Warrants shall at all times be identical as
to terms and conditions and date, except as to the number of shares of common
stock of the Borrower for which they may be exercised.
"Warrant Documents" means, collectively, the Warrants, and each certificate,
agreement or document executed by the Borrower in connection with or pursuant to
any of the foregoing.
"Withdrawal Liability" means, with respect to the Borrower at any time, the
aggregate liability incurred (whether or not assessed) with respect to all
Multiemployer Plans pursuant to Section 4201 of ERISA or for increases in
contributions required to be made pursuant to Section 4243 of ERISA.
SECTION 1.2. COMPUTATION OF TIME PERIODS. In this Agreement,
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding" and the word "through" means "to and including."
SECTION 1.3. ACCOUNTING TERMS AND PRINCIPLES. All accounting
terms not specifically defined herein shall be construed in conformity with GAAP
and all accounting determinations required to be made pursuant hereto shall,
unless expressly otherwise provided herein, be made in conformity with GAAP.
SECTION 1.4. CERTAIN TERMS.
9
<PAGE> 15
(a) The words "herein," "hereof" and "hereunder" and similar
words refer to this Agreement as a whole, and not to any particular Article,
Section, subsection or clause in, this Agreement.
(b) References in this Agreement to an Exhibit, Schedule,
Article, Section, subsection or clause refer to the appropriate Exhibit or
Schedule to, or Article, Section, subsection or clause in this Agreement.
(c) Each agreement defined in this Article I shall include all
appendices, exhibits and schedules thereto. Unless the prior written consent of
the Lender is required hereunder for an amendment, restatement, supplement or
other modification to any such agreement and such consent is not obtained,
references in this Agreement to such agreement shall be to such agreement as so
amended, restated, supplemented or modified.
(d) References in this Agreement to any statute shall be to
such statute as amended or modified and in effect at the time any such reference
is operative.
(e) The term "including" when used in any Loan Document means
"including without limitation" except when used in the computation of time
periods.
(f) The term "Lender" includes its successors, assigns and
transferees.
ARTICLE II
THE TERM LOAN FACILITY
SECTION 2.1. THE TERM LOAN COMMITMENT.
On the terms and subject to the conditions contained in this Agreement, the
Lender agrees to make available to the Borrower from time to time during the
period from the Closing Date to the Commitment Termination Date each term loan
(each, a "Term Loan" and collectively, the "Term Loans"), requested by the
Borrower in accordance with Section 2.2. All Term Loans made hereunder shall not
exceed at any time outstanding the Lender's Commitment. Amounts repaid or
prepaid may not be reborrowed under this Agreement.
SECTION 2.2. BORROWING PROCEDURES.
(a) Except for the Borrowing made on the Closing Date, each
Borrowing shall be made on notice given by the Borrower to the Lender not later
than 11:00 A.M. (New York City time) three Business Days prior to the proposed
date of such Borrowing. Each such notice shall be in writing identified as a
borrowing notice hereunder and specifying (A) the proposed date of such
Borrowing and (B) the aggregate amount of such Borrowing. Each Borrowing shall
be made in an aggregate amount of not less than $1,000,000 and in increments of
$1,000,000 with a minimum initial aggregate amount of not less than $5,000,000
on the Closing Date. No Borrowing may be made after the Commitment Termination
Date.
(b) On the date of any proposed Borrowing, subject to the
fulfillment of the applicable conditions set forth in Sections 3.1 and 3.2, the
Lender will make available, in immediately available funds, the Term Loans for
such Borrowing to the Borrower.
SECTION 2.3. REPAYMENT OF TERM LOAN, EXTENSION OF MATURITY
DATE.
10
<PAGE> 16
(a) The Borrower shall repay the entire outstanding principal
amount of the Term Loans, together with any accrued and unpaid interest thereon,
on the Maturity Date.
(b) So long as no Default shall have occurred, the Borrower
may, by prior written notice to the Lender not later than 10 Business Days prior
to the Initial Maturity Date extend the Maturity Date to the third anniversary
of the Closing Date, provided that the Borrower shall, if it makes such
election, pay the Maturity Date Extension Fee on the Initial Maturity Date to
the Lender.
SECTION 2.4. EVIDENCE OF DEBT. The Term Loans shall be
evidenced by a promissory note of the Borrower substantially in the form of
Exhibit A, with appropriate insertions as to payee, date and principal amount
and payable to the order of the Lender. The Lender is authorized to record the
date and amount of each Term Loan made by the Lender on the schedule annexed
thereto and any such recordation shall constitute prima facie evidence of the
accuracy of the information so recorded, absent manifest error; provided that
neither the failure to so record nor any error in such recordation shall affect
the Borrower's obligations under the Note.
SECTION 2.5. OPTIONAL PREPAYMENTS.
(a) At any time to but excluding the Initial Maturity Date,
the Borrower may, upon at least ten Business Days' prior notice to the Lender
stating the proposed date and aggregate principal amount of the prepayment,
prepay the outstanding principal amount of the Term Loans, in whole or in part,
together with accrued and unpaid interest to the date of such prepayment on the
principal amount prepaid; provided, however, that on the date of such prepayment
the Borrower shall pay to the Lender an amount calculated to compensate the
Lender on the same basis as if the prepaid amount of the Term Loan was
outstanding through the Initial Maturity Date and bearing interest from the date
of prepayment to the Initial Maturity Date at a rate of 10% per annum. If the
Borrower has exercised its right to extend the Maturity Date to the third
anniversary of the Closing Date under Section 2.3(b), it may at any time after
the Initial Maturity Date, upon at least 10 Business Days' prior notice to the
Lender, prepay in full or in part, without any premium or penalty (other than
amounts owing pursuant to Section 2.11(b)), the Term Loans. Any prepayment shall
be made ratably in respect of the Term Loans. The Borrower shall also pay any
amounts owing pursuant to Section 2.11(b) as a result of exercising any of its
rights under this Section 2.5. Upon the giving of such notice of prepayment, the
principal amount of the Term Loans specified to be prepaid shall become due and
payable on the date specified for such prepayment.
(b) The Borrower shall have no right to optionally prepay the
principal amount of any Term Loan other than as provided in this Section 2.5.
Amounts of any Term Loan prepaid, may not be reborrowed.
SECTION 2.6. MANDATORY PREPAYMENTS.
(a) Upon any Change of Control, the Borrower shall make a
mandatory prepayment in an amount equal to the aggregate principal amount of all
Term Loans then outstanding, together with, all accrued but unpaid interest
thereon and all applicable breakage costs owing under Section 2.11(b). In the
event the Borrower is required to make such
11
<PAGE> 17
mandatory prepayment prior to the Initial Maturity Date, there shall also be due
and owing to the Lender on the date of any such mandatory prepayment an amount
calculated to compensate the Lender on the same basis as if the prepaid amount
of the Term Loan was outstanding through the Initial Maturity Date and bearing
interest from the date of prepayment until the Initial Maturity Date at a rate
of 10% per annum; provided, however, that no such amount shall be required to be
paid if the Change of Control is caused solely by the Lender selling the issued
and outstanding Voting Stock of the Borrower owned by the Lender in a
transaction where Lender is the only seller of Voting Stock of the Borrower to
the purchaser of such Voting Stock of Borrower.
(b) Any prepayments made by the Borrower required to be
applied in accordance with this Section 2.6 shall be applied to the outstanding
principal balance of the Term Loans ratably. Amounts of any Term Loan prepaid
may not be reborrowed.
SECTION 2.7. REDUCTION OF COMMITMENT; EXTENSION OF COMMITMENT
TERMINATION DATE.
(a) The Borrower may, upon notice to the Lender at least 10
Business Days prior to the Initial Commitment Termination Date, extend the
Commitment Termination Date for all or any portion of the Commitment which has
not been borrowed as of the Initial Commitment Termination Date to a date that
is 90 days following the Initial Commitment Termination Date, provided that the
Borrower shall pay to the Lender the Borrowing Extension Fee on the Initial
Commitment Termination Date and provided further that the portion of the
Commitment so extended equals or exceeds $1,000,000 and is in increments of
$1,000,000. Such notice shall set forth (i) the date of such extension and (ii)
the amount of the unutilized Commitment that shall be extended. Any unutilized
Commitment not extended shall terminate on the Initial Commitment Termination
Date.
(b) The Borrower may without penalty cancel the unutilized
Commitment, in whole or in part upon not less than 10 Business Days' prior
notice to the Lender or upon the extension of the Commitment Termination Date
provided that the unutilized Commitment not subject to such cancellation, if
any, shall be in increments of $1,000,000. Any unutilized Commitment shall
terminate on the Commitment Termination Date.
SECTION 2.8. INTEREST.
(a) Rate of Interest. All Term Loans and the outstanding
amount of all other Obligations shall bear interest, in the case of Term Loans,
on the unpaid principal amount thereof from and including the date such Term
Loans are made and, in the case of such other Obligations, from and including
the date such other Obligations are due and payable until, in all cases, paid in
full, except as otherwise provided in Section 2.8(c), at a rate per annum equal
to the sum of (I) the LIBOR Rate determined for the applicable Interest Period,
plus (II) the Applicable Margin.
(b) Interest Payments. Interest accrued on each Term Loan
during any Interest Period shall be payable on the Payment Date relating to such
Interest Period and if not previously paid in full, on the Maturity Date.
Interest accrued on the amount of all other Obligations shall be payable on
demand from and after the time such Obligation becomes due and payable (whether
by acceleration or otherwise).
12
<PAGE> 18
(c) Default Interest. Notwithstanding the rates of interest
specified in Section 2.8(a) or elsewhere herein, effective immediately upon the
occurrence of an Event of Default, and for as long thereafter as such Event of
Default shall be continuing, the principal balance of all Term Loans and the
amount of all other Obligations shall bear interest at a rate which is five
percent per annum in excess of the rate of interest applicable to such
Obligations from time to time.
SECTION 2.9. COMMITMENT FEES.
The Borrower agrees to pay to the Lender a commitment fee in an amount equal to
$200,000 on the Closing Date. Such fee shall be fully earned when paid and not
refundable.
SECTION 2.10. PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder (including
fees and expenses) not later than 11:00 A.M. (New York City time) on the day
when due, in Dollars, to the Lender in immediately available funds without
set-off or counterclaim. Payments received by the Lender after 11:00 A.M. (New
York City time) shall be deemed to be received on the next Business Day.
(b) All computations of interest and of fees shall be made by
the Lender on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest and fees are payable. Each determination by
the Lender of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be,
unless otherwise provided in the definition of Payment Date.
(d) All payments and any other amounts received by the Lender
from or for the benefit of the Borrower shall be applied first, to pay all
Obligations then due and payable; and second, as the Borrower so designates.
SECTION 2.11. SPECIAL PROVISIONS GOVERNING TERM LOANS.
(a) Determination of Interest Rate. The LIBOR Rate for each
Interest Period for Term Loans shall be determined by the Lender pursuant to the
procedures set forth in the definition of "LIBOR Rate." The Lender's
determination shall be presumed to be correct, absent manifest error, and shall
be binding on the Borrower.
(b) Breakage Costs. In addition to all amounts required to be
paid by the Borrower pursuant to Section 2.5 and Section 2.6, the Borrower shall
compensate the Lender, upon demand, for all losses, expenses and liabilities
(including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund or
maintain the Lender's Term Loans to the Borrower but excluding any loss of the
Applicable Margin on the relevant Term Loans) which the Lender may sustain (i)
if for any reason (other than a default by the Lender) a proposed Borrowing does
not occur on a date specified therefor in a notice of borrowing given by the
Borrower or in a request by it transmitted
13
<PAGE> 19
by it by facsimile for borrowing does not commence after notice therefor is
given, (ii) if for any reason any Term Loan is prepaid (including mandatorily
pursuant to Section 2.6) on a date which is not the last day of the applicable
Interest Period, or (iii) as a consequence of any failure by the Borrower to
repay Term Loans when required by the terms hereof. The Lender shall deliver to
the Borrower concurrently with such demand a written statement as to such
losses, expenses and liabilities, and this statement shall be conclusive as to
the amount of compensation due to the Lender, absent manifest error.
SECTION 2.12. TAXES.
(a) Any and all payments by the Borrower under each Loan
Document shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto (all such taxes (other than those taxes
on or measured by the income of the Lender), levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If any Taxes shall be required by law to be deducted from or in respect of any
sum payable under any Loan Document to the Lender (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.12) the Lender receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with applicable law, and (iv) the
Borrower shall deliver to the Lender evidence of such payment.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies of the United States or any political subdivision thereof or
any applicable foreign jurisdiction, and all liabilities with respect thereto,
which arise from any payment made under any Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, any Loan Document
(collectively, "Other Taxes").
(c) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.12 shall survive the payment in full of the
Obligations.
ARTICLE III
CONDITIONS TO TERM LOANS
SECTION 3.1. CONDITIONS PRECEDENT TO INITIAL LOANS. The
obligation of the Lender to make the Term Loans requested to be made by it on
the Closing Date is subject to the satisfaction of all of the following
conditions precedent:
(a) Certain Documents. The Lender shall have received on the
Closing Date each of the following, each dated the Closing Date unless otherwise
indicated or agreed to by the Lender, in form and substance satisfactory to the
Lender and its counsel:
14
<PAGE> 20
(i) this Agreement, duly executed and delivered by
the Borrower and a Note of the Borrower conforming to the requirements set forth
herein;
(ii) the Warrant, duly executed and delivered by the
Borrower;
(iii) favorable opinion of O'Melveny & Myers LLP,
counsel to the Borrower, which shall be to the effect set forth in Exhibit B
addressed to the Lender and addressing such other matters as the Lender may
reasonably request, including without limitation, the enforceability of the Loan
Documents;
(iv) evidence of the waiver of compliance with the
requirements set forth in Section 3.01 of the Settlement Agreement;
(v) the Second Amendment to Rights Agreement
executed by the parties thereto and delivered by the Borrower to the Lender;
(vi) a copy of the articles or certificate of
incorporation (or equivalent organizational documents) of the Borrower,
certified as of a recent date by the Secretary of State of the state of
incorporation of the Borrower, together with certificates of such official
attesting to the good standing of the Borrower;
(vii) a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) the names and true signatures of each
officer of the Borrower who has been authorized to execute and deliver any Loan
Document or other document required hereunder to be executed and delivered by or
on behalf of the Borrower, (B) the by-laws (or equivalent Constituent Document)
of the Borrower as in effect on the date of such certification, (C) the
resolutions of the Borrower's Board of Directors (or equivalent governing body)
approving and authorizing the execution, delivery and performance of this
Agreement and the other Loan Documents to which it is a party and (D) that there
have been no changes in the certificate of incorporation (or equivalent
Constituent Document) of the Borrower from the certificate of incorporation (or
equivalent Constituent Document) delivered pursuant to the immediately preceding
clause;
(viii) a letter from the Borrower to the Lender
reaffirming as of the Closing Date those matters set forth in the letter of the
Borrower to its accountants dated as of March 2, 2000;
(ix) a certificate of a Responsible Officer to the
effect that the conditions set forth in Sections 3.1(b), (c), (d) and 3.2(b)
have been satisfied;
(x) a payment direction letter in the form of
Exhibit D executed by the Lender and duly acknowledged by the Borrower; and
(xi) such other certificates, documents, agreements
and information respecting the Borrower as the Lender may reasonably request.
(b) Issuance of Warrants. The Borrower shall have issued to
the Lender Warrants in accordance with the terms of the Warrant.
15
<PAGE> 21
(c) Fees and Expenses Paid. There shall have been paid to the
Lender all fees due and payable on or before the Closing Date (including all
such fees described in Sections 2.9 and 9.3), and all expenses due and payable
on or before the Closing Date (including all such expenses described in Section
9.3).
(d) Consents, Etc. All consents and authorizations required
pursuant to any material Contractual Obligation with any other Person and all
consents and authorizations of, and effected all notices to and filings with,
any Governmental Authority, in each case, as may be necessary to allow the
Borrower to execute, deliver and perform, in all material respects, its
obligations hereunder, the Loan Documents and each other agreement or instrument
to be executed and delivered by it, pursuant thereto or in connection therewith.
SECTION 3.2. CONDITIONS PRECEDENT TO EACH TERM LOAN. The
obligation of the Lender on any date (including the Closing Date) to make any
Term Loan is subject to the satisfaction of all of the following conditions
precedent:
(a) Request for Borrowing. With respect to any Term Loan, the
Lender shall have received a duly executed notice of borrowing.
(b) Representations and Warranties; No Defaults. The following
statements shall be true on the date of such Term Loan, both before and after
giving effect thereto and to the application of the proceeds from any such Term
Loan:
(i) The representations and warranties set forth in
Article IV and in the other Loan Documents shall be true and correct in all
material respects on and as of any such date with the same effect as though made
on and as of such date.
