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EXHIBIT 10.1
EXECUTION COPY
SETTLEMENT AGREEMENT (this "Agreement") dated as of September 29, 1999,
among ARV Assisted Living, Inc., a Delaware corporation (the "Company"),
Prometheus Assisted Living LLC, a Delaware limited liability company
("Investor"), and the Investor Affiliates (as defined below).
WHEREAS the Company (as plaintiff and cross-defendant) and Investor and
Lazard Freres Real Estate Investors L.L.C. ("LFREI") (as defendants and
cross-plaintiffs) are parties to Case No. 794211 in the Superior Court of the
State of California for the County of Orange (the "California Litigation");
WHEREAS Investor (as plaintiff) and the Company, Howard G. Phanstiel and
John A. Booty (as defendants) are parties to Civil Action No. 16846NC in the
Court of Chancery of the State of Delaware in and for New Castle County (the
"Delaware Litigation"); and
WHEREAS the parties desire to compromise and settle certain disputes
among them, including their respective claims in the California Litigation and
the Delaware Litigation, in accordance with this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Certain Defined Terms. For purposes of this
Agreement, the following capitalized terms have the following meanings:
"Affiliate" has the meaning ascribed thereto in Rule 12b-2
promulgated under the Exchange Act, and as in effect on the date hereof.
"Beneficially Own" means, with respect to any security, to be
the "beneficial owner" of that security as determined pursuant to Rule 13d-3
under the Exchange Act.
"Board" means the Company's board of directors.
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"Common Stock" means the common stock, par value $.01 per share,
of the Company.
"Control" means with respect to any Person, the power to direct
the management and policies of such Person, directly or indirectly, whether
through ownership of voting securities, by contract or otherwise. "Controlled"
has a correlative meaning.
"Disputes" means the claims arising out of and/or giving rise to
the California Litigation and the Delaware Litigation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Investor Affiliates" means Lazard Freres Real Estate Investors
L.L.C., a New York limited liability company, LF Strategic Realty Investors II
L.P., a Delaware limited partnership, LFSRI II Alternative Partnership L.P., a
Delaware limited partnership, LFSRI II-CADIM Alternative Partnership L.P., a
Delaware limited partnership, and each of them.
"Person" means any natural person, corporation, partnership
(whether general, limited or limited liability), limited liability company,
joint venture, estate, trust, association, governmental entity, or any other
entity or organization.
"Securities Act" means the Securities Act of 1933.
SECTION 1.02. Other Defined Terms. For purposes of this
Agreement, the following capitalized terms have the meanings given in the
following sections:
Term Section
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Additional Investor Designee 2.01(a)
Amendment 2.01(d)
Agreement First Paragraph
Audit Committee 2.03(a)
Buyer's Expenses 4.02(a)
By-laws 2.01(a)
California Litigation First Recital
capital stock 3.02(a)
Closing 6.01
Company Charter 3.01
Company Claims 5.01(a)
Company Releasees 5.02(a)
Company First Paragraph
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Compensation Committee 2.03(a)
Covered Transaction 3.01
Delaware Dismissal 4.04(b)
Delaware Litigation Second Recital
Emeritus Litigation 3.01
Exercise Notice 3.02(b)
Expense Amount 4.02(a)
Expense Note 4.02(a)
Financial Advisor 3.01
Group 3.01
Investor Claims 5.02(a)
Investor Designees 2.01(a)
Investor Releasees 5.01(a)
Investor First Paragraph
Investor Class A Designee 2.01(a)
Joint Stipulation 4.04(a)
Kapson Letter 7.15
LFREI First Recital
Litigation Expenses 4.02(a)
Material Adverse Effect 3.01
Participation Notice 3.02(b)
Rights Agreement 5.01(c)
shareholder percentage 3.02(a)
Stockholders Agreement 7.15
Stock Purchase Agreement 7.15
ARTICLE II
Corporate Governance
SECTION 2.01. Board of Directors. (a) Effective as of the
Closing, the Company and Investor will take all actions necessary to cause the
Board to be structured to consist of five directors, of which two directors (one
Class A director and one Class B director) shall be designees of Investor (the
"Investor Designees"). The Company and Investor shall take all actions necessary
to cause John A. Moore to be elected as a Class B member of the Board as one of
the two Investor Designees, subject to reelection at the Company's annual
meeting in the year 2002, as of the Closing. Beginning on the later of (x) the
date of the Closing or (y) the first date on which Robert P. Freeman is no
longer a member of the Board, Investor shall have the right (but not the
obligation) to nominate one Class A member of the Board which shall constitute
the other Investor Designee (the "Investor Class A Designee"), and the Company
and Investor shall take all lawful action necessary to appoint the Investor
Class A Designee to the Board as promptly as practicable following Investor's
exercise of such right. Prior to the exercise of Investor's right to nominate
the Investor Class A Designee, no person may be elected or appointed to fill the
Class A vacancy on the Board reserved for the Investor Class A Designee except
by the stockholders of the Company at an annual meeting. If necessary to
effectuate the placement of the Investor Designees on the Board, the Company
shall solicit the resignation of the appropriate number of directors to the
extent necessary to permit the Investor Designees to serve. Thereafter, at each