(ii) No Default or Event of Default has occurred and
is continuing.
(c) No Legal Impediments. The making of the Term Loans on such
date does not violate any Requirement of Law with respect to the Borrower, its
Subsidiaries or the Lender on the date of or immediately following such Term
Loan and is not enjoined, temporarily, preliminarily or permanently.
(d) No Material Adverse Change. Since December 31, 1999, there
has been no Material Adverse Change and there have been no events or
developments that in the aggregate has had a Material Adverse Effect.
(e) Additional Matters. The Lender shall have received such
additional documents, information and materials as the Lender may reasonably
request.
Each submission by the Borrower to the Lender of a notice of borrowing and the
acceptance by the Borrower of the proceeds of each Term Loan requested therein,
shall be deemed to constitute a representation and warranty by the Borrower as
to the matters specified in Section 3.2(b) on the date of the making of such
Term Loan.
16
<PAGE> 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower represents and
warrants to the Lender that, on and as of the Closing Date, after giving effect
to the making of the Term Loans on the Closing Date and on and as of each date
as required by Section 3.2(b)(i):
SECTION 4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of
the Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization; (b) is duly qualified as a foreign corporation or organization and
in good standing under the laws of each jurisdiction where such qualification is
necessary, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect; (c) has all requisite power and authority
and the legal right to own, and operate its properties, to lease the property it
operates under lease and to conduct its business as now or currently proposed to
be conducted; (d) is in compliance with its Constituent Documents; (e) except as
disclosed in Schedule 4.11, is in compliance with all applicable Contractual
Obligations and Requirements of Law except where the failure to be in compliance
would not in the aggregate have a Material Adverse Effect; and (f) has all
necessary licenses, permits, consents or approvals from or by, has made all
necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for licenses, permits, consents,
approvals or filings which can be obtained or made by the taking of ministerial
action to secure the grant or transfer thereof or the failure to obtain or make
would not in the aggregate have a Material Adverse Effect.
SECTION 4.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS.
(a) The execution, delivery and performance by the Borrower of
the Loan Documents and the consummation of the transactions contemplated
thereby:
(i) are within the Borrower's corporate powers;
(ii) have been duly authorized by all necessary
corporate action, including the consent of shareholders where required;
(iii) do not and will not (A) contravene the
Borrower's Constituent Documents, (B) violate any other applicable Requirement
of Law applicable to the Borrower or any of its Subsidiaries (including
Regulations T, U and X of the Federal Reserve Board), or any order or decree of
any Governmental Authority or arbitrator applicable to the Borrower or any of
its Subsidiaries, (C) conflict with or result in the breach of, or constitute a
default under, or result in or permit the termination or acceleration of, any
Contractual Obligation of the Borrower or any of its Subsidiaries, or (D) result
in the creation or imposition of any Lien upon any of the property of the
Borrower or any of its Subsidiaries; and
(iv) do not require the consent of, authorization
by, approval of, notice to, or filing or registration with, any Governmental
Authority or any other Person, other than those listed on Schedule 4.2 and which
have been or will be, prior to the Closing Date, obtained or made, copies of
which have been or will be delivered to the Lender pursuant to Section 3.1, and
each of which on the Closing Date will be in full force and effect.
17
<PAGE> 23
(b) This Agreement has been, and each of the other Loan
Documents will have been upon delivery thereof pursuant to the terms of this
Agreement, duly executed and delivered by the Borrower. This Agreement is, and
the other Loan Documents will be, when delivered hereunder, the legal, valid and
binding obligation of the Borrower party thereto, enforceable against the
Borrower in accordance with its terms.
SECTION 4.3. OWNERSHIP OF BORROWER; SUBSIDIARIES.
(a) All of the outstanding capital stock of the Borrower has
been validly issued, is fully paid and non assessable. No Stock of the Borrower
is subject to any option, warrant, right of conversion or purchase or any
similar right other than as set forth on Schedule 4.3, as such Schedule may be
amended from time to time by the Borrower during the period from the Closing
Date to the Commitment Termination Date.
(b) Set forth on Schedule 4.3 hereto is a complete and
accurate list showing, as of the Closing Date, all Subsidiaries of the Borrower
and, as to each such Subsidiary, the jurisdiction of its incorporation, the
number of shares of each class of Stock authorized (if applicable), the number
outstanding on the Closing Date and the number and percentage of the outstanding
shares of each such class owned (directly or indirectly) by the Borrower.
SECTION 4.4. FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1999 and the related consolidated statements of
income, retained earnings and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, and the balance sheets of the Borrower and its
Subsidiaries as at February 29, 2000, and the related consolidated statements of
income, retained earnings and cash flows of the Borrower and its Subsidiaries
for the two months then ended, copies of which have been furnished to each
Lender, fairly present, subject, in the case of said balance sheets as at
February 29, 2000, and said statements of income, retained earnings and cash
flows for the two months then ended, to the absence of footnote disclosure and
normal recurring year-end audit adjustments, the consolidated financial
condition of the Borrower and its Subsidiaries as at such dates and the
consolidated results of the operations of the Borrower and its Subsidiaries for
the period ended on such dates, all in conformity with GAAP.
(b) Neither the Borrower nor any of its Subsidiaries has any
material obligation, contingent liability or liability for taxes, long-term
leases or unusual forward or long-term commitment which is not reflected in the
Financial Statements referred to in clause (a) above or in the notes thereto or
permitted by this Agreement.
SECTION 4.5. MATERIAL ADVERSE CHANGE. Since December 31, 1999,
there has been no Material Adverse Change and there have been no events or
developments that in the aggregate have had a Material Adverse Effect.
SECTION 4.6. SOLVENCY. After giving effect to the Term Loans
to be made on the Closing Date and before and after each other date as Term
Loans requested hereunder are made, the disbursement of the proceeds of such
Term Loans pursuant to the instructions of the Borrower, the consummation of the
other financing transactions contemplated hereby and the
18
<PAGE> 24
payment and accrual of all transaction costs in connection with the foregoing,
the Borrower is Solvent.
SECTION 4.7. LITIGATION. There are no pending or, to the
knowledge of the Borrower, threatened actions, investigations, litigation or
proceedings affecting the Borrower, or any of its Subsidiaries before any court,
Governmental Authority or arbitrator other than those that in the aggregate
could not have a Material Adverse Effect. The performance of any action by the
Borrower required or contemplated by any of the Loan Documents is not restrained
or enjoined (either temporarily, preliminarily or permanently).
SECTION 4.8. TAXES.
(a) All federal, state, local and foreign income and franchise
and other material tax returns, reports and statements (collectively, the "Tax
Returns") required to be filed by the Borrower or any of its Tax Affiliates have
been filed with the appropriate Governmental Authorities in all jurisdictions in
which such Tax Returns are required to be filed, all such Tax Returns are true
and correct in all material respects, and all taxes, charges and other
impositions reflected therein or otherwise due and payable have been paid prior
to the date on which any fine, penalty, interest, late charge or loss may be
added thereto for non-payment thereof except where contested in good faith and
by appropriate proceedings if adequate reserves therefor have been established
on the books of the Borrower or such Tax Affiliate in conformity with GAAP.
Proper and accurate amounts have been withheld by the Borrower and each of its
Tax Affiliates from their respective employees for all periods in full and
complete compliance with the tax, social security and unemployment withholding
provisions of applicable Requirements of Law and such withholdings have been
timely paid to the respective Governmental Authorities.
(b) None of the Borrower or any of its Tax Affiliates has (i)
any obligation under any tax sharing agreement or arrangement other than that to
which the Lender has a copy prior to the date hereof or (ii) been a member of an
affiliated, combined or unitary group other than the group of which the Borrower
is the common parent.
SECTION 4.9. FULL DISCLOSURE. The information prepared or
furnished by or on behalf of the Borrower in connection with this Agreement or
any Loan Document, or the consummation of the financing taken as a whole does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein or herein not
misleading. All facts known to the Borrower which are material to an
understanding of the financial condition, business, properties or prospects of
the Borrower and the Borrower and the Subsidiaries taken as one enterprise have
been disclosed to the Lender.
SECTION 4.10. MARGIN REGULATIONS. The Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Federal Reserve Board),
and no proceeds of any Borrowing will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock in contravention of Regulation T, U or X of the Federal Reserve
Board.
SECTION 4.11. NO BURDENSOME RESTRICTIONS; NO DEFAULTS.
19
<PAGE> 25
(a) Neither the Borrower nor any of its Subsidiaries (i) is a
party to any Contractual Obligation the compliance with which would have a
Material Adverse Effect or the performance of which by any thereof, either
unconditionally or upon the happening of an event, will result in the creation
of a Lien on the property or assets of any thereof or (ii) is subject to any
charter or corporate restriction which could reasonably be expected to have a
Material Adverse Effect.
(b) Except as disclosed in Schedule 4.11, neither the Borrower
nor any of its Subsidiaries is in default under or with respect to any
Requirement of Law or Contractual Obligation owed by it and, to the knowledge of
the Borrower, no other party is in default under or with respect to any
Contractual Obligation owed to the Borrower or to any Subsidiary, other than, in
either case, those defaults which in the aggregate could not have a Material
Adverse Effect.
(c) No Default or Event of Default has occurred and is
continuing.
(d) To the best knowledge of the Borrower, there is no
Requirement of Law applicable to the Borrower the compliance with which by such
Borrower could reasonably be expected to have a Material Adverse Effect.
(e) Except as disclosed in Schedule 4.11, the Borrower is not
delinquent in the payment of any Indebtedness owed by the Borrower to the
federal government of the United States.
SECTION 4.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is (a) an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended or (b) a "holding company," or an
"affiliate" or a "holding company" or a "subsidiary company" of a "holding
company," as each such term is defined and used in the Public Utility Holding
Act of 1935, as amended.
SECTION 4.13. USE OF PROCEEDS. The proceeds of the Term Loans
are being used by the Borrower solely as follows: (a) to refinance existing
Indebtedness of the Borrower and its Subsidiaries, and for the payment of
related transaction costs, fees and expenses and (b) for working capital and
general corporate purposes.
SECTION 4.14. INSURANCE. All policies of insurance of any kind
or nature of the Borrower or any of its Subsidiaries, including policies of
life, fire, theft, product liability, public liability, property damage, other
casualty, employee fidelity, workers' compensation and employee health and
welfare insurance, are in full force and effect and are of a nature and provide
such coverage as is sufficient and as is customarily carried by businesses of
the size and character of such Person. None of the Borrower or any of its
Subsidiaries has been refused insurance for any material coverage which it had
applied or had any policy of insurance terminated in the past year (other than
at its request).
20
<PAGE> 26
SECTION 4.15. LABOR MATTERS.
(a) There are no strikes, work stoppages, slowdowns or
lockouts pending or threatened against or involving the Borrower or any of its
Subsidiaries, other than those which in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
(b) Except as disclosed in Schedule 4.15, there are no unfair
labor practices, grievances or complaints pending, or, to the Borrower's
knowledge, threatened against or involving the Borrower or any of its
Subsidiaries, nor are there any arbitrations or grievances threatened involving
the Borrower or any of its Subsidiaries, other than those which, in the
aggregate, if resolved adversely to the Borrower or such Subsidiary, could not
reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth on Schedule 4.15, as of the Closing
Date, there is no collective bargaining agreement covering any of the employees
of the Borrower or the Subsidiaries.
(d) Schedule 4.15 sets forth as of the date hereof, all
material consulting agreements, executive employment agreements, executive
compensation plans, deferred compensation agreements, employee stock purchase
and stock option plans and severance plans of the Borrower and any of its
Subsidiaries.
SECTION 4.16. ERISA.
(a) Schedule 4.16 separately identifies as of the date hereof
all Title IV Plans, all Multiemployer Plans and all of the employee benefit
plans within the meaning of Section 3(3) of ERISA (except those already listed
on Schedule 4.15) to which the Borrower or any of its Subsidiaries has any
obligation or liability, contingent or otherwise.
(b) Each employee benefit plan of the Borrower or any of its
Subsidiaries which is intended to qualify under Section 401 of the Code does so
qualify, and any trust created thereunder is exempt from tax under the
provisions of Section 501 of the Code, except where all such failures have no
Material Adverse Effect.
(c) Each Title IV Plan is in compliance in all material
respects with applicable provisions of ERISA, the Code and other Requirements of
Law except for any non-compliance that in the aggregate with all other
non-compliance would not have a Material Adverse Effect.
(d) There has been no, nor is there reasonably expected to
occur, any ERISA Event which could reasonably be expected to have a Material
Adverse Effect.
(e) Except to the extent set forth on Schedule 4.16, none of
the Borrower, any Subsidiary or any ERISA Affiliate would have any Withdrawal
Liability as a result of a complete withdrawal as of the date hereof from any
Multiemployer Plan.
SECTION 4.17. ENVIRONMENTAL MATTERS.
21
<PAGE> 27
(a) The operations of the Borrower and each of its
Subsidiaries have been and are in compliance with all Environmental Laws,
including obtaining and complying with all required environmental, health and
safety Permits, other than non-compliances that in the aggregate with all
matters covered by this Section 4.17 have (i) no reasonable likelihood of
causing total Environmental Liabilities and Costs to exceed $500,000 in cash in
any twelve-month period and (ii) no Material Adverse Effect.
(b) The Borrower and its Subsidiaries have obtained and
currently possess all environmental, health and safety Permits necessary for
their operations, all such Permits are in full force and effect and the Borrower
and each of its Subsidiaries is in compliance with the terms and conditions of
such Permits except for failures that in the aggregate with all matters covered
by this Section 4.17 have (i) no reasonable likelihood of causing total
Environmental Liabilities and Costs to exceed $500,000 in cash in any
twelve-month period and (ii) no Material Adverse Effect.
(c) None of the currently (or, to the knowledge of the
Borrower, previously at the time it was owned) owned or leased property or
operations of the Borrower or any of its Subsidiaries is subject to any
threatened or outstanding claim, order, agreement, notice of violation or
potential liability or is subject to any pending or, to its knowledge,
threatened judicial or docketed administrative proceeding or governmental
investigation (each an "Environmental Contingency") with respect to (i)
Environmental Law, (ii) a Remedial Action or (iii) Environmental Liabilities and
Costs arising from a Release or threatened Release, other than those that in the
aggregate with all matters covered by this Section 4.17 have (A) no reasonable
likelihood of causing total Environmental Liabilities and Costs to exceed
$500,000 in cash in any twelve-month period and (B) no Material Adverse Effect.
Schedule 4.17 lists all Environmental Contingencies as of the date hereof that,
if adversely determined, would in the aggregate with all matters covered by this
Section 4.17 cause (x) total Environmental Liabilities and Costs to exceed
$500,000 in cash in any twelve-month period or (y) a Material Adverse Effect.
(d) Except as disclosed on Schedule 4.17 none of the Borrower
or any of its Subsidiaries is a treatment, storage or disposal facility
requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the regulations thereunder or any state analog.
(e) There are no facts, circumstances or conditions arising
out of or relating to the operations or ownership of real property owned or
operated by the Borrower or any of its Subsidiaries which are not specifically
included in the financial information furnished to the Lender other than those
that in the aggregate have (i) no reasonable likelihood of causing the Borrower
and its Subsidiaries to incur Environmental Liabilities and Costs in excess of
$500,000 in cash in any twelve-month period and (ii) no Material Adverse Affect.
SECTION 4.18. INTELLECTUAL PROPERTY. The Borrower and its
Subsidiaries own or license or otherwise have the right to use all licenses,
permits, patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, copyright applications, franchises,
authorizations and other intellectual property rights that are necessary for the
operations of their respective businesses, without infringement upon or conflict
with the rights of any other Person with respect thereto, including all trade
names associated with any private label brands of the Borrower or any of the
Subsidiaries. To the Borrower's knowledge,
22
<PAGE> 28
no slogan or other advertising device, product, process, method, substance, part
or component, or other material now employed, or now contemplated to be
employed, by the Borrower or any of its Subsidiaries infringes upon or conflicts
with any rights owned by any other Person, and no claim or litigation regarding
any of the foregoing is pending or threatened.
SECTION 4.19. PROPERTIES.
(a) Each of the Borrower and its Subsidiaries has good and
marketable title to, or valid leasehold interests in, all real property and good
title to all personal property purported to be owned by it, including those
reflected on the most recent Financial Statements delivered by the Borrower, and
none of such properties and assets is subject to any Lien, except Liens
permitted under Section 7.2. The Borrower and its Subsidiaries have received all
deeds, assignments, waivers, consents, non-disturbance and recognition or
similar agreements, bills of sale and other documents, and have duly effected
all recordings, filings and other actions necessary to establish, protect and
perfect the Borrower's and its Subsidiaries' right, title and interest in and to
all such property.
(b) All Permits required to have been issued or appropriate to
enable all real property owned or leased by the Borrower or any of its
Subsidiaries to be lawfully occupied and used for all of the purposes for which
they are currently occupied and used have been lawfully issued and are in full
force and effect, other than those which in the aggregate would not have a
Material Adverse Effect.
(c) None of the Borrower or any of its Subsidiaries has
received any notice, or has any knowledge, of any pending, threatened or
contemplated condemnation proceeding affecting any real property owned or leased
by the Borrower or any of its Subsidiaries or any part thereof, except those
which, in the aggregate, would not have a Material Adverse Effect.
SECTION 4.20. RANKING. The Obligations do and will rank pari
passu in priority of payment with the Borrower's obligations under the
Indenture. No Indebtedness of the Borrower issued directly or indirectly by the
Borrower or any of its Subsidiaries will at any time rank senior in priority to
the Term Loans or the Obligations.
ARTICLE V
REPORTING COVENANTS
As long as any of the Obligations or the Commitment remains outstanding, the
Borrower agrees with the Lender that:
SECTION 5.1. FINANCIAL STATEMENTS. The Borrower shall furnish
to the Lender the following:
(a) Monthly Reports. Within 30 days after the end of each
month commencing with the month ending April 30, 2000 (i) a consolidated income
statement and balance sheet of the Borrower and its Subsidiaries, and (ii)
income statements for each of the Borrower's properties, in each case for such
month and for the portion of the year ending on the last day of such month and
in the case of each income statement with a comparison of each item to the
budget delivered pursuant to Section 5.1(e).
23
<PAGE> 29
(b) Quarterly Reports. Within 45 days after the end of each
fiscal quarter of the Borrower, (i) quarterly consolidated financial statements,
including balance sheet, income statement and cash flow statement, for the
Borrower and its Subsidiaries, (ii) quarterly balance sheets, income statements
and cash flow statements for each of the Borrower's Subsidiaries and (iii)
quarterly balance sheets for each of the Borrower's properties.
(c) Annual Reports. Within 90 days after the end of each
Fiscal Year, the Borrower's 10-K filed with the Securities and Exchange
Commission, or if the Borrower is no longer subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, the annual
audited consolidated financial statements of the Borrower and its Subsidiaries,
certified with respect to such consolidated statements by independent certified
public accountants acceptable to the Lender.
(d) Occupancy Reports. Within 5 Business Days after each
Sunday (or if the Borrower changes the end of its week to another day of the
week, such day of the week), occupancy reports for each of the Borrower's
properties for the preceding week, detailing the number of residents and units
occupied.
(e) Budgets. No later than November 30 of the year immediately
preceding the year that is the subject of the budget, annual budgets, including
separate capital expenditure budgets, for the Borrower and each of its
properties
(f) Other. Within 30 days after the end of each month, monthly
updates of the capital expenditure budgets delivered to the Lender for each
property of the Borrower with a comparison to the respective original budget
previously delivered to the Lender.
(g) Management Letters etc. Within five Business Days after
receipt thereof by the Borrower, copies of each management letter, exception
report or similar letter or report received by the Borrower from its independent
certified public accountants.
(h) Compliance Certificate. Together with each delivery of any
financial statement pursuant to clauses (a) and (b) of this Section 5.1, a
certificate of a Responsible Officer of the Borrower (each, a "Compliance
Certificate") stating that no Default or Event of Default has occurred and is
continuing or, if a Default or an Event of Default has occurred or is
continuing, stating the nature thereof and the action which the Borrower
proposes to take with respect thereto.
(i) Additional Information. Promptly, from time to time, such
other information regarding the operations, including information regarding
specific product categories and lines of business of the Borrower and it
Subsidiaries, business affairs and financial condition of the Borrower or any of
its Subsidiaries, or compliance with the terms of any Loan Document, as the
Lender may reasonably request.
SECTION 5.2. DEFAULT NOTICES. As soon as practicable, and in
any event within five Business Days after a Responsible Officer of the Borrower
has knowledge of the existence of any Default, Event of Default or other event
which has had a Material Adverse Effect or which has any reasonable likelihood
of causing or resulting in a Material Adverse Change, the Borrower shall give
the Lender notice specifying the nature of such Default or Event
24
<PAGE> 30
of Default or other event, including the anticipated effect thereof, which
notice, if given by telephone, shall be promptly confirmed in writing on the
next Business Day.
SECTION 5.3. LITIGATION. Promptly after the commencement
thereof, the Borrower shall give the Lender written notice of the commencement
of any action, suit and proceedings before any domestic or foreign Governmental
Authority or arbitrator, affecting the Borrower or any of its Subsidiaries,
which in the reasonable judgment of the Borrower or such Subsidiary, expose the
Borrower or such Subsidiary to liability ("Potential Liability") in an amount of
$500,000 or more (or any similar or related action, suits or proceedings that
involve Potential Liability aggregating $500,000 or more in cash in any twelve
month period) and which, if adversely determined, would have a Material Adverse
Effect; provided, however, that claims for which an insurer of the Borrower or
such Subsidiary, as the case may be, has acknowledged coverage shall not be
included in such aggregate amounts to the extent of such coverage.
SECTION 5.4. SEC FILINGS; PRESS RELEASES. Promptly after the
sending or filing thereof, the Borrower shall send the Lender copies of (a) all
reports which the Borrower sends to its security holders generally, (b) all
reports and registration statements which the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any national
securities exchange or the National Association of Securities Dealers, Inc., (c)
all press releases and (d) all other statements concerning material changes or
developments in the business of the Borrower made available by the Borrower to
the public.
SECTION 5.5. LABOR RELATIONS. Promptly after becoming aware of
the same, the Borrower shall give the Lender written notice of (a) any material
labor dispute to which the Borrower or any of its Subsidiaries is or may become
a party, including any strikes, lockouts or other disputes relating to any of
such Person's facilities, and (b) any Worker Adjustment and Retraining
Notification Act or related liability incurred with respect to the closing of
any facility of any of such Person.
SECTION 5.6. TAX RETURNS. Upon the request of the Lender, the
Borrower will provide copies of all federal, state, local tax returns and
reports filed by the Borrower or any of its Subsidiaries in respect of taxes
measured by income (excluding sales, use and like taxes).
SECTION 5.7. ERISA MATTERS. The Borrower shall notify the
Lender:
(a) promptly and in any event within 30 days after the
Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to
know that any ERISA Event has occurred;
(b) promptly and in any event within 10 days after the
Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to
know that a request for a minimum funding waiver under Section 412 of the Code
has been filed with respect to any Title IV Plan or Multiemployer Plan, a
written statement of a Responsible Officer of the Borrower describing such ERISA
Event or waiver request and the action, if any, which the Borrower, its
Subsidiaries and ERISA Affiliates propose to take with respect thereto and a
copy of any notice filed with the PBGC or the IRS pertaining thereto;
25
<PAGE> 31
(c) simultaneously with the date that the Borrower, any of its
Subsidiaries or any ERISA Affiliate files a notice of intent to terminate any
Title IV Plan, if such termination would require material additional
contributions in order to be considered a standard termination within the
meaning of Section 4041(b) of ERISA, a copy of each notice.
SECTION 5.8. ENVIRONMENTAL MATTERS. The Borrower shall provide
the Lender promptly and in any event within 10 days of the Borrower or any
Subsidiary learning of any of the following, written notice of any of the
following:
(a) that the Borrower or any Subsidiary is or may be liable to
any Person as a result of a Release or threatened Release which could reasonably
be expected to subject the Borrower and any Subsidiary in the aggregate for all
matters covered by this Section 5.8 to total Environmental Liabilities and Costs
of $500,000 or more in cash in any twelve-month period;
(b) the receipt by the Borrower or any Subsidiary of
notification that any real or personal property of such Person is subject to any
Environmental Lien;
(c) the receipt by the Borrower or any Subsidiary of any
notice of violation of or potential liability under, or knowledge by a
Responsible Officer of the Borrower or such Subsidiary that there exists a
condition which could reasonably be expected to result in a violation of or
liability under any Environmental Law, except for violations and liabilities the
consequence of which in the aggregate would have no reasonable likelihood of
subjecting the Borrower and the Subsidiaries in the aggregate for all matters
covered by this Section 5.8 to total Environmental Liabilities and Costs of
$500,000 or more in cash in any twelve-month period;
(d) the commencement of any judicial or administrative
proceeding or investigation alleging a violation of or liability under any
Environmental Law, which in the aggregate, if adversely determined, would have a
reasonable likelihood of subjecting the Borrower and its Subsidiaries
collectively in the aggregate for all matters covered by this Section 5.8 to
total Environmental Liabilities and Costs of $500,000 or more in cash in any
twelve-month period;
(e) any proposed acquisition of stock, assets or real estate,
or any proposed leasing of property, or any other action by the Borrower or any
Subsidiary other than those the consequences of which in the aggregate have
reasonable likelihood of subjecting the Borrower and its Subsidiaries in the
aggregate for all matters covered by this Section 5.8 to total Environmental
Liabilities and Costs of $500,000 or less in cash in any twelve-month period;
(f) any proposed action by the Borrower or any Subsidiary in
response to any proposed change in Environmental Laws, either of which, in the
aggregate, have a reasonable likelihood of requiring the Borrower or any
Subsidiary to obtain additional environmental, health or safety Permits or make
additional capital improvements to obtain compliance with Environmental Laws
that in the aggregate would cost $500,000 or more in cash in any twelve-month
period or subject the Borrower and the Subsidiaries in the aggregate for all
matters covered by this Section 5.8 to additional total Environmental
Liabilities and Costs of $500,000 or more in cash in any twelve-month period;
and
26
<PAGE> 32
(g) upon written request by the Lender, a report providing an
update of the status of any environmental, health or safety compliance, hazard
or liability issue identified in any notice or report delivered pursuant to this
Agreement.
SECTION 5.9. OTHER INFORMATION. The Borrower will provide the
Lender with such other information respecting the business, properties,
condition, financial or otherwise, or operations of the Borrower or any of its
Subsidiaries as the Lender may from time to time reasonably request.
ARTICLE VI
AFFIRMATIVE COVENANTS
As long as any of the Obligations or the Commitment remains outstanding, the
Borrower agrees with the Lender that:
SECTION 6.1. PRESERVATION OF CORPORATE EXISTENCE, ETC. The
Borrower shall, and shall cause each Subsidiary to, preserve and maintain its
corporate existence, rights (charter and statutory) and franchises, unless the
Borrower in good faith determines only with respect to any Subsidiary, that such
preservation of such Subsidiary is no longer desirable in the conduct of its
business.
SECTION 6.2. COMPLIANCE WITH LAWS, ETC. The Borrower shall,
and shall cause each of its Subsidiaries to, comply with all applicable
Requirements of Law, Contractual Obligations and Permits, except where the
failure so to comply would not in the aggregate have a Material Adverse Effect.
SECTION 6.3. CONDUCT OF BUSINESS. The Borrower shall, and
shall cause each of its Subsidiaries to, (a) conduct its business in the
ordinary course and (b) use its reasonable efforts, in the ordinary course and
consistent with past practice, to preserve its business and the goodwill and
business of the customers, advertisers, suppliers and others having business
relations with the Borrower or any of its Subsidiaries, except in each case
where the failure to comply with the covenants in each of clauses (a) and (b)
above would not in the aggregate have a Material Adverse Effect.
SECTION 6.4. PAYMENT OF TAXES, ETC. The Borrower shall, and
shall cause each of its Subsidiaries to, pay and discharge before the same shall
become delinquent, all lawful governmental claims, taxes, assessments, charges,
levies and judgments, except where contested in good faith, by proper
proceedings and adequate reserves therefor have been established on the books of
the Borrower or the appropriate Subsidiary in conformity with GAAP.
SECTION 6.5. MAINTENANCE OF INSURANCE. The Borrower shall (i)
maintain, and cause to be maintained for each of its Subsidiaries insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates (provided that the Borrower shall be
entitled to implement a self-insurance program consistent with industry
standards for similarly situated companies), and such other insurance as may be
reasonably requested by the Lender.
27
<PAGE> 33
SECTION 6.6. ACCESS. The Borrower shall from time to time,
permit the Lender, or any agents or representatives thereof, within five
Business Days after written notification of the same (except that during the
continuance of an Event of Default, no such notice shall be required) to (a)
examine and make copies of and abstracts from the records and books of account
of the Borrower and each of its Subsidiaries, (b) visit the properties of the
Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and
accounts of the Borrower and each of its Subsidiaries with any of their
respective officers or directors, and (d) communicate directly with the
Borrower's independent certified public accountants, except where any such
communication as contemplated by this Section 6.6 would cause the Borrower to
waive any accountant-client privilege under Section 7527 of the Code. The
Borrower shall authorize its independent certified public accountants to
disclose to the Lender any and all financial statements and other information of
any kind, as the Lender reasonably requests from the Borrower and which such
accountants may have with respect to the business, financial condition, results
of operations or other affairs of the Borrower or any of its Subsidiaries,
except where any such disclosure as contemplated by this Section 6.6 would cause
the Borrower to waive any accountant-client privilege under Section 7527 of the
Code.
SECTION 6.7. KEEPING OF BOOKS. The Borrower shall, and shall
cause each of its Subsidiaries to keep, proper books of record and account, in
which full and correct entries shall be made in conformity with GAAP of all
financial transactions and the assets and business of the Borrower and each such
Subsidiary.
SECTION 6.8. MAINTENANCE OF PROPERTIES, ETC. The Borrower
shall, and shall cause each of its Subsidiaries to, maintain and preserve, (a)
all of its properties which are necessary in the conduct of its business in good
working order and condition, (b) all rights, permits, licenses, approvals and
privileges (including all Permits) which are used or useful or necessary in the
conduct of its business, and (c) all registered patents, trademarks, trade
names, copyrights and service marks with respect to its business; except where
the failure to so maintain and preserve in the aggregate would have no Material
Adverse Effect.
SECTION 6.9. APPLICATION OF PROCEEDS. The Borrower shall use
the entire amount of the proceeds of the Term Loans as provided in Section 4.13.
SECTION 6.10. ENVIRONMENTAL. The Borrower shall, and shall
cause each of its Subsidiaries to, comply in all material respects with
Environmental Laws and, without limiting the foregoing, the Borrower shall, at
its sole cost and expense, upon receipt of any notification or otherwise
obtaining knowledge of any Release or other event that has any reasonable
likelihood of causing the Borrower and its Subsidiaries to incur Environmental
Liabilities and Costs in excess of $500,000 in cash in any twelve-month period,
(i) conduct or pay for consultants to conduct, tests or assessments of
environmental conditions at such operations or properties, including the
investigation and testing of subsurface conditions and (ii) take such Remedial
Action, investigational or other action as required by Environmental Laws or as
any Governmental Authority requires or as is appropriate and consistent with
good business practice to address the Release or event.
28
<PAGE> 34
ARTICLE VII
NEGATIVE COVENANTS
As long as any of the Obligations or the Commitment remains outstanding, the
Borrower agrees with the Lender that:
SECTION 7.1. INDEBTEDNESS. The Borrower shall not, and shall
not permit any Subsidiary to, create, incur, assume or issue, directly or
indirectly, guarantee or in any manner become, directly or indirectly, liable
for or with respect to the payment of any Indebtedness except for (each of which
shall be given independent effect):
(a) Indebtedness under this Agreement;
(b) Indebtedness of the Borrower in respect of the Indenture;
(c) Non-Recourse Indebtedness;
(d) Unsecured Indebtedness existing on the date hereof as set
forth on Schedule 7.1 (the "Existing Indebtedness");
(e) Indebtedness secured directly or indirectly by the assets
or properties of the Borrower or any of its Subsidiaries;
(f) Indebtedness of a Subsidiary to the Borrower or a
wholly-owned Subsidiary of the Borrower so long as such Indebtedness is held by
the Borrower or a wholly-owned Subsidiary of the Borrower and is subject to no
Lien (other than any Lien permitted by Section 7.2) held by any Person other
than the Borrower or a wholly-owned Subsidiary of the Borrower; provided that if
as of any date any Person other than the Borrower or a wholly-owned Subsidiary
of the Borrower owns or holds any such Indebtedness or holds a Lien (other than
any Lien permitted by Section 7.2) in respect of such Indebtedness such date
shall be deemed an incurrence of Indebtedness not permitted under this Agreement
unless such Indebtedness is otherwise permitted under Section 7.1(c) or (h);
(g) Indebtedness of the Borrower to a wholly-owned Subsidiary
of the Borrower for so long as such Indebtedness is held by a wholly-owned
Subsidiary of the Borrower, provided that (a) such Indebtedness is unsecured and
subordinated, pursuant to a written agreement, to Borrower's obligations under
this Agreement and the Note and (b) if as of any date any Person other than a
wholly-owned Subsidiary of the Borrower owns or holds any such Indebtedness or
any Person holds a Lien (other than Liens permitted under Section 7.2) in
respect of such Indebtedness, such debt shall be deemed an incurrence of
Indebtedness not permitted under this Agreement unless such Indebtedness is
otherwise permitted under Section 7.1(c) or (h);
(h) Indebtedness in respect of performance, completion, surety
or appeal bonds provided in the ordinary course of business of the Borrower or
any Subsidiary;
(i) Refinancing of Indebtedness permitted by clause (d) or (e)
of this Section 7.1; provided, however, that any such refinancing of Existing
Indebtedness is in an aggregate principal amount not greater than the principal
amount of, and is on terms no less
29
<PAGE> 35
favorable to the Borrower or such Subsidiary than, the Existing Indebtedness
being refinanced; and
(j) All Capital Lease Obligations.