annual or special meeting of stockholders of the Company, or the taking of
action by written consent of stockholders of the Company with respect to which
any class of directors is to be elected, Investor shall have the right (but not
the obligation) pursuant to
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this Agreement and pursuant to the By-laws of the Company (the "By-laws") to
designate (i) if the Board consists of less than seven directors, (x) two
nominees to the Board if the Board is a single class and (y) one Class A nominee
and one Class B nominee if the Board is divided into three classes and (ii) if
the Board consists of seven or more directors, (x) three nominees to the Board
if the Board is a single class and (y) one Class A nominee, one Class B nominee
and one Class C nominee if the Board is divided into three classes. If the
number of directors on the Board is increased to exceed six directors, then (x)
Investor shall be entitled to nominate one additional Investor Designee (the
"Additional Investor Designee") to serve as a director and (y) such Additional
Investor Designee shall be appointed to the Board to serve as a director until
such time as a stockholder vote is held to fill such vacancy. The Company and
Investor shall take all lawful action necessary to appoint the Additional
Investor Designee to the Board.
(b) Investor will not name any person as an Investor
Designee if (i) such person is not reasonably experienced in business, financial
or real estate matters, (ii) such person has been convicted of, or has pled nolo
contendere to, a felony, (iii) the election of such person would violate any
law, or (iv) any event required to be disclosed pursuant to Item 401(f)(2), (3),
(4), (5) or (6) of Regulation S-K of the Exchange Act has occurred with respect
to such person.
(c) If any Investor Designee ceases to serve on the Board
for any reason (including, without limitation, due to death, resignation or
removal), Investor shall have the right to fill the resulting vacancy with an
Investor Designee.
(d) During the period that Investor shall have the right to
designate nominees to the Board under this Agreement, the number of directors on
the Board shall not exceed ten at any time. Effective as of the Closing, the
Company shall adopt an amendment to the By-laws (the "Amendment") substantially
in the form attached hereto as Schedule 2.01(d). Each of the Company and
Investor shall take or cause to be taken all lawful action necessary to ensure
at all times that the Company's certificate of incorporation and the By-Laws are
not at any time inconsistent with the provisions of this Agreement; provided
that the Company shall not be required to amend Article Fifth of its certificate
of incorporation.
(e) The Company will support the nomination of and the
election of each Investor Designee, including the Investor Class A Designee, to
the Board and
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will exercise all authority under applicable law to cause each Investor
Designee, including the Investor Class A Designee, to be elected to the Board.
In addition, the Company will exercise all authority under applicable law to
cause (i) if the Board consists (or would consist immediately following the
election contemplated in this clause (i)) of five directors, any slate of
directors presented to stockholders of the Company for election to the Board to
consist of such nominees that, if elected, would result in the Board consisting
of two Investor Designees and three additional directors, (ii) if the Board
consists (or would consist immediately following the election contemplated in
this clause (ii)) of six directors, any slate of directors presented to
stockholders of the Company for election to the Board to consist of such
nominees that, if elected, would result in the Board consisting of two Investor
Designees and four additional directors, (iii) if the Board consists (or would
consist immediately following the election contemplated in this clause (iii)) of
seven directors, any slate of directors presented to stockholders of the Company
for election to the Board to consist of such nominees that, if elected, would
result in the Board consisting of three Investor Designees and four additional
directors, (iv) if the Board consists (or would consist immediately following
the election contemplated in this clause (iv)) of eight directors, any slate of
directors presented to stockholders of the Company for election to the Board to
consist of such nominees that, if elected, would result in the Board consisting
of three Investor Designees and five additional directors, (v) if the Board
consists (or would consist immediately following the election contemplated in
this clause (v)) of nine directors, any slate of directors presented to
stockholders of the Company for election to the Board to consist of such
nominees that, if elected, would result in the Board consisting of three
Investor Designees and six additional directors and (vi) if the Board consists
(or would consist immediately following the election contemplated in this clause
(vi)) of ten directors, any slate of directors presented to stockholders of the
Company for election to the Board to consist of such nominees that, if elected,
would result in the Board consisting of three Investor Designees and seven
additional directors. Without limiting the generality of the foregoing, with
respect to each meeting of stockholders of the Company at which directors are to
be elected, the Company shall use its reasonable efforts to solicit from the
stockholders of the Company eligible to vote in the election of directors
proxies in favor of each Investor Designee.
(f) If the number of directors on the Board is decreased
below seven at any time during which (i) Investor has the right to nominate
three Investor Designees to the
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Board pursuant to the terms of this Agreement and (ii) three Investor Designees
are actually serving as directors, within 15 business days thereafter Investor
shall cause one Investor Designee to resign from the Board.
(g) The provisions of this Section 2.01 and Section 2.03(a)
shall terminate 90 days after the date on which Investor and the Investor
Affiliates and their respective Controlled Affiliates no longer Beneficially Own
a number of shares of Common Stock equal to at least 10% of the shares of Common
Stock outstanding on the date hereof.
SECTION 2.02. Director Compensation. The Company's non-employee
directors shall receive the compensation described on Schedule 2.02 until
changed by the Compensation Committee.
SECTION 2.03. Committee Membership. (a) Subject to the
provisions of Section 2.01(g), at least one Investor Designee shall serve on
each committee of the Board. Effective as of the Closing, there shall be an
audit committee of the Board (the "Audit Committee") and a compensation
committee of the Board (the "Compensation Committee"), each comprised of three
directors, one of whom shall be an Investor Designee and two of whom shall be
designated by the Company. As of the Closing, the Audit Committee initially
shall consist of the directors listed on Schedule 2.03(a)(i) and the
Compensation Committee shall initially consist of the directors listed on
Schedule 2.03(a)(ii).
(b) Notwithstanding the foregoing, no officer or employee of
the Company may serve as a member of the Audit Committee or Compensation
Committee.
SECTION 2.04. Implementation. Prior and as a condition to the
Closing and implementation of the provisions of this Agreement, all of the
Company's directors other than Murry N. Gunty and Robert P. Freeman, at a duly
called and noticed meeting of the Board, shall have approved this Agreement. In
addition, the parties will take all further actions necessary to implement the
provisions of this Article II subject to and effective as of the Closing,
including the adoption of the Amendment and the establishment of the Audit
Committee and the Compensation Committee in accordance with the terms hereof.
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ARTICLE III
Investor's Stock Ownership
SECTION 3.01. Limitation on Acquisition of Additional Shares of
Common Stock. Effective as of the Closing, neither Investor nor any Investor
Affiliate shall, and Investor and the Investor Affiliates shall cause each of
their respective Controlled Affiliates not to, acquire or agree to acquire any
shares of Common Stock in addition to the shares of Common Stock owned by the
Investor and the Investor Affiliates on the date hereof, except (i) if the
Company has received an opinion in customary form of a reputable investment
banking firm (the "Financial Advisor") mutually agreeable to Investor and the
Company to the effect that the consideration to be paid for such Common Stock is
fair, from a financial point of view, to the holders of Common Stock or (ii)
pursuant to and in accordance with Section 3.02. If Investor and the Company are
unable to agree upon a Financial Advisor to deliver the opinion required
pursuant to clause (i) of the preceding sentence, then Investor and the Company
shall each select a reputable investment banking firm, which firms will then
select a third reputable investment banking firm to deliver such opinion.