SECTION 7.2. LIMITATION ON LIENS. Neither the Borrower or any
Subsidiary shall create, incur, assume or suffer to exist any Lien of any kind
upon any of its property or assets now owned or hereafter acquired by it, except
for:
(a) Liens existing on the Closing Date and disclosed on
Schedule 7.2;
(b) Liens securing Indebtedness to the extent such
Indebtedness is permitted under Section 7.1 other than (i) Existing Indebtedness
or (ii) Indebtedness permitted under Section 7.1(f) or (g);
(c) Liens to secure the payment of all or a part of the
purchase price of assets or property acquired after the Closing Date, provided
that (i) the aggregate principal amount of Indebtedness secured by such Liens
shall not exceed the fair market value (or, if less, the cost) of the assets or
property so acquired; (ii) the incurrence of Indebtedness secured by such Liens
shall be permitted by this Agreement; and (iii) such Liens do not encumber any
other assets or property of the Borrower (other than additions thereof) or any
Subsidiary and shall attach to such assets or property within 60 days of the
acquisition of such assets or property;
(d) Liens securing Indebtedness which is incurred to refinance
Indebtedness which has been secured by a Lien permitted under this Agreement and
is permitted to be refinanced under this Agreement, provided that such Liens do
not extend to or cover any property or assets of the Borrower or any of its
Subsidiaries not securing the Indebtedness so refinanced;
(e) Liens securing Indebtedness of a Subsidiary to the
Borrower or a wholly-owned Subsidiary of the Borrower provided such Lien is held
by the Borrower or a wholly-owned Subsidiary of the Borrower; and
(f) Permitted Encumbrances.
SECTION 7.3. LIMITATION ON RESTRICTED PAYMENTS.
(a) Subject to Section 7.3(b), the Borrower shall not make,
and shall not permit any Subsidiary to directly or indirectly, make, any
Restricted Payment.
(b) The provisions of Section 7.3(a) shall not prohibit:
(i) the retirement of any shares of Stock of the
Borrower or subordinated Indebtedness by conversion into, or by an exchange for,
shares of Stock of the Borrower that are not Disqualified Capital Stock or out
of the Net Cash Proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Borrower) of Stock (other than Disqualified Capital Stock) of
the Borrower; and
30
<PAGE> 36
(ii) the redemption or retirement of subordinated
Indebtedness of the Borrower in exchange for, by conversion into, or out of the
Net Cash Proceeds of, a substantially concurrent sale of subordinated
Indebtedness of the Borrower (other than to a Subsidiary) that is contractually
subordinated in right of payment to the Term Loans and that is permitted to be
incurred under Section 7.1.
SECTION 7.4. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The
Borrower shall not, and shall not permit, cause or suffer any Subsidiary to,
conduct any business or enter into any transaction or series of transactions
with or for the benefit of any of their respective Affiliates (each an
"Affiliate Transaction"), except in good faith and on terms that are no less
favorable to the Borrower or such Subsidiary, as the case may be, than those
that could have been obtained in a comparable transaction on an arms' length
basis from a Person not an Affiliate of the Borrower of such Subsidiary.
Notwithstanding the foregoing, the restrictions set forth in this Section 7.4
shall not apply (a) to any customary directors' fees and consulting fees,
collective bargaining agreements and compensation paid to the Borrower's
employees, (b) to the transactions contemplated by the Warrant Documents or (c)
to any transaction between the Borrower and any Subsidiary or between
Subsidiaries, in the ordinary course of business.
SECTION 7.5. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES. The Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective or enter into any agreement with any Person
that would cause, any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on its Stock or any other interest or participation in,
or measured by, its profits owed by, or pay any Indebtedness owed to, the
Borrower or a Subsidiary, (b) make any loans or advances to the Borrower or any
Subsidiary or (c) transfer any of its properties or assets to the Borrower or to
any Subsidiary, except, in each case, for such encumbrances or restrictions
existing under or contemplated by or by reason of (i) this Agreement, (ii) any
restrictions existing under or contemplated by agreements in effect on the
Closing Date, (iii) any restrictions, with respect to a Subsidiary that is not a
Subsidiary of the Borrower on the Closing Date, in existence at the time such
Person becomes a Subsidiary of the Borrower (but not created in contemplation of
such Person becoming a Subsidiary), or (iv) any restrictions existing under any
agreement that refinances or replaces an agreement containing a restriction
permitted by clause (i), (ii) or (iii) above, provided, however, that the terms
and conditions of any such restrictions under this clause (iv) are not
materially less favorable to the Lender than those under or pursuant to the
agreement being replaced or the agreement evidencing the Indebtedness
refinanced.
SECTION 7.6. LIMITATION ON ISSUANCE OF PREFERRED STOCK BY
SUBSIDIARIES. The Borrower shall not cause or permit any Subsidiary, directly or
indirectly, to issue shares of such Subsidiary's Preferred Stock or warrants,
rights or options to acquire shares of such Subsidiary's Preferred Stock, except
to the Borrower or a Subsidiary.
SECTION 7.7. WAIVER OF STAY, EXTENSION OR USURY LAWS. The
Borrower covenants (to the extent permitted by law) that it will not at any time
insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury law or other law that would
prohibit or forgive the Borrower from paying all or any portion of the principal
of or interest on the Term Loans as contemplated herein, wherever enacted, now
or at any time hereafter in force, or that may affect the covenants or the
performance of this
31
<PAGE> 37
Agreement, and (to the extent permitted by law) the Borrower hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the Lender,
but will suffer and permit the execution of every such power as though no such
law had been enacted.
SECTION 7.8. LIMITATION ON INVESTMENTS, LOANS AND ADVANCES.
The Borrower shall not, and shall not permit any Subsidiary to, make any
Investments in any Person, except: (i) Investments by the Borrower in any
Subsidiary and Investments in the Borrower or any Subsidiary by a Subsidiary;
(ii) Investments by the Borrower or any Subsidiary in any joint venture or
partnership, the sole purpose of which is to own or hold real property located
in the United States; (iii) Cash Equivalents; and (iv) in accordance with
obligations and agreements in existence on the Closing Date and set forth on
Schedule 7.8.
SECTION 7.9. CERTAIN CHANGES. The Borrower will not, and will
not permit any Subsidiary to, (i) materially change its accounting treatment and
reporting practices or tax reporting treatment, except as required by GAAP or
any Requirement of Law and disclosed to the Lender, (ii) enter into or engage in
any business except as conducted on the Closing Date, (iii) enter into any
disposition of any substantial amount of unearned revenues or any substantial
forward sale or (iv) merge or consolidate with any Persons other than a
Subsidiary, except that (A) any Subsidiary may merge or consolidate with or into
any other Subsidiary and (B) any wholly owned Subsidiary may merge or
consolidate with the Borrower, provided however that the Borrower is the
surviving corporation of such merger or consolidation.
SECTION 7.10. COMPLIANCE WITH ERISA. The Borrower will not,
and will not permit any of its Subsidiaries to, or cause or permit any ERISA
Affiliate to, cause or permit to occur (a) an event which could result in the
imposition of a Lien under Section 412 of the Code or Section 302 or 4068 of
ERISA or (b) an ERISA Event that would have a Material Adverse Effect.
SECTION 7.11. ENVIRONMENTAL. The Borrower will not, and will
not permit any of its Subsidiaries to, dispose of any Contaminant in violation
of any Environmental Law; provided, however, that the Borrower shall not be
deemed in violation of this Section 7.11 if, as the consequence of all such
Releases, the Borrower and the Subsidiaries would not incur Environmental
Liabilities and Costs in excess of $500,000 in cash in any twelve-month period.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following events
shall be an Event of Default:
(a) the Borrower shall fail to pay any principal of any Term
Loan when the same becomes due and payable; or
(b) the Borrower shall fail to pay any interest on any Term
Loan, any fee under any of the Loan Documents or any other Obligation (other
than one referred to in clause
32
<PAGE> 38
(a) above) and such non-payment continues for a period of three Business Days
after the due date therefor; or
(c) any representation or warranty contained herein or in any
Loan Document shall have been inaccurate or untrue in any material respect when
made; or
(d) the Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.2, 6.1, 6.6, 7.1, 7.2, 7.3,
7.4, 7.5, 7.6, 7.7, 7.8 or 7.9 of this Agreement or any material term, covenant
or agreement in the Warrant; or (ii) any other term, covenant or agreement
contained in this Agreement or in any other Loan Document if such failure under
this clause (ii) shall remain unremedied for 30 days after the earlier of the
date on which (A) a Responsible Officer of the Borrower becomes aware of such
failure or (B) written notice thereof shall have been given to the Borrower by
the Lender; or
(e) (i) the Borrower or any of its Subsidiaries shall fail to
make any payment or payments on any Indebtedness (other than the Obligations) of
the Borrower or any such Subsidiary (or any Guaranty Obligation in respect of
Indebtedness of any other Person) having an aggregate principal amount for all
such Indebtedness of $5,000,000 or more, when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) or (ii) any such Indebtedness shall become or be declared to be due
and payable, or required to be prepaid or repurchased (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof; or
(f) the Borrower or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against the
Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against the
Borrower or any of its Subsidiaries (but not instituted by it), either such
proceedings shall remain undismissed or unstayed for a period of 30 days or any
of the actions sought in such proceedings shall occur; or the Borrower or any of
its Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (f); or
(g) one or more judgments or orders (or other similar process)
involving, in any single case or in the aggregate, an amount in excess of
$500,000 in the case of a money judgment, to the extent not covered by insurance
shall be rendered against one or more of the Borrower or any of its Subsidiaries
unless enforcement of such judgment shall have been stayed by reason of a
pending appeal or otherwise; or
(h) an ERISA Event shall occur and the amount of all
liabilities and deficiencies resulting therefrom, whether or not assessed,
exceeds $500,000 in the aggregate; or
(i) one or more of the Borrower and the Subsidiaries shall
have entered into one or more consent or settlement decrees or agreements or
similar arrangements with a Governmental Authority or one or more judgments,
orders, decrees or similar actions shall have
33
<PAGE> 39
been entered against one or more of the Borrower and its Subsidiaries based on
or arising from the violation of or pursuant to any Environmental Law, or the
generation, storage, transportation, treatment, disposal or Release of any
Contaminant and, in connection with all the foregoing, the Borrower and the
Subsidiaries are likely to incur Environmental Liabilities and Costs in excess
of $500,000 in the aggregate in cash in any twelve-month period that were not
reflected in the Financial Statements delivered pursuant to Section 4.4; or
(j) an event that results in a Material Adverse Change shall
occur.
SECTION 8.2. REMEDIES. (a) Upon the occurrence of any Event of
Default, all or any one or more of the rights, powers and other remedies
available to the Lender against the Borrower under this Agreement or any other
Loan Document, or at law or in equity may be exercised by the Lender at any
time, including without limitation, the Lender may (i) by notice to the Borrower
declare that all or any portion of the Commitment be terminated, whereupon the
obligation of the Lender to make any Term Loan shall immediately terminate,
and/or (ii) by notice to the Borrower, declare the Term Loans, all interest
thereon and all other amounts and Obligations payable under this Agreement to be
forthwith due and payable, whereupon the Term Loans, all such interest and all
such amounts and Obligations shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that upon the
occurrence of the Event of Default specified in Section 8.1(f), (A) the
Commitment of the Lender to make Term Loans shall automatically be terminated
and (B) the Term Loans, all such interest and all such amounts and Obligations
shall automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
(a) The rights, powers and remedies of the Lender under this
Agreement shall be cumulative and not exclusive of any other right, power or a
remedy which the Lender may have against the Borrower or any other Person
pursuant to this Agreement or the other Loan Documents or existing at law or in
equity or otherwise. The Lender's rights, powers and remedies may be pursued
singly, concurrently or otherwise, at such time and in such order as the Lender
may determine in the Lender's discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of any Default or Event of Default shall not be
construed to be a waiver of any subsequent Default or Event of Default or to
impair any remedy, right or power consequent thereon.
SECTION 8.3. RESCISSION. If at any time after acceleration of
the maturity of the Loans, the Borrower shall pay all arrears of interest and
all payments on account of principal of the Term Loans which shall have become
due otherwise than by acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified herein) and
all Events of Default and Defaults (other than non-payment of principal of and
accrued interest on the Term Loans due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 9.1, then upon the
written consent of the Lender and written notice to the Borrower, the
termination of the Commitment and/or the acceleration and its consequences may
be rescinded and annulled; but such action shall not affect any subsequent Event
of Default or Default or impair any right or remedy consequent thereon. The
provisions of the preceding
34
<PAGE> 40
sentence are intended merely to bind the Lender to a decision which may be made
at the election of the Lender; they are not intended to benefit the Borrower and
do not give the Borrower the right to require the Lender to rescind or annul any
acceleration hereunder, even if the conditions set forth herein are met.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. AMENDMENTS, WAIVERS, ETC. No amendment or waiver
of any provision of this Agreement or any other Loan Document nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in writing and signed by the parties hereto, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 9.2. ASSIGNMENTS AND PARTICIPATIONS. The Lender may
sell, transfer, negotiate or assign all or any portion of its rights and
obligations hereunder (including all of its rights and obligations with respect
to the Term Loans). In addition to the foregoing, the Lender may assign, as
collateral or otherwise, any of its rights under this Agreement (including
rights to payments of principal or interest on the Term Loans) to any Person.
SECTION 9.3. COSTS AND EXPENSES.
The Borrower agrees upon demand to pay, or reimburse the
Lender for, all of the Lender's reasonable internal and external audit, legal,
filing, document duplication and reproduction and investigation expenses and for
all other reasonable out-of-pocket costs and expenses of every type and nature
(including, without limitation, the reasonable fees, expenses and disbursements
of the Lender's counsel, Weil, Gotshal & Manges LLP, local legal counsel,
auditors, accountants, appraisers, printers, insurance and environmental
advisers, and other consultants and agents) incurred by the Lender in connection
with (i) the preparation, negotiation, execution and interpretation of this
Agreement (including, without limitation, the satisfaction or attempted
satisfaction of any of the conditions set forth in Article III), the Loan
Documents, and any proposal letter or commitment letter issued in connection
therewith and the making of the Term Loans hereunder; (ii) the ongoing
administration of this Agreement and the Term Loans and with respect to the
Lender's rights and responsibilities hereunder and under the other Loan
Documents; (iii) the protection, collection or enforcement of any of the
Obligations or the enforcement of any of the Loan Documents; (iv) the
commencement, defense or intervention in any court proceeding relating in any
way to the Obligations, this Agreement or any of the other Loan Documents; (v)
the response to, and preparation for, any subpoena or request for document
production with which the Lender is served or deposition or other proceeding in
which the Lender is called to testify, in each case, relating in any way to the
Obligations, this Agreement or any of the other Loan Documents; (vi) any
amendments, consents, waivers, assignments, restatements, or supplements to any
of the Loan Documents and the preparation, negotiation, and execution of the
same; (vii) in connection with any refinancing or restructuring of the credit
arrangements provided hereunder in the nature of a "work-out" or in any
insolvency or bankruptcy proceeding; and (viii) in taking any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise) described
above.
35
<PAGE> 41
SECTION 9.4. INDEMNITIES.
(a) The Borrower shall indemnify and hold harmless the Lender
and its affiliates and each of the respective officers, directors, employees,
agents, advisors, attorneys and representatives of each (each, an "Indemnified
Party") from and against any and all claims, damages, losses liabilities and
expenses (including, without limitation, reasonable fees and disbursements of
counsel), joint or several, that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection with
or relating to any investigation, litigation or proceeding or the preparation of
any defense with respect thereto, arising out of or in connection with or
relating to the Term Loans, the Loan Documents (excluding the Warrants) or the
transactions contemplated thereby, or any use made or proposed to be made with
the proceeds of the Term Loans, whether or not such investigation, litigation or
proceeding is brought by the Borrower, any of its shareholders or creditors, an
Indemnified Party or any other person, or an Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claim, damage loss, liability or expense
is found in a final non-appealable judgment by a court of competent jurisdiction
to have resulted from such Indemnified Party's gross negligence or willful
misconduct. No Indemnified Party shall have any liability (whether direct or
indirect, in contract, tort or otherwise) to the Borrower or any of its
shareholders or creditors for or in connection with the transactions
contemplated hereby, except to the extent such liability is found in a final
non-appealable judgement by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In no
event, however, shall any Indemnified Party be liable on any theory of liability
for any special, indirect, consequential or punitive damages and the Borrower
hereby waives, releases and agrees (for itself and on behalf of its
Subsidiaries) not to sue upon any such claim for any such damages, whether or
not accrued and whether or not known or suspected to exist in its favor.
(b) The Borrower agrees that any indemnification or other
protection provided to any Indemnitee pursuant to this Agreement (including
pursuant to this Section 9.4) or any other Loan Document shall (i) survive
payment in full of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.
SECTION 9.5. RIGHT OF SET-OFF. Upon the occurrence and during
the continuance of any Event of Default each of the Lender, Prometheus Assisted
Living L.L.C., LF Strategic Realty Investors II L.P., LFSRI II Alternative
Partnership L.P., LFSRI II-CADIM Alternative Partnership L.P. and Lazard Freres
Real Estate Investors L.L.C. is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Lender or its Affiliates to
or for the credit or the account of the Borrower against any and all of the
Obligations now or hereafter existing whether or not the Lender shall have made
any demand under this Agreement or any other Loan Document and although such
Obligations may be unmatured. The Lender agrees promptly to notify the Borrower
after any such set-off and application made by the Lender or its Affiliates;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Lender under this
Section 9.5 are in addition to the other rights and remedies (including other
rights of set-off) which such Lender may have.
36
<PAGE> 42
SECTION 9.6. NOTICES, ETC. All notices, demands, requests and
other communications provided for in this Agreement shall be given in writing,
or by any telecommunication device capable of creating a written record, and
addressed to the party to be notified as follows:
(a) if to the Borrower:
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: Senior Vice President and Secretary
Telecopy no: (714) 708-3537
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, 17th Floor
Newport Beach, CA 92660
Attention: Gary Singer, Esq.
Telecopy no: (949) 823-6994
37
<PAGE> 43
(b) if to the Lender:
LFSRI II Assisted Living LLC
c/o Lazard Freres Real Estate Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Attention: Chief Financial Officer and General Counsel
Telecopy no: (212) 332-5641 and (212) 332-1793
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153-0119
Attention: Vanessa Spiro, Esq.
Telecopy no: (212) 310-8007
OR AT SUCH OTHER ADDRESS AS SHALL BE NOTIFIED IN WRITING (i) IN THE CASE OF THE
BORROWER, TO THE OTHER PARTIES AND (ii) IN THE CASE OF ALL OTHER PARTIES, TO THE
BORROWER AND THE LENDER. ALL SUCH NOTICES AND COMMUNICATIONS SHALL BE EFFECTIVE
UPON PERSONAL DELIVERY (IF DELIVERED BY HAND, INCLUDING ANY OVERNIGHT COURIER
SERVICE), WHEN DEPOSITED IN THE MAILS (IF SENT BY MAIL), OR WHEN PROPERLY
TRANSMITTED (IF SENT BY A TELECOMMUNICATIONS DEVICE).
SECTION 9.7. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrower and the Lender, and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lender.
SECTION 9.8. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York without regard
to the principles of conflict of laws thereof.
SECTION 9.9. SUBMISSION TO JURISDICTION; SERVICE OF PROCESS.
(a) Any legal action or proceeding with respect to this
Agreement or any other Loan Document may be brought in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and, by execution and delivery of this Agreement, the Borrower hereby
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties hereto
hereby irrevocably waive any objection, including any objection to the laying of
venue or based on the grounds of forum non conveniens, which of them may now or
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(b) The Borrower hereby irrevocably consents to the service of
any and all legal process, summons, notices and documents in any suit, action or
proceeding brought in the United States of America arising out of or in
connection with this Agreement or any of the other
38
<PAGE> 44
Loan Documents by mail (by registered or certified mail, postage prepaid) or
delivery of a copy of such process to the Borrower at its address specified in
Section 9.6. The Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(c) Nothing contained in this Section 9.9 shall affect the
right of the Lender to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against the Borrower in any
other jurisdiction.
SECTION 9.10. WAIVER OF JURY TRIAL. Each of the Lender and the
Borrower irrevocably waives trial by jury in any action or proceeding with
respect to this Agreement or any other Loan Document.
SECTION 9.11. MARSHALING; PAYMENTS SET ASIDE. The Lender shall
not be under any obligation to marshal any assets in favor of the Borrower or
any other party or against or in payment of any or all of the Obligations. To
the extent that the Borrower makes a payment or payments to the Lender or the
Lender exercises its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all right and remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
SECTION 9.12. SECTION TITLES. The Section titles contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
SECTION 9.13. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are attached to the same
document. Delivery of an executed signature page of this Agreement by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart hereof. A set of copies of this Agreement signed by all parties
shall be lodged with the Borrower and the Lender.
SECTION 9.14. ENTIRE AGREEMENT. This Agreement, together with
all of the other Loan Documents and all certificates and documents delivered
hereunder or thereunder, embodies the entire agreement of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
SECTION 9.15. CONFIDENTIALITY. The Lender agrees to keep
information obtained by it pursuant hereto and the other Loan Documents
confidential in accordance with the Lender's customary practices and agrees that
it will only use such information in connection with the transactions
contemplated by this Agreement and not disclose any of such information other
than (a) to the Lender's employees, representatives and agents who are or are
expected to be involved in the evaluation of such information in connection with
the transactions contemplated
39
<PAGE> 45
by this Agreement and who are advised of the confidential nature of such
information, (b) to the extent such information presently is or hereafter
becomes available to the Lender on a non-confidential basis from a source other
than the Borrower, (c) to the extent disclosure is required by law, regulation
or judicial order or requested or required by bank regulators or auditors, or
(d) to assignees or pledgees or potential pledgees who agree to be bound by the
provisions of this Section 9.15.
40
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
ARV Assisted Living, Inc.
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
LFSRI II 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:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
41
<PAGE> 1
EXHIBIT 10.2
WARRANT
TO PURCHASE COMMON STOCK OF
ARV ASSISTED LIVING, INC.
No. of Shares of Common Stock: 750,000
<PAGE> 2
<TABLE>
<S> <C>
1. DEFINITIONS...................................................................... 1
2. EXERCISE OF WARRANT.............................................................. 3
2.1. Manner of Exercise................................................................... 3
2.2. Payment of Taxes..................................................................... 4
2.3. Fractional Shares.................................................................... 4
2.4. Continued Validity................................................................... 4
2.5. Payment in Lieu of Shares............................................................ 5
3. TRANSFER, DIVISION AND COMBINATION............................................... 6
3.1. Transfer ............................................................................ 6
3.2. Division and Combination............................................................. 6
3.3. Expenses............................................................................. 6
3.4. Maintenance of Books................................................................. 6
4. ADJUSTMENTS...................................................................... 6
4.1. Stock Dividends, Subdivisions and Combinations....................................... 6
4.2. Certain Other Distributions.......................................................... 7
4.3. Issuance of Additional Shares of Common Stock........................................ 7
4.4. Issuance of Warrants or Other Rights................................................. 9
4.5. Issuance of Convertible Securities................................................... 10
4.6. Superseding Adjustment............................................................... 10
4.7. Other Provisions Applicable to Adjustments under this Section........................ 11
4.8. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets..... 13
4.9. Other Action Affecting Common Stock.................................................. 14
4.10. Certain Limitations.................................................................. 14
5. NOTICES TO WARRANT HOLDERS....................................................... 14
5.1. Notice of Adjustments................................................................ 14
5.2. Notice of Corporate Action........................................................... 14
6. NO IMPAIRMENT.................................................................... 15
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY................................... 15
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS............................... 16
9. RESTRICTIONS ON TRANSFERABILITY.................................................. 16
9.1. Restrictive Legend................................................................... 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
9.2. Notice of Proposed Transfers; Requests for Registration.............................. 16
9.3. Required Registration................................................................ 17
9.4. Incidental Registration.............................................................. 17
9.5. Registration Procedures.............................................................. 18
9.6. Expenses............................................................................. 20
9.7. Indemnification and Contribution..................................................... 20
9.8. ................................................................................ 21
9.9. Termination of Restrictions.......................................................... 21
9.10. Listing on Securities Exchange....................................................... 22
9.11. Certain Limitations on Registration Rights........................................... 22
9.12. Selection of Managing Underwriters................................................... 22
10. SUPPLYING INFORMATION............................................................ 22
11. LOSS OR MUTILATION............................................................... 22
12. OFFICE OF COMPANY................................................................ 23
13. FILINGS.......................................................................... 23
14. LIMITATION OF LIABILITY.......................................................... 23
15. MISCELLANEOUS.................................................................... 23
15.1. Nonwaiver and Expenses............................................................... 23
15.2. Notice Generally..................................................................... 23
15.3. No Stockholder Rights................................................................ 24
15.4. Indemnification...................................................................... 24
15.5. Remedies............................................................................. 24
15.6. Successors and Assigns............................................................... 24
15.7. Amendment............................................................................ 25
15.8. Severability......................................................................... 25
15.9. Headings............................................................................. 25
15.10. Governing Law........................................................................ 25
EXHIBIT A SUBSCRIPTION FORM............................................................................
EXHIBIT B ASSIGNMENT FORM..............................................................................
</TABLE>
<PAGE> 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
NO. OF SHARES OF COMMON STOCK: 750,000
WARRANT
To Purchase Common Stock of
ARV ASSISTED LIVING, INC.
THIS IS TO CERTIFY THAT LFSRI II ASSISTED LIVING LLC, or registered assigns, is
entitled, at any time prior to the Expiration Date (as hereinafter defined), to
purchase from ARV ASSISTED LIVING, INC., a Delaware corporation ("Company"),
750,000 shares (or such lesser number of shares as determined pursuant to
Section 2.1) of Common Stock (as hereinafter defined and subject to adjustment
as provided herein), in whole or in part, including fractional parts, at a
purchase price of $3.00 per share, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
ARTICLE 1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings set
forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock issued
by Company after the Closing Date, other than Warrant Stock.
"Affiliate" has the meaning ascribed thereto in Rule 12b-2 promulgated under the
Exchange Act, and as in effect on the date hereof.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day on
which banks are required or permitted to be closed in the State of New York or
in the State of California.
"Closing Date" shall have the meaning set forth in the Loan Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates) the
common stock, $.01 par value, of Company as constituted on the Closing Date, and
any capital stock into which such common stock may thereafter be changed, and
shall also include (i) capital stock of Company of any other class (regardless
of how denominated) issued to the holders of shares of common stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of Company and which is not subject to redemption
and (ii) shares of common stock of any successor or acquiring corporation (as
defined in Section 4.8) received by or distributed to the holders of common
stock of Company in the circumstances contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable, with or without
payment of additional consideration in cash or property, for Additional Shares
of Common Stock, either immediately or upon the occurrence of a specified date
or a specified event.
"Current Market Price" shall mean, in respect of any share of Common Stock on
any date herein specified, the average of the daily market prices for 30
consecutive Business Days commencing 45 days before such date. The daily market
price for each such Business Day shall be (i) the last sale price on such day on
the principal stock exchange or NASDAQ Stock Market ("NASDAQ") on which such
Common Stock is then listed or admitted to trading, (ii) if no sale takes place
on such day on any such exchange or NASDAQ, the average of the last reported
closing bid and asked prices on such day as officially quoted on any such
exchange or NASDAQ, (iii) if the Common Stock is not then listed or admitted to
trading on any stock exchange or NASDAQ, the average of the last reported
closing bid and asked prices on such day in the over-the-counter market, as
furnished by the National Association of Securities Dealers Automatic Quotation
System or the National Quotation Bureau, Inc., (iv) if neither such corporation
at the time is
<PAGE> 5
engaged in the business of reporting such prices, as furnished by any similar
firm then engaged in such business, or (v) if there is no such firm, as
furnished by any member of the NASD selected mutually by the Majority Holders
and Company or, if they cannot agree upon such selection, as selected by two
such members of the NASD, one of which shall be selected by the Majority Holders
and one of which shall be selected by Company.
"Current Warrant Price" shall mean, in respect of a share of Common Stock at any
date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is exercisable
pursuant to Section 2.1.
"Expiration Date" shall mean April 24, 2005.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, and other options or warrants to
purchase, or securities convertible into, shares of Common Stock outstanding on
such date which would be deemed outstanding in accordance with GAAP for purposes
of determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the United States
of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant set forth herein is
registered on the books of Company maintained for such purpose.
"Loan Agreement" shall mean the Term Loan Agreement dated as of April 24, 2000
by and between Company and LFSRI II Assisted Living LLC, or any successor
agreement between such parties.
"Majority Holders" shall mean the holders of Warrants exercisable for in excess
of 50% of the aggregate number of shares of Common Stock then purchasable upon
exercise of all Warrants, whether or not then exercisable.
"NASD" shall mean the National Association of Securities Dealers, Inc., or any
successor corporation thereto.
"Notes" shall have the meaning set forth in Section 2.1.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding" shall mean, when used with reference to Common Stock, at any date
as of which the number of shares thereof is to be determined, all issued shares
of Common Stock, except shares then owned or held by or for the account of
Company or any subsidiary thereof, and shall include all shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Permitted Issuances" shall mean (i) the issuance of stock options or other
securities or rights pursuant to a stock option, stock purchase, equity
incentive, or similar plan or related agreement approved by Company's Board of
Directors or a committee thereof, (ii) the issuance of stock options or other
securities or rights to a director, officer, employee or consultant of Company
as approved by Company's Board of Directors or a committee thereof, (iii) the
issuance of securities upon the exercise of any stock options or other
securities or rights referred to in clause (i) or clause (ii), (iv) the issuance
of Common Stock in exchange for all or part of the principal amount of any of
Company's 6 3/4% Convertible Subordinated Notes Due 2006 (the "Convertible
Notes"), and (v) the issuance of securities upon the conversion of all or part
of the Convertible Notes.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Restricted Common Stock" shall mean shares of Common Stock which are, or which
upon their issuance on the exercise of this Warrant would be, evidenced by a
certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Settlement Agreement" shall mean that certain Settlement Agreement, dated as of
September 29, 1999, among the Company, Prometheus Assisted Living LLC, Lazard
Freres Real Estate Investors L.L.C., LF
2
<PAGE> 6
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.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any
interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of Common
Stock being purchased upon exercise of this Warrant pursuant to Section 2.1,
multiplied by (ii) the Current Warrant Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock issuable to the Holder
upon the exercise of the Warrant.
ARTICLE 2. EXERCISE OF WARRANT
SECTION 2.1 Manner of Exercise. From and after the Closing
Date and until 5:00 P.M., New York time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder at the time of such exercise. In
the event that Company does not borrow an aggregate of $10,000,000 under the
Loan Agreement, the number of shares of Common Stock for which this Warrant
shall be exercisable will, at any time, be equal to (x) 75,000 shares of Common
Stock, as such number may be adjusted pursuant to Section 4 (such adjustment in
Section 4 to be calculated assuming that the number of shares of Common Stock
for which this Warrant is exercisable on the Closing Date is 75,000 shares)
multiplied by (y) the aggregate amount of borrowings made under the Loan
Agreement at such time divided by $1,000,000.
In order to exercise this Warrant, in whole or in part, Holder shall deliver to
Company at its principal office at 245 Fischer Avenue, Suite D-1, Costa Mesa,
California 92626 or at the office or agency designated by Company pursuant to
Section 12, (i) a written notice of Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(ii) payment of the Warrant Price and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by Holder or its agent or attorney. Upon
receipt thereof, Company shall, as promptly as practicable, and in any event
within five (5) Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as such Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or, subject to
Section 9, any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the cash or check or checks and this Warrant, is
received by Company as described above and all taxes required to be paid by
Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of Holder, appropriate notation may be made on this Warrant
and the same returned to Holder. Notwithstanding any provision herein to the
contrary, Company shall not be required to register shares in the name of any
Person who acquired this Warrant (or part hereof) or any Warrant Stock otherwise
than in accordance with this Warrant.