Notwithstanding the foregoing, this Section 3.01 shall terminate upon the
earliest to occur of:
(i) the occurrence of any event of default on the part of
the Company or any of its subsidiaries under any debt agreements,
instruments or arrangements that would reasonably be expected to result
in a material adverse effect on the financial condition, results of
operations or business of the Company and its subsidiaries (to the
extent of the Company's interests therein) taken as a whole (a "Material
Adverse Effect"), and, in the case of a non-monetary event of default,
which event of default cannot be, or is not, cured by the Company within
the applicable cure period under such debt agreement, instrument or
arrangement and that would reasonably be expected to result in a
Material Adverse Effect;
(ii) any breach of this Agreement by the Company or the
occurrence of any event of default under the terms of the Expense Note;
(iii) the authorization by the Company or the Board or any
committee thereof (with all Investor Designees abstaining or voting
against) of the solicitation of offers or proposals or indications of
interest with respect to any merger, consolidation, other business
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combination, liquidation, sale of the Company or all or substantially
all of the assets of the Company or any other change of control of the
Company or similar extraordinary transaction, but excluding any merger,
consolidation or other business combination in which the Company is the
surviving and acquiring corporation and in which the business or assets
so acquired do not, or would not reasonably be expected to, have a value
greater than 50% of the assets of the Company prior to such merger,
consolidation or other business combination (any of the foregoing, a
"Covered Transaction"); provided, however, that this subsection (iii)
shall not apply to, and the term "Covered Transaction" shall not include
transactions, discussions, negotiations, solicitations of offers or
proposals or indications of interest that are approved by Investor or
LFREI;
(iv) the written submission by any person or "group" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than
Investor or any Affiliate thereof of a proposal to the Company
(including to the Board or any agent, representative or Affiliate of the
Company ) with respect to, or otherwise expressing an interest in
pursuing, a Covered Transaction; provided, however, that Section 3.01
shall not terminate pursuant to this clause (iv) if, as soon as
practicable after receipt of any such proposal, the Board determines
that such proposal is not in the best interest of the Company and its
stockholders and for so long as the Board continues to reject such
proposal as a result of such determination;
(v) in connection with any actual or proposed Covered
Transaction, the removal of any rights plan, provisions of the Restated
Articles of Incorporation of the Company and any amendment or supplement
thereto (the "Company Charter") relating to staggered terms of office
for directors, provisions of the Company Charter or the By-laws relating
to supermajority voting of the Company's stockholders, "excess share"
provisions of the Company Charter or the By-laws, or any other similar
arrangements, agreements, commitments or provisions in the Company
Charter or the By-laws which would reasonably be expected to impede the
consummation of such actual or proposed Covered Transaction by action of
any governmental or any agency, bureau, board, commission, court,
department, official, political subdivision, tribunal or other
instrumentality of any government or any quasi-governmental authority or
self-regulatory organization,
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whether federal, state or local, domestic or foreign, the Board, the
stockholders of the Company or otherwise;
(vi) 90 days after the date on which Investor and the
Investor Affiliates no longer Beneficially Own a number of shares of
Common Stock equal to at least 10% of the shares of Common Stock
outstanding on the date hereof; or
(vii) the commencement of any litigation by or on behalf of
the Company or any of its Affiliates against Investor, the Investor
Affiliates or any of their Affiliates (other than litigation brought by
any stockholder or stockholders of the Company based on any of the
claims described in clause (iii) of Section 5.01(a) of this Agreement).
SECTION 3.02. Participation Rights. (a) Effective as of the
Closing, Investor shall be entitled to a participation right to purchase or
subscribe for up to that number of additional shares of capital stock (including
as "capital stock" for purposes of this Section 3.02 any security, option,
warrant, call, commitment, subscription, right to purchase or other agreement of
any character that is convertible into or exchangeable or redeemable for shares
of capital stock of the Company or any subsidiary of the Company (and all
references in this Section 3.02 to capital stock shall, as appropriate, be
deemed to be references to any such securities), and also including additional
shares of capital stock to be issued pursuant to the conversion, exchange or
redemption of any security, option, warrant, call, commitment, subscription,
right to purchase or other agreement of a character that is convertible into or
exchangeable or redeemable for shares of capital stock, as if the price at which
such additional shares of capital stock is issued pursuant to any such
conversion, exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the same
proportion (the "shareholder percentage") of the total number of shares of
capital stock to be issued or sold by the Company (including the shares of
capital stock to be issued to Investor upon exercise of its participation rights
hereunder; it being understood and agreed that the Company will accordingly be
required to either increase the number of shares of capital stock to be issued
or sold so that Investor may purchase additional shares to maintain its
proportionate interest, or to reduce the number of shares of capital stock to be
issued or sold to Persons other than Investor) as is represented by the number
of shares of Common Stock Beneficially Owned by
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Investor prior to such sale or issuance relative to the number of shares of
Common Stock outstanding prior to such sale or issuance (but in no event more
than 35.8% of the total number of shares of capital stock to be issued or sold