3
<PAGE> 7
Payment of the Warrant Price shall be made at the option of the Holder by (i)
certified or official bank check, (ii) by the surrender of one or more of the
notes (collectively, the "Notes") issued by Company and evidencing the loans
made pursuant to the Loan Agreement, (iii) by the Holder's surrender to Company
of that number of shares of Common Stock having an aggregate Current Market
Price equal to the Current Warrant Price for Shares of Common Stock then being
purchased, (iv) a written notice to Company that Holder is exercising the
Warrant (or a portion thereof) by authorizing Company to withhold from issuance
a number of shares of Common Stock issuable upon such exercise of the Warrant
which when multiplied by the Current Market Price of the Common Stock is equal
to the Warrant Price (and such withheld shares of Common Stock shall no longer
be issuable under this Warrant), or (v) any combination thereof, duly endorsed
by or accompanied by appropriate instruments of transfer duly executed by Holder
or by Holder's attorney duly authorized in writing. For the purposes of making
payment of the Warrant Price, the Notes shall have a value equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
surrender in respect of payment of the Warrant Price. If a Holder surrenders
Notes having an aggregate value which exceeds the aggregate Warrant Price,
Company shall, at its option, pay the Holder an amount in cash equal to all or
part of such excess (if any) over the Warrant Price and/or issue a new Note in
the principal amount equal to that portion of such surrendered principal amount
not applied to the Warrant Price or paid in cash to the Holder. If the Holder
surrenders the Notes, the Holder shall specify the portion of the value of each
such Note surrendered to be applied toward the Warrant Price. Notwithstanding
any provision of the Loan Agreement, no payment or issuance of a Note pursuant
to this Section 2.1 or any other provision of this Warrant shall constitute a
prepayment requiring Company to pay a prepayment premium.
SECTION 2.2 Payment of Taxes. All shares of Common Stock
issued upon the exercise of this Warrant against payment of the Warrant Price
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable and without any preemptive rights. Company shall pay all expenses
in connection with, and all taxes and other governmental charges (other than
those on or measured by the income of Holder) that may be imposed with respect
to, the issue or delivery thereof. Company shall not be required, however, to
pay any tax or other charge imposed in connection with any transfer involved in
the issue of any certificate for shares of Common Stock issuable upon exercise
of this Warrant in any name other than that of Holder, and in such case Company
shall not be required to issue or deliver any stock certificate until such tax
or other charge has been paid or it has been established to the satisfaction of
Company that no such tax or other charge is due.
SECTION 2.3 Fractional Shares. Company shall not be required
to issue a fractional share of Common Stock upon exercise of any Warrant. As to
any fraction of a share which the Holder of one or more Warrants would otherwise
be entitled to purchase upon such exercise, Company shall pay a cash adjustment
in respect of such fraction in an amount equal to the same fraction of (x) the
Current Market Price per share of Common Stock on the date of exercise, if there
is a public market for the Common Stock, or (y) the fair market value per share
of Common Stock on the date of exercise as determined by the Board of Directors
of Company, if there is no public market for the Common Stock.
SECTION 2.4 Continued Validity. A holder of shares of Common
Stock issued upon the exercise of this Warrant, in whole or in part (other than
a holder who acquires such shares after the same have been publicly sold
pursuant to a registration statement under the Securities Act or sold pursuant
to Rule 144 thereunder), shall continue to be entitled with respect to such
shares to all rights to which it would have been entitled as Holder under
Sections 9, 10 and 14 of this Warrant.
4
<PAGE> 8
SECTION 2.5 Payment in Lieu of Shares.
(a) As used in this Section 2.5: (i) "Triggering Percentage"
means, at any time, the lowest percentage of Aggregate Beneficial Ownership that
would result in (A) a "Trigger Event" as defined in the Rights Agreement dated
as of May 14, 1998 between Company and ChaseMellon Shareholder Services, L.L.C.
as amended and in effect on the date hereof (the "Rights Agreement") or (B) any
"Change of Control" (or similar term) as defined in the Loan Agreement, the
indenture for the Convertible Notes, or any lease, credit, employment or other
agreement to which Company or a subsidiary of Company is a party as of the date
of this Agreement, the occurrence of which would require Company or a subsidiary
of Company to make any payment to any other Person or otherwise materially and
adversely affect Company or a subsidiary of Company, (ii) "Adjustment Number"
means, at any time, a number of shares of Common Stock which, if subtracted from
the number of shares of Common Stock for which this Warrant, but for the
provisions of this Section 2.5, otherwise would be exercisable at such time,
would cause the Aggregate Beneficial Ownership to be an amount equal to the
Triggering Percentage at such time, minus one-tenth of one percent (.10%), and
(iii) "Aggregate Beneficial Ownership" means the aggregate beneficial ownership
of shares of Common Stock by Holder and all Affiliates and Associates (as such
terms are defined in the Rights Agreement).
(b) Notwithstanding any other provision of this Agreement, if
at any time the Aggregate Beneficial Ownership, but for the provisions of this
Section 2.5, would otherwise equal or exceed the Triggering Percentage, then (i)
the number of shares of Common Stock for which this Warrant is exercisable shall
be a number equal to (A) the number of shares of Common Stock for which this
Warrant, but for the provisions of this Section 2.5, would otherwise then be
exercisable minus (B) the Adjustment Number at such time and (ii) in addition,
Holder shall have a right (the "Cash Right"), which may be exercised in whole or
in part, to receive immediately available funds from Company in an amount equal
to the Adjustment Number at such time (or such portion of such number exercised
by Holder) multiplied by the closing price of Common Stock on the date of such
exercise, which right may otherwise be exercised upon the same terms and
conditions, and shall be subject to the same Section 4 adjustments, as the right
to exercise this Warrant to purchase shares of Common Stock.
(c) If, at any time after an adjustment pursuant to this
Section 2.5 in the number of shares of Common Stock for which this Warrant is
exercisable, the Aggregate Beneficial Ownership becomes less than the Triggering
Percentage minus one-tenth of one percent (.10%), then the adjustment and the
Cash Right pursuant to this Section 2.5 shall be recalculated based on the
Adjustment Number at such time effective immediately after such time.
(d) Any adjustment made pursuant to this Section 2.5 to the
number of shares of Common Stock or Cash Right for which this Warrant may be
exercised shall be effective immediately prior to the occurrence that would have
caused the Holder's Aggregate Beneficial Ownership to equal or exceed the
Triggering Percentage.
5
<PAGE> 9
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION
SECTION 3.1 Transfer. Subject to compliance with Section 9,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of Company referred to in
Section 2.1 or the office or agency designated by Company pursuant to Section
12, together with a written assignment of this Warrant substantially in the form
of Exhibit B hereto duly executed by Holder or its agent or attorney together
with funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, Company shall,
subject to Section 9, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denomination specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued.
SECTION 3.2 Division and Combination. Subject to Section 9,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office or agency of Company, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
SECTION 3.3 Expenses. Company shall prepare, issue and deliver
at its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
SECTION 3.4 Maintenance of Books. Company agrees to maintain,
at its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
ARTICLE 4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable, or
the price at which such shares may be purchased upon exercise of this Warrant,
shall be subject to adjustment from time to time as set forth in this Section 4.
Company shall promptly, but in any event within 3 Business Days, after the
happening of any event described below which requires an adjustment pursuant to
this Section 4 give each Holder notice of such event.
SECTION 4.1 Stock Dividends, Subdivisions and Combinations. If
at any time Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
6
<PAGE> 10
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
THEN (i) THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS WARRANT IS
EXERCISABLE IMMEDIATELY AFTER THE OCCURRENCE OF ANY SUCH EVENT SHALL BE ADJUSTED
TO EQUAL THE NUMBER OF SHARES OF COMMON STOCK WHICH A RECORD HOLDER OF THE SAME
NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS WARRANT IS EXERCISABLE
IMMEDIATELY PRIOR TO THE OCCURRENCE OF SUCH EVENT WOULD OWN OR BE ENTITLED TO
RECEIVE AFTER THE HAPPENING OF SUCH EVENT, AND (ii) THE CURRENT WARRANT PRICE
SHALL BE ADJUSTED TO EQUAL (A) THE CURRENT WARRANT PRICE MULTIPLIED BY THE
NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS WARRANT IS EXERCISABLE
IMMEDIATELY PRIOR TO THE ADJUSTMENT DIVIDED BY (B) THE NUMBER OF SHARES FOR
WHICH THIS WARRANT IS EXERCISABLE IMMEDIATELY AFTER SUCH ADJUSTMENT.
SECTION 4.2 Certain Other Distributions. If at any time
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
THEN (i) THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS WARRANT IS
EXERCISABLE SHALL BE ADJUSTED TO EQUAL THE NUMBER OF SHARES OF COMMON STOCK FOR
WHICH THIS WARRANT IS EXERCISABLE IMMEDIATELY PRIOR TO SUCH ADJUSTMENT
MULTIPLIED BY A FRACTION (A) THE NUMERATOR OF WHICH SHALL BE THE CURRENT MARKET
PRICE PER SHARE OF COMMON STOCK AT THE DATE OF TAKING SUCH RECORD AND (B) THE
DENOMINATOR OF WHICH SHALL BE SUCH CURRENT MARKET PRICE PER SHARE OF COMMON
STOCK MINUS THE AMOUNT ALLOCABLE TO ONE SHARE OF COMMON STOCK OF ANY SUCH CASH
SO DISTRIBUTABLE AND OF THE FAIR VALUE (AS DETERMINED IN GOOD FAITH BY THE BOARD
OF DIRECTORS OF COMPANY AND SUPPORTED BY AN OPINION FROM AN INVESTMENT BANKING
FIRM OF RECOGNIZED NATIONAL STANDING ACCEPTABLE TO THE MAJORITY HOLDERS) OF ANY
AND ALL SUCH EVIDENCES OF INDEBTEDNESS, SHARES OF STOCK, OTHER SECURITIES OR
PROPERTY OR WARRANTS OR OTHER SUBSCRIPTION OR PURCHASE RIGHTS SO DISTRIBUTABLE,
AND (ii) THE CURRENT WARRANT PRICE SHALL BE ADJUSTED TO EQUAL (A) THE CURRENT
WARRANT PRICE MULTIPLIED BY THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS
WARRANT IS EXERCISABLE IMMEDIATELY PRIOR TO THE ADJUSTMENT DIVIDED BY (B) THE
NUMBER OF SHARES FOR WHICH THIS WARRANT IS EXERCISABLE IMMEDIATELY AFTER SUCH
ADJUSTMENT. A RECLASSIFICATION OF THE COMMON STOCK (OTHER THAN A CHANGE IN PAR
VALUE, OR FROM PAR VALUE TO NO PAR VALUE OR FROM NO PAR VALUE TO PAR VALUE) INTO
SHARES OF COMMON STOCK AND SHARES OF ANY OTHER CLASS OF STOCK SHALL BE DEEMED A
DISTRIBUTION BY COMPANY TO THE HOLDERS OF ITS COMMON STOCK OF SUCH SHARES OF
SUCH OTHER CLASS OF STOCK WITHIN THE MEANING OF THIS SECTION 4.2 AND, IF THE
OUTSTANDING SHARES OF COMMON STOCK SHALL BE CHANGED INTO A LARGER OR SMALLER
NUMBER OF SHARES OF COMMON STOCK AS A PART OF SUCH RECLASSIFICATION, SUCH CHANGE
SHALL BE DEEMED A SUBDIVISION OR COMBINATION, AS THE CASE MAY BE, OF THE
OUTSTANDING SHARES OF COMMON STOCK WITHIN THE MEANING OF SECTION 4.1.
SECTION 4.3 Issuance of Additional Shares of Common Stock. (a)
If at any time Company shall (except as hereinafter provided) issue or sell any
Additional
7
<PAGE> 11
Shares of Common Stock, other than Permitted Issuances, in exchange for
consideration in an amount per Additional Share of Common Stock less than the
Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by Company upon such issue or sale, by (B) the
total number of shares of Common Stock Outstanding immediately after such issue
or sale; and (ii) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
Current Warrant Price in effect immediately prior to such issue or sale by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale and dividing the product thereof by the
Current Warrant Price resulting from the adjustment made pursuant to clause (i)
above.
(b) If at any time Company shall (except as hereinafter
provided) at any time issue or sell any Additional Shares of Common Stock, other
than Permitted Issuances, for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then (i) the number of shares
of Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such issue or sale by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock Outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the number of shares of Common Stock Outstanding immediately
prior to such issue or sale plus the number of shares which the aggregate
offering price of the total number of such Additional Shares of Common Stock
would purchase at the then Current Market Price; and (ii) the Current Warrant
Price as to the number of shares for which this Warrant is exercisable prior to
such adjustment shall be adjusted by multiplying such Current Warrant Price by a
fraction (X) the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale; and (Y) the
denominator of which shall be the number of shares of Common Stock purchasable
immediately after such issue or sale.
(c) If at any time Company (except as hereinafter provided)
shall issue or sell any Additional Shares of Common Stock, other than Permitted
Issuances, in exchange for consideration in an amount per Additional Share of
Common Stock which is less than the Current Warrant Price and Current Market
Price (as defined above) at the time the Additional Shares of Common Stock are
issued, the adjustment required under Section 4.3 shall be made in accordance
with the formula in paragraph (a) or (b) above which results in the lower
Current Warrant Price following such adjustment. The provisions of paragraphs
(a) and (b) of Section 4.3 shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No
adjustment of the number of shares of Common Stock for which this Warrant shall
be exercisable shall be made under paragraph (a) or (b) of Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the
8
<PAGE> 12
exercise of any warrants or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any Convertible Securities,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrant or other rights therefor) pursuant to Section
4.4 or Section 4.5.
(d) If any Additional Shares of Common Stock, other than
Permitted Issuances, are issued or sold in exchange for consideration in an
amount per Additional Share of Common Stock equal to or greater than the Current
Warrant Price and the Current Market Price at the time the Additional Shares are
issued, then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (A) the numerator of which
shall be the number of shares of Common Stock Outstanding immediately after the
issuance of such Additional Shares of Common Stock, and (B) the denominator of
which shall be the number of shares of Common Stock Outstanding immediately
prior to the issuance of such Additional Shares of Common Stock; and (ii) the
Current Warrant Price as to the number of shares of Common Stock for which this
Warrant is exercisable prior to such adjustment shall not change but the Current
Warrant Price for each of the incremental number of shares of Common Stock for
which this Warrant becomes exercisable after such adjustment shall be equal to
the fair value of such consideration per Additional Share of Common Stock.
SECTION 4.4 Issuance of Warrants or Other Rights. If at any
time Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any manner
(whether directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Warrant Price or the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding and Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the issuance of such
warrants or other rights. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable or the Current Warrant Price
shall be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants or other rights or upon the actual
issue of such Common Stock upon such conversion or exchange of such Convertible
Securities.
9
<PAGE> 13
SECTION 4.5 Issuance of Convertible Securities. If at any time
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price or Current Market Price in
effect immediately prior to the time of such issue or sale, then the number of
Shares for which this Warrant is exercisable and the Current Warrant Price shall
be adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and Company shall have received all of the consideration payable
therefor, if any, as of the date of issuance of such Convertible Securities. No
adjustment of the number of Shares for which this Warrant is exercisable and the
Current Warrant Price shall be made under this Section 4.5 upon the issuance of
any Convertible Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4.4. No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable or the Current
Warrant Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities and, if any issue or sale
of such Convertible Securities is made upon exercise of any warrant or other
right to subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price have been or are to be made pursuant
to other provisions of this Section 4, no further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable or the Current
Warrant Price shall be made by reason of such issue or sale.
SECTION 4.6 Superseding Adjustment. If, at any time after any
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall have been made pursuant to
Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or
Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
10
<PAGE> 14
THEN FOR EACH OUTSTANDING WARRANT SUCH PREVIOUS ADJUSTMENT SHALL BE RESCINDED
AND ANNULLED AND THE ADDITIONAL SHARES OF COMMON STOCK WHICH WERE DEEMED TO HAVE
BEEN ISSUED BY VIRTUE OF THE COMPUTATION MADE IN CONNECTION WITH THE ADJUSTMENT
SO RESCINDED AND ANNULLED SHALL NO LONGER BE DEEMED TO HAVE BEEN ISSUED BY
VIRTUE OF SUCH COMPUTATION. THEREUPON, A RECOMPUTATION SHALL BE MADE OF THE
EFFECT OF SUCH RIGHTS OR OPTIONS OR OTHER CONVERTIBLE SECURITIES ON THE BASIS OF
(i) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(ii) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities;
whereupon a new adjustment of the number of shares of Common Stock for which
this Warrant is exercisable and the Current Warrant Price shall be made, which
new adjustment shall supersede the previous adjustment so rescinded and
annulled.
SECTION 4.7 Other Provisions Applicable to Adjustments under
this Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by Company therefor shall be the amount of the cash
received by Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by Company for subscription, the subscription
price, or, if such Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and any
compensation, discounts or expenses paid or incurred by Company for and in the
underwriting of, or otherwise in connection with, the issuance thereof). To the
extent that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of Company. In
case any Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection with any
merger in which Company issues any securities, the amount of consideration
therefor shall be deemed to be the fair value, as determined in good faith by
the Board of Directors of Company, of such portion of the assets and business of
the
11
<PAGE> 15
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration received
by Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon exercise of such warrants or other rights.
The consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received by
Company for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by itself or with
other adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment of at least 1% or in any event, on the date of exercise.
For the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
12
<PAGE> 16
(e) Escrow of Warrant Stock. If Holder exercises this Warrant
after any property becomes distributable pursuant to this Section 4 by reason of
the taking of any record of the holders of Common Stock but prior to the
occurrence of the event for which such record is taken, any Additional Shares of
Common Stock issuable upon exercise of this Warrant shall be held in escrow,
upon payment of the Current Warrant Price, for Holder by Company to be issued to
Holder upon and to the extent that the event actually takes place.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be cancelled by Company.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Majority Holders, and any dispute shall be
resolved by an investment banking firm of recognized national standing selected
by Company and acceptable to the Majority Holders.
SECTION 4.8 Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where Company is not the surviving corporation or where there is a
change in or distribution with respect to the Common Stock of Company), or sell,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, any cash, shares of stock or other securities or property of any nature
whatsoever including warrants or other subscription or purchase rights or any
shares of common stock of the successor or acquiring corporation (collectively,
"Other Property"), are to be received by or distributed to the holders of Common
Stock of Company, then each Holder shall have the right thereafter to receive,
upon exercise of such Warrant, the number of shares of common stock of the
successor or acquiring corporation or of Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company)
in order to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are
13
<PAGE> 17
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
SECTION 4.9 Other Action Affecting Common Stock. In case at
any time or from time to time Company shall take any action in respect of its
Common Stock, other than any action described in this Section 4, then, unless
such action will not have a materially adverse effect upon the rights of the
Holders, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted in
such manner as may be equitable in the circumstances.
SECTION 4.10 Certain Limitations. Notwithstanding anything
herein to the contrary, Company agrees not to enter into any transaction which,
by reason of any adjustment hereunder, would cause the Current Warrant Price to
be less than the par value per share of Common Stock.
ARTICLE 5. NOTICES TO WARRANT HOLDERS
SECTION 5.1 Notice of Adjustments. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or whenever the
price at which a share of such Common Stock may be purchased upon exercise of
the Warrants, shall be adjusted pursuant to Section 4, Company shall forthwith
prepare a certificate to be executed by the chief financial officer of Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of Company determined the fair value of
any evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2 or
4.7(a)), specifying the number of shares of Common Stock for which this Warrant
is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. Company shall
promptly cause a signed copy of such certificate to be delivered to each Holder
in accordance with Section 15.2. Company shall keep at its office or agency
designated pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
SECTION 5.2 Notice of Corporate Action. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
14
<PAGE> 18
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
consolidation or merger of Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
THEN, IN ANY ONE OR MORE OF SUCH CASES, COMPANY SHALL GIVE TO HOLDER (i) AT
LEAST 30 DAYS' PRIOR WRITTEN NOTICE OF THE DATE ON WHICH A RECORD DATE SHALL BE
SELECTED FOR SUCH DIVIDEND, DISTRIBUTION OR RIGHT OR FOR DETERMINING RIGHTS TO
VOTE IN RESPECT OF ANY SUCH REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION, SALE, TRANSFER, DISPOSITION, DISSOLUTION, LIQUIDATION OR WINDING
UP, AND (ii) IN THE CASE OF ANY SUCH REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION, SALE, TRANSFER, DISPOSITION, DISSOLUTION, LIQUIDATION OR WINDING
UP, AT LEAST 30 DAYS' PRIOR WRITTEN NOTICE OF THE DATE WHEN THE SAME SHALL TAKE
PLACE. SUCH NOTICE IN ACCORDANCE WITH THE FOREGOING CLAUSE ALSO SHALL SPECIFY
(i) THE DATE ON WHICH ANY SUCH RECORD IS TO BE TAKEN FOR THE PURPOSE OF SUCH
DIVIDEND, DISTRIBUTION OR RIGHT, THE DATE ON WHICH THE HOLDERS OF COMMON STOCK
SHALL BE ENTITLED TO ANY SUCH DIVIDEND, DISTRIBUTION OR RIGHT, AND THE AMOUNT
AND CHARACTER THEREOF, AND (ii) THE DATE ON WHICH ANY SUCH REORGANIZATION,
RECLASSIFICATION, MERGER, CONSOLIDATION, SALE, TRANSFER, DISPOSITION,
DISSOLUTION, LIQUIDATION OR WINDING UP IS TO TAKE PLACE AND THE TIME, IF ANY
SUCH TIME IS TO BE FIXED, AS OF WHICH THE HOLDERS OF COMMON STOCK SHALL BE
ENTITLED TO EXCHANGE THEIR SHARES OF COMMON STOCK FOR SECURITIES OR OTHER
PROPERTY DELIVERABLE UPON SUCH REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION, SALE, TRANSFER, DISPOSITION, DISSOLUTION, LIQUIDATION OR WINDING
UP. EACH SUCH WRITTEN NOTICE SHALL BE SUFFICIENTLY GIVEN IF ADDRESSED TO HOLDER
AT THE LAST ADDRESS OF HOLDER APPEARING ON THE BOOKS OF COMPANY AND DELIVERED IN
ACCORDANCE WITH SECTION 15.2.
ARTICLE 6. NO IMPAIRMENT
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, Company will (a) not increase
the par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (b) take all such action as may be necessary or
appropriate in order that Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and (c)
use its best efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable Company to perform its obligations under this Warrant.
ARTICLE 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, Company shall at all times reserve and keep
available for issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. Company represents and
warrants that, as of the Closing Date, the Company has 17,459,689 shares of
Common Stock issued and outstanding and 100,000,000 shares of Common Stock
authorized and available for issuance. Before taking any action which would
cause an adjustment reducing the Current Warrant Price below the then par value,
if any, of the shares of Common Stock issuable upon exercise of the Warrants,
Company shall take any corporate action which may be necessary in order that
Company may validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number of
shares of Common Stock for which this Warrant is exercisable or in the Current
Warrant Price, Company shall obtain all such
15
<PAGE> 19
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon exercise
of Warrants require registration or qualification with any governmental
authority or other governmental approval or filing under any federal or state
law (otherwise than as provided in Section 9) before such shares may be so
issued, Company will in good faith and as expeditiously as possible and at its
expense endeavor to cause such shares to be duly registered.
ARTICLE 8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company to the holders of
its Common Stock with respect to which any provision of Section 4 refers to the
taking of a record of such holders, Company will in each such case take such a
record and will take such record as of the close of business on a Business Day.
Company will not at any time, except upon dissolution, liquidation or winding up
of Company, close its stock transfer books or Warrant transfer books so as to
result in preventing or delaying the exercise or transfer of any Warrant.
ARTICLE 9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock may be transferred, hypothecated or assigned,
as collateral or otherwise, upon satisfaction of the conditions specified in
this Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
SECTION 9.1 Restrictive Legend. (a) Except as otherwise
provided in this Section 9, each certificate for Warrant Stock initially issued
upon the exercise of this Warrant, and each certificate for Warrant Stock issued
to any subsequent transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and are subject to the conditions specified in a certain
Warrant dated April 24, 2000, originally issued by ARV
Assisted Living, Inc. No transfer of the shares represented by
this certificate shall be valid or effective until such
conditions have been fulfilled. A copy of the form of said
Warrant is on file with the Secretary of ARV Assisted Living,
Inc. The holder of this certificate, by acceptance of this
certificate, agrees to be bound by the provisions of such
Warrant."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act, the rules
and regulations thereunder or the provisions of this Warrant."
SECTION 9.2 Notice of Proposed Transfers; Requests for
Registration. Prior to or promptly following any Transfer of any Warrants or any
shares of Restricted Common Stock, the holder of such Warrants or Restricted
Common Stock shall give written notice (a "Transfer Notice") to Company of such
Transfer. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall
16
<PAGE> 20
bear the restrictive legend set forth in Section 9.1(a), and each Warrant issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(b), unless in the opinion of counsel to such holder which is reasonably
acceptable to Company such legend is not required in order to ensure compliance
with the Securities Act.
The holders of Warrants and Warrant Stock shall have the right to request
registration of such Warrant Stock pursuant to Sections 9.3 and 9.4.
SECTION 9.3 Required Registration. After receipt of a written
notice from one or more holders of Warrants and/or Warrant Stock requesting that
Company effect the registration under the Securities Act of either (i) 350,000
or more shares of Warrant Stock or (ii) Warrant Stock with an anticipated
aggregate offering price of at least $1,000,000 and specifying the intended
method or methods of disposition thereof, Company shall promptly notify all
holders of Warrants and Warrant Stock in writing of the receipt of such request.
Thereupon, each such holder, in lieu of exercising its rights under Section 9.4,
may elect (by written notice sent to Company within ten Business Days from the
date of such holder's receipt of the aforementioned Company's notice) to have
its shares of Warrant Stock included in such registration thereof pursuant to
this Section 9.3. Thereupon, Company shall then, as expeditiously as is
possible, use its best efforts to effect the registration under the Securities
Act of all shares of Warrant Stock which Company has been so requested to
register by such holders for sale, all to the extent required to permit the
disposition (in accordance with the intended method or methods thereof, as
aforesaid) of the Warrant Stock so registered; provided, however, that Company
shall not be required to effect more than one registration of any Warrant Stock
pursuant to this Section 9.3 in any 12-month period.
SECTION 9.4 Incidental Registration. If Company at any time
proposes to file on its behalf and/or on behalf of any of its security holders
(the "demanding security holders") a Registration Statement under the Securities
Act on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Exchange Act) of Company, it will give written notice to all holders of Warrants
or Warrant Stock at least 60 days before the initial filing with the Commission
of such Registration Statement, which notice shall set forth the intended method
of disposition of the securities proposed to be registered by Company. The
notice shall offer to include in such filing the aggregate number of shares of
Warrant Stock, and the number of shares of Common Stock for which this Warrant
is exercisable, as such holders may request.
Each holder of any such Warrants or any such Warrant Stock desiring to have
Warrant Stock registered under this Section 9.4 shall advise Company in writing
within 30 days after the date of receipt of such offer from Company, setting
forth the amount of such Warrant Stock for which registration is requested.
Company shall thereupon include in such filing the number of shares of Warrant
Stock for which registration is so requested, subject to the next sentence, and
shall use its best efforts to effect registration under the Securities Act of
such shares. If the managing underwriter of a proposed public offering shall
advise Company in writing that, in its opinion, the distribution of the Warrant
Stock requested to be
17
<PAGE> 21
included in the registration concurrently with the securities being registered
by Company or such demanding security holder would materially and adversely
affect the distribution of such securities by Company or such demanding security
holder, then all selling security holders (other than any demanding security
holder who initially requested such registration) shall reduce the amount of
securities each intended to distribute through such offering on a pro rata
basis. Except as otherwise provided in Section 9.6, all expenses of such
registration shall be borne by Company.
SECTION 9.5 Registration Procedures. If Company is required by
the provisions of this Section 9 to use its best efforts to effect the
registration of any of its securities under the Securities Act, Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by the holders thereof;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering;
(c) furnish to such selling security holders such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such selling security holders may reasonably request;
(d) notify such selling security holders at any time when a
summary prospectus or other prospectus including a preliminary prospectus, is
required to be delivered under the Securities Act, of the happening of any event
as a result of which such prospectus included in such Registration Statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the request of such selling
security holders, Company shall prepare a supplement or amendment to such
prospectus so that, such prospectus shall not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading;
(e) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions within the United States and Puerto Rico as each
holder of such securities shall request (provided, however, that Company shall
not be obligated to qualify as a foreign corporation to do business under the
laws of any jurisdiction in which it is not then qualified or to file any
general consent to service or process), and do such other reasonable acts and
things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
18
<PAGE> 22
(f) furnish, at the request of any holder requesting
registration of Warrant Stock pursuant to Section 9.3, on the date that such
shares of Warrant Stock are delivered to the underwriters for sale pursuant to
such registration or, if such Warrant Stock is not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Warrant Stock becomes effective, (1) an opinion, dated such date, of
the independent counsel representing Company for the purposes of such
registration, addressed to the underwriters, if any, and if such Warrant Stock
is not being sold through underwriters, then to the holders making such request,
in customary form and covering matters of the type customarily covered in such
legal opinions; and (2) a comfort letter dated such date, from the independent
certified public accountants of Company, addressed to the underwriters, if any,
and if such Warrant Stock is not being sold through underwriters, then to the
holder making such request and, if such accountants refuse to deliver such
letter to such holder, then to Company in a customary form and covering matters
of the type customarily covered by such comfort letters as the underwriters or
such holders shall reasonably request. Such opinion of counsel shall
additionally cover such other legal matters with respect to the registration in
respect of which such opinion is being given as such holders holding a majority
of the Warrant Stock being so registered may reasonably request. Such letter
from the independent certified public accountants shall additionally cover such
other financial matters (including information as to the period ending not more
than five Business Days prior to the date of such letter) with respect to the
registration in respect of which such letter is being given as the holders
holding a majority of the Warrant Stock being so registered may reasonably
request;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such securities;
and
(h) make available for inspection by such selling security
holders, any underwriter participating in any disposition pursuant to such
Registration Statement and any attorney, accountant or other agent retained by
any such selling security holder or underwriter, all financial and other
records, pertinent corporate documents and properties of Company, and cause
Company's officers, directors, employees and independent accountants to supply
all information reasonably requested by any such Selling Security holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than 18
months after the effective date of the Registration Statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date of such Registration Statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
19
<PAGE> 23
It shall be a condition precedent to the obligation of Company to take any
action pursuant to this Section 9 in respect of the securities which are to be
registered at the request of any holder of Warrants or Warrant Stock that such
holder shall furnish to Company such information regarding the securities held
by such holder and the intended method of disposition thereof as Company shall
reasonably request and as shall be required in connection with the action taken
by Company.
SECTION 9.6 Expenses. All expenses incurred in complying with
Section 9, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel for Company, the reasonable fees and expenses
of one counsel for the selling security holders (selected by those holding a
majority of the shares being registered), expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section 9.5(d),
shall be paid by Company, except that Company shall not be liable for any fees,
discounts or commissions to any underwriter or any fees or disbursements of
counsel for any underwriter in respect of the securities sold by such holder of
Warrant Stock.
SECTION 9.7 Indemnification and Contribution. (a) In the event
of any registration of any of the Warrant Stock under the Securities Act
pursuant to this Section 9, Company shall indemnify and hold harmless the holder
of such Warrant Stock, such holder's directors and officers, and each other
Person (including each underwriter) who participated in the offering of such
Warrant Stock and each other Person, if any, who controls such holder or such
participating Person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such holder
or any such director or officer or participating Person or controlling Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any alleged untrue statement
of any material fact contained, on the effective date thereof, in any
Registration Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse such holder or such
director, officer or participating Person or controlling Person for any legal or
any other expenses reasonably incurred by such holder or such director, officer
or participating Person or controlling Person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such Registration
Statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to Company by
such holder specifically for use therein or (in the case of any registration
pursuant to Section 9.3) so furnished for such purposes by any underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such securities
by such holder.
20
<PAGE> 24
(b) Each holder of any Warrant Stock, by acceptance thereof,
agrees to indemnify and hold harmless Company, its directors and officers and
each other Person, if any, who controls Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which Company or any such director or officer or any such Person may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information in writing provided to
Company by such holder of such Warrant Stock specifically for use in the
following documents and contained, on the effective date thereof, in any
Registration Statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, but
in no event, in an amount exceeding the net proceeds received by such holder in
the offering.
(c) If the indemnification provided for in this Section 9 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. The liability of any holder of Warrant Stock
hereunder shall not exceed the net proceeds received by it in the offering.
SECTION 9.8 The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 9.7(c) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
SECTION 9.9 Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by this Section upon
the transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements
21
<PAGE> 25
of Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto, (ii) when
such security is disposed of pursuant to Rule 144 under the Securities Act, or
(iii) when Company shall have received an opinion of counsel reasonably
satisfactory to it that such shares may be transferred without registration
thereof under the Securities Act. Whenever the restrictions imposed by this
Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from
Company, at Company's expense, a new certificate representing such Common Stock
not bearing the restrictive legend set forth in Section 9.1(a).
SECTION 9.10 Listing on Securities Exchange. So long as any
shares of Common Stock are listed on any securities exchanges, Company shall
increase the number of shares listed on such securities exchanges to cover all
shares of Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant.
SECTION 9.11 Certain Limitations on Registration Rights.
Notwithstanding the other provisions of Section 9, Company shall not be
obligated to register the Warrant Stock of any holder if, in the written opinion
of counsel to Company reasonably satisfactory to the holder and its counsel (or,
if the holder has engaged an investment banking firm, to such investment banking
firm and its counsel), the sale or other disposition of such holder's Warrant
Stock, in the manner proposed by such holder (or by such investment banking
firm), may be effected without registering such Warrant Stock under the
Securities Act.