by the Company at all subsequent offerings); provided, however, that the
provisions of this Section 3.02 shall not apply to (i) the issuance or sale by
the Company of any of its capital stock issued to the Company or any of its
subsidiaries or pursuant to options, rights or warrants or other commitments or
securities in effect or outstanding as of the date of this Agreement, (ii) the
issuance of capital stock pursuant to the conversion, exchange or redemption of
any other capital stock, but shall, without limitation, apply to the issuance by
the Company of any of its capital stock pursuant to benefit, option, stock
purchase, or other similar plans or arrangements, including pursuant to or upon
the exercise of options, rights, warrants, or other securities or agreements
(including those issued pursuant to the Company's benefit plans) and (iii) the
issuance of stock for consideration other than cash; provided further, however,
that in the case of debt securities of the Company that entitle the Investor to
participation rights hereunder, such participation rights shall apply only to
the issuance of such debt securities, i.e., the Investor shall have
participation rights with respect to such debt securities, and shall have
whatever conversion rights to which holders of such debt securities are
entitled, but shall have no other participation rights with respect thereto and
the Investor shall only have the right to acquire such debt securities
themselves. Notwithstanding the foregoing, any participation rights provided for
in this Section 3.02 which arise as a result of the exception contained in
clause (ii) of the preceding sentence shall be deferred until such time as
participation rights shall otherwise arise under this Section 3.02. The
provisions of this Section 3.02 shall apply to the Company's 6-3/4% Convertible
Subordinated Notes due 2006 only upon conversion, in which event the Company
agrees from time to time to issue the number of additional shares necessary to
permit Investor to maintain its shareholder percentage (as defined above);
provided that the purchase price for such shares shall be the closing price of
the Common Stock on the date of each such conversion; provided further that the
Company shall provide the Investor within 15 days after the end of each calendar
quarter with a schedule of the conversions during such quarter (and the related
closing prices for the Common Stock on the dates of conversion), the number of
additional shares of Common Stock Investor is entitled to purchase hereunder and
the purchase price therefor; and provided further that Investor shall have until
15 days after receipt of such schedule to purchase such additional shares. Any
conversion or exercise
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of securities acquired by Investor pursuant to this Section 3.02 shall be
deferred by Investor if it would result in Investor's share percentage exceeding
49.9%.
(b) In the event the Company proposes to issue or sell any
shares of capital stock in a transaction giving rise to the participation rights
provided for in this Section 3.02, the Company shall send a written notice (the
"Participation Notice") to Investor setting forth the number of shares of such
capital stock of the Company that the Company proposes to sell or issue, the
price (before any commission or discount) at which such shares are proposed to
be issued (or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participation Notice is given, the
method of determining such price and an estimate thereof), and all other
relevant information as to such proposed transaction as may be necessary for
Investor to determine whether or not to exercise the rights granted in this
Section 3.02. At any time within 20 days after its receipt of the Participation
Notice, Investor may exercise its participation rights to purchase or subscribe
for shares of such shares of capital stock, as provided for in this Section
3.02, by so informing the Company in writing (an "Exercise Notice"). Each
Exercise Notice shall state the percentage of the proposed sale or issuance that
the Investor elects to purchase. Each Exercise Notice shall be irrevocable,
subject to the conditions to the closing of the transaction giving rise to the
participation right provided for in this Section 3.02.
(c) The Company shall have the right, in its sole
discretion, at all times prior to consummation of any proposed sale or issuance
giving rise to the participation right granted by this Section 3.02, to abandon,
rescind, annul, withdraw or otherwise terminate such sale or issuance, whereupon
all participation rights in respect of such proposed sale or issuance pursuant
to this Section 3.02 shall become null and void, and the Company shall have no
liability or obligation to Investor or any Investor Affiliate with respect
thereto by virtue of such abandonment, rescission, annulment, withdrawal or
termination.
(d) The purchase or subscription by Investor or an Affiliate
thereof, as the case may be, pursuant to this Section 3.02 shall be on the same
price and other terms and conditions, including the date of sale or issuance, as
are applicable to the purchasers or subscribers of the additional shares of
capital stock of the Company whose purchases or subscriptions give rise to the
participation rights (except that the price to Investor to make such
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purchase or subscription shall be net of payment of any underwriting, placement
agent or similar fee associated with such purchase or subscription), which price
and other terms and conditions shall be substantially as stated in the relevant
Participation Notice (which standard shall be satisfied if the price, in the
case of a negotiated transaction, is not greater than 110% of the estimated
price set forth in the relevant Participation Notice or, in the case of an
underwritten or privately placed offering, is not greater than the lesser of (i)
110% of the estimated price set forth in the relevant Participation Notice, and
(ii) the most recent closing price on or prior to the date of the pricing of the
offering); provided, however, that in the event the purchases or subscriptions
giving rise to the participation rights are effected by an offering of
securities registered under the Securities Act and in which offering it is not
legally permissible for the securities to be purchased by Investor to be
included, such securities to be purchased by Investor will be purchased in a
concurrent private placement.