SECTION 9.12 Selection of Managing Underwriters. The managing
underwriter or underwriters for any offering of Warrant Stock to be registered
pursuant to Section 9.3 shall be selected by the holders of a majority of the
shares being so registered (other than any shares being registered pursuant to
Section 9.4) and shall be reasonably acceptable to Company.
ARTICLE 10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant and each holder of
Restricted Common Stock in supplying such information as may be reasonably
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Warrant
or Restricted Common Stock.
ARTICLE 11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of such Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, Company will execute and
deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, in
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to Company for cancellation.
22
<PAGE> 26
ARTICLE 12. OFFICE OF COMPANY
As long as any of the Warrants remain outstanding, Company shall maintain an
office or agency (which may be the principal executive offices of Company) where
the Warrants may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
ARTICLE 13. Filings
Company will file on or before the required date all regular or periodic reports
(pursuant to the Exchange Act) with the Commission and will deliver to Holder
promptly upon their becoming available one copy of each report, notice or proxy
statement sent by Company to its stockholders generally, and of each regular or
periodic report (pursuant to the Exchange Act) and any Registration Statement,
prospectus or written communication (other than transmittal letters) (pursuant
to the Securities Act), filed by Company with (i) the Commission or (ii) any
securities exchange on which shares of Common Stock are listed.
ARTICLE 14. limitation of liability
No provision hereof, in the absence of affirmative action by Holder to purchase
shares of Common Stock, and no enumeration herein of the rights or privileges of
Holder hereof, shall give rise to any liability of such Holder for the purchase
price of any Common Stock or as a stockholder of Company, whether such liability
is asserted by Company or by creditors of Company.
ARTICLE 15. MISCELLANEOUS
SECTION 15.1 Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part of a party
hereto shall operate as a waiver of such right or otherwise prejudice that
party's rights, powers or remedies. If a party hereto fails to make, when due,
any payments provided for hereunder, or fails to comply with any other provision
of this Warrant, that party shall pay to the other party such amounts as shall
be sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by such other party in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
SECTION 15.2 Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by registered or certified mail, return receipt requested, postage prepaid,
or by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such purpose.
(b) If to Company at
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Attention: President
Telecopy Number: (714) 708-3537
23
<PAGE> 27
With a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive, 17th Floor
Newport Beach, CA 92660
Attention Gary J. Singer, Esq.
Telecopy Number: (949) 823-6994
OR AT SUCH OTHER ADDRESS AS MAY BE SUBSTITUTED BY NOTICE GIVEN AS HEREIN
PROVIDED. THE GIVING OF ANY NOTICE REQUIRED HEREUNDER MAY BE WAIVED IN WRITING
BY THE PARTY ENTITLED TO RECEIVE SUCH NOTICE. EVERY NOTICE, DEMAND, REQUEST,
CONSENT, APPROVAL, DECLARATION, DELIVERY OR OTHER COMMUNICATION HEREUNDER SHALL
BE DEEMED TO HAVE BEEN DULY GIVEN OR SERVED ON THE DATE ON WHICH PERSONALLY
DELIVERED, WITH RECEIPT ACKNOWLEDGED, TELECOPIED AND CONFIRMED BY TELECOPY
ANSWERBACK, OR THREE (3) BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED
IN THE UNITED STATES MAIL. FAILURE OR DELAY IN DELIVERING COPIES OF ANY NOTICE,
DEMAND, REQUEST, APPROVAL, DECLARATION, DELIVERY OR OTHER COMMUNICATION TO THE
PERSON DESIGNATED ABOVE TO RECEIVE A COPY SHALL IN NO WAY ADVERSELY AFFECT THE
EFFECTIVENESS OF SUCH NOTICE, DEMAND, REQUEST, APPROVAL, DECLARATION, DELIVERY
OR OTHER COMMUNICATION.
SECTION 15.3 No Stockholder Rights. Prior to the effective
exercise of this Warrant in accordance with the provisions hereof, Holder shall
not be entitled to any rights of a stockholder with respect to any shares of
Warrant Stock, including (without limitation) the right to vote such shares or
to receive dividends or other distributions thereon.
SECTION 15.4 Indemnification. Company agrees to indemnify and
hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of the issuance
of this Warrant to Holder (but not relating to or arising out of any exercise of
any Warrant); provided, however, that Company will not be liable hereunder to
the extent that any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements (i) arise solely out of Holder's violation of any state or federal
securities laws, (ii) arise out of any matter for which Company has expressly
retained the right to pursue such matter against the Holder pursuant to Section
5.01(c) of the Settlement Agreement or (iii) are found in a final non-appealable
judgment by a court to have resulted from Holder's gross negligence, bad faith
or willful misconduct in its capacity as a stockholder or warrantholder of
Company.
SECTION 15.5 Remedies. Each party hereto, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under Section 9 of this
Warrant. Each party agrees that monetary damages would not be adequate
compensation for any loss incurred by the other party by reason of a breach by
it of the provisions of Section 9 of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
SECTION 15.6 Successors and Assigns. Subject to the provisions
of Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of Company and the
successors and assigns of
24
<PAGE> 28
Holder. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and, with respect to Section 9 hereof,
holders of Warrant Stock, and shall be enforceable by any such Holder or holder
of Warrant Stock.
SECTION 15.7 Amendment. This Warrant and all other Warrants
may be modified or amended or the provisions hereof waived with the written
consent of Company and the Majority Holders, provided that no such Warrant may
be modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior written consent of the Holder thereof.
SECTION 15.8 Severability. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.
SECTION 15.9 Headings. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
SECTION 15.10 Governing Law. This Warrant shall be governed by
the laws of the State of New York, without regard to the provisions thereof
relating to conflict of laws.
25
<PAGE> 29
IN WITNESS WHEREOF, Company has caused this Warrant to be duly executed and its
corporate seal to be impressed hereon and attested by its Secretary or an
Assistant Secretary.
Dated: April 24, 2000
ARV Assisted Living, Inc.
By: /s/ Abdo Khoury
----------------------------------
Name: Abdo Khoury
Title: Senior Vice President and
Secretary
Attest:
By: /s/ Bernard Wheeler-Medley
-------------------------------
Name: Bernard Wheeler-Medley
Title: Assistant Secretary
26
<PAGE> 30
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of ARV Assisted
Living, Inc. and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is _________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
------------------------------------
(Name of Registered Owner)
------------------------------------
(Signature of Registered Owner)
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE> 31
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT __________________________
ATTORNEY-IN-FACT TO REGISTER SUCH TRANSFER ON THE BOOKS OF ARV ASSISTED LIVING,
INC. MAINTAINED FOR THE PURPOSE, WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
DATED: PRINT NAME:
-------------------- -------------------------
SIGNATURE:
--------------------------
WITNESS:
----------------------------
NOTICE: THE SIGNATURE ON THIS SUBSCRIPTION MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO RIGHTS AGREEMENT (this "Amendment"), dated as of April
24, 2000, is made by and between ARV ASSISTED LIVING, INC., a Delaware
corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (the
"Rights Agent").
RECITALS
A. WHEREAS, the Company and the Rights Agent are parties to
that certain Rights Agreement dated as of May 14, 1998, as amended as of October
21, 1998 (the "Rights Agreement"); and
B. WHEREAS, pursuant to Section 26 of the Rights Agreement,
the Company and the Rights Agent desire to amend the Rights Agreement as set
forth below;
NOW, THEREFORE, the Rights Agreement is hereby amended as
follows:
Amendment of Section 1.1. Section 1.1 of the Rights
Agreement is hereby amended and restated to read in its entirety as follows:
"1.1 "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 10% or more of the Common Shares
of the Company then outstanding but shall not include (i) an Exempt Person or
(ii) any Approved Holder (as defined below), unless and until such time as such
Approved Holder shall become the Beneficial Owner of 50% or more of the Common
Shares of the Company then outstanding; provided, however, that (x) no Person
(including but not limited to the Approved Holder) shall be deemed to
Beneficially Own any Common Shares held by any other person that is a party to
that certain Stockholders' Voting Agreement dated October 29, 1997 by and among
Prometheus Assisted Living LLC ("Prometheus"), Lazard Freres Real Estate
Investors L.L.C. ("LFREI"), and certain stockholders of the Company; and
provided further that (y) if at any time (A) any Approved Holder shall be deemed
to be the Beneficial Owner of more than 750,000 Common Shares solely by reason
of its ownership of or rights in the Warrant and (B) such beneficial ownership
of such greater number of shares would otherwise cause such Approved Holder to
become the Beneficial Owner of 50% or more of the Common Shares of the Company
then outstanding, then for purposes of this Rights Agreement such Approved
Holder shall not be deemed to beneficially own or be the Beneficial Owner of
such greater number of shares to the extent such beneficial ownership would
otherwise cause such Approved Holder to become the Beneficial Owner of 50% or
more of the Common Shares of the Company then outstanding. "Warrant" shall mean
that certain Warrant, dated April 24, 2000, to purchase 750,000 Common Shares,
subject to adjustment, issued by the Company to LFSRI II Assisted Living LLC
(the "Warrant"). "Approved Holder" shall mean LFREI and Prometheus, together
with all of their Controlled Affiliates (as such term is defined in that certain
Settlement Agreement dated September 29, 1999, among the Company, Prometheus,
and certain entities affiliated with Prometheus) and any other Affiliate of
LFREI and Prometheus, but solely to the extent of such other Affiliate's
beneficial ownership of Common Shares also Beneficially Owned by LFREI and
Prometheus and their Controlled Affiliates. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the
<PAGE> 2
result of an acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 10% (or, in the case of the Approved
Holder, 50%) or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 10%
(or, in the case of the Approved Holder, 50%) or more of the Common Shares of
the Company then outstanding solely by reason of share purchases by the Company
and shall, after such share purchases by the Company, become the Beneficial
Owner of any additional Common Shares of the Company (other than, in the case of
an Approved Holder, by reason of the full or partial exercise of the Warrant),
then such Person shall be deemed to be an "Acquiring Person." Notwithstanding
the foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person", as defined pursuant
to the foregoing provisions of this Section 1.1, has become such inadvertently,
and without any intention of changing or influencing control of the Company, and
such Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this Section 1.1, then such Person shall
not be deemed to be or have become an "Acquiring Person" for any purposes of
this Agreement (so long as such Person does not become an Acquiring Person after
such divestiture)."
Effectiveness. This Amendment shall be deemed effective as of
April 24, 2000 as if executed by both parties on such date. Except as amended
hereby, the Rights Agreement shall remain in full force and effect and shall be
otherwise unaffected hereby.
Miscellaneous. This Amendment shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such state applicable
to contracts to be made and performed entirely within such state, without giving
effect to the choice of law provisions thereof. This Amendment may be executed
in any number of counterparts, each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, illegal, or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Rights Agreement to be duly executed as of the date first above
written.
ARV ASSISTED LIVING, INC.
By: _____________________________________
Name: ____________________________________
Its:______________________________________
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: _____________________________________
Name:_____________________________________
Its:______________________________________
<PAGE> 1
EXHIBIT 10.4
TERM NOTE
Lender: LFSRI II Assisted Living LLC New York, New York
Principal Amount: $10,000,000.00 April 24, 2000
FOR VALUE RECEIVED, the undersigned ARV Assisted Living Inc.,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
the Lender set forth above or its assigns or transferees (the "Holder") the
Principal Amount set forth above, or, if less, the aggregate unpaid principal
amount of the Term Loans (as defined in the Loan Agreement referred to below)
owing to the Holder, payable at such times, and in such amounts, as are
specified in the Loan Agreement.
The Borrower promises to pay interest on the unpaid principal
amount of the Term Loans from the date made until such principal amount is paid
in full, at such interest rates, and payable at such times, as are specified in
the Loan Agreement.
Both principal and interest are payable in Dollars to the
Holder, at LFSRI II Assisted Living, L.L.C., c/o Lazard Freres Real Estate
Investors, L.L.C., 30 Rockefeller Plaza, New York, NY 10020, Attention: Chief
Financial Officer and General Counsel, or any other address indicated in writing
by the Holder to the Borrower, in immediately available funds.
This Note is entitled to the benefits of the Term Loan
Agreement, dated as of April 24, 2000 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Loan Agreement"),
among the Borrower and the Lender. Capitalized terms used herein and not defined
herein are used herein as defined in the Loan Agreement.
The Loan Agreement, among other things, (i) provides for the
making of Term Loans by the Lender to the Borrower in an aggregate principal
amount not to exceed $10,000,000, the indebtedness of the Borrower resulting
from such Term Loans being evidenced by this Note and (ii) contains provisions
for acceleration of the maturity of the unpaid principal amount of this Note
upon the happening of certain stated events and also for prepayments on account
of the principal hereof prior to the maturity hereof, upon the terms and
conditions therein specified.
Demand, diligence, presentment, protest and notice of
non-payment and protest are hereby waived by the Borrower.
This Note shall be governed by, and construed and interpreted
in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its duly authorized officer as of the day and year and
at the place set forth above.
ARV Assisted Living, Inc., a
Delaware corporation
By:
---------------------------------
Name:
Title:
<PAGE> 2
For value received, [ ] (" ")
hereby assigns, sells and conveys to ______________ all of its
right, title and interest in and to the
Term Note of ______ dated as of ______, 2000, payable to the
order of ________ or its assigns and transferees ______, ________________
By:
---------------------------------
Title:
<PAGE> 3
LOANS AND REPAYMENTS OF TERM LOANS
<TABLE>
<CAPTION>
Amount of Term Amount of Principal of Unpaid Principal Balance
Date Loans Term Loans Repaid of Term Loans Notation Made By
---- ----- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.5
WAIVER
WAIVER dated as of April 24, 2000 (this "Waiver") to the Settlement
Agreement among ARV Assisted Living, Inc. ("ARV"), 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. (the
"Parties") dated as of September 29, 1999 (the "Settlement Agreement").
W I T N E S S E T H :
WHEREAS, the Parties desire to clarify the application of certain
provisions in the Settlement Agreement in connection with the Warrant to
purchase common stock of ARV dated as of the date hereof issued by ARV to LFSRI
II Assisted Living LLC (the "Warrant");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
II. Waiver of Provisions of the Settlement Agreement. Notwithstanding any
provisions of the Settlement Agreement to the contrary, the parties agree that
the provisions of Section 3.01 and Section 3.02 of the Settlement Agreement
shall not apply to the issuance of the Warrant or the issuance of shares of
Common Stock upon exercise of the Warrant. ARV expressly waives compliance by
"Investor" or "Investor Affiliates" (as such terms are defined in the Settlement
Agreement) with Section 3.01, and Investor and each Investor Affiliate expressly
waive compliance by ARV with Section 3.02, of the Settlement Agreement with
respect to the issuance by ARV of the Warrant and Warrant Stock thereunder.
III. Representations and Warranties. Each of the parties hereto hereby
represents and warrants that (i) it has the power and authority and the legal
right to make, deliver and perform this Waiver, (ii), it has taken all necessary
actions to authorize the execution, delivery and performance of this Waiver and
(iii) the signatory hereto on behalf of such party is duly authorized to execute
this Waiver on behalf of such party.
IV. Continuing Effect. Except as expressly waived or otherwise agreed hereby,
the Settlement Agreement shall continue to be and shall remain in full force and
effect in accordance with its terms. The waiver and other agreements contained
herein shall not constitute a waiver or amendment of any other term, condition
or provision of the Settlement Agreement.
V. Governing Law. This Waiver shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Delaware.
VI. Counterparts. This Waiver may be executed by the parties hereto on any
number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be duly executed and delivered by their properly and duly authorized officers
as of the day and year first above written.
ARV Assisted Living, Inc.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Lazard Freres Real Estate Investors L.L.C.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LF Strategic Realty Investors II L.P.
By Lazard Freres Real Estate Investors
L.L.C. Its General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LFSRI II Alternative Partnership L.P.
By Lazard Freres Real Estate Investors
L.L.C. Its General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LFSRI II - CADIM Alternative
Partnership L.P.
<PAGE> 3
By Lazard Freres Real Estate Investors
L.L.C. Its General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,417
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,523
<PP&E> 110,138
<DEPRECIATION> 8,636
<TOTAL-ASSETS> 169,024
<CURRENT-LIABILITIES> 16,897
<BONDS> 106,314
0
0
<COMMON> 145,512
<OTHER-SE> (102,530)
<TOTAL-LIABILITY-AND-EQUITY> 169,024
<SALES> 0
<TOTAL-REVENUES> 34,893
<CGS> 0
<TOTAL-COSTS> 36,046
<OTHER-EXPENSES> (1,894)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,212
<INCOME-PRETAX> (2,980)
<INCOME-TAX> 8
<INCOME-CONTINUING> (2,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,613
<CHANGES> 0
<NET-INCOME> 2,625
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