(e) If, with respect to any Participation Notice, Investor
fails to deliver an Exercise Notice within the requisite time period, the
Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which to sell not more than 110%
of the number of shares of capital stock of the Company described in the
Participation Notice (plus, in the event such shares are to be sold in an
underwritten public offering, an additional number of shares of capital stock of
the Company, not in excess of 15% of 110% of the number of shares of capital
stock of the Company described in the Participation Notice, in respect of any
underwriter's over-allotment option) and not less than 90% of the number of
shares of capital stock of the Company described in the Participation Notice at
a price of not less than 90% of the estimated price set forth in the
Participation Notice and otherwise on the same terms and conditions as set forth
in the Participation Notice. If, at the end of 120 days following the expiration
of the time in which the Exercise Notice is required to be delivered, the
Company has not completed the sale or issuance of capital stock of the Company
in accordance with the terms described in the Participation Notice (or at a
price which is at least 90% of the estimated price set forth in the
Participation Notice), or in the event of any contemplated sale or issuance
within such 120-day period but outside such price parameters, the Company shall
again be obligated to comply with the provisions of this Section 3.02 with
respect to, and provide the opportunity to participate in, any proposed sale or
issuance of shares of capital stock of the Company;
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provided, however, that notwithstanding the foregoing, if the price at which
such capital stock is to be sold in an underwritten offering (or a privately
placed offering in which the price is not less than 97% of the most recent
closing price of such capital stock at the time of the pricing of the offering)
is not at least 90% of the estimated price set forth in the Participation
Notice, the Company may inform Investor of such fact and Investor shall be
entitled to elect, by written notice delivered within two business days
following such notice from the Company, to participate in such offering in
accordance with the provisions of this Section 3.02.
ARTICLE IV
Other Agreements
SECTION 4.01. Non-Disparagement. (a) The Company agrees not to
directly or indirectly make or ratify any statement, public or private, oral or
written, that disparages, either professionally or personally, Investor, any
Investor Affiliate or any other Investor Releasee, or make any statement or
engage in any conduct that has the purpose or effect of disrupting the business
of Investor, any Investor Affiliate or any Investor Releasee.
(b) Investor and the Investor Affiliates agree not to
directly or indirectly make or ratify any statement, public or private, oral or
written, that disparages, either professionally or personally, the Company or
any Company Releasee (including, without limitation, any employee of the
Company), or make any statement or engage in any conduct that has the purpose or
effect of disrupting the business of the Company or any Company Releasee.
(c) This Section 4.01 shall not apply to or in any way limit
(i) testimony given by a party in any court, arbitral or governmental proceeding
or (ii) a party's private consultations with its attorneys or other professional
advisors.
SECTION 4.02. Certain Expenses. (a) The Company and Investor
hereby acknowledge and agree that the Company owes Investor a total of
$3,670,506.42 (the "Expense Amount"), $3,088,226.22 of which represents all
attorneys' fees, costs and other litigation expenses incurred by Investor, LFREI
and all other defendants and cross-complainants in the California Litigation
("Litigation Expenses") and $582,280.20 of which represents all "Buyer's
Expenses" owed by the Company pursuant to Section 9.3 of the
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Stock Purchase Agreement ("Buyer's Expenses"). Investor hereby agrees to accept
payment of $1,500,000 in accordance with the terms of an expense note (the
"Expense Note") in substantially the form attached hereto as Schedule 4.02 as
payment in full for the Expense Amount; provided that if there is a material
breach of the obligations of the Company under the Expense Note, Investor shall
have the right to reassert a claim for payment of the entire Expense Amount. The
Company shall deliver the executed Expense Note to Investor at the Closing.
(b) In consideration of the agreement of Investor set forth
in Section 4.02(a), the Company shall not seek payment or reimbursement from
Investor, LFREI or any of their Affiliates and waives any rights it may have to
recover from Investor, LFREI or any of their Affiliates all attorneys' fees,
costs and other litigation expenses heretofore or hereafter incurred (x) by the
Company and all other plaintiffs and cross-defendants in connection with the
California Litigation and (y) by the Company and all other defendants in
connection with the Delaware Litigation.
(c) In consideration of the agreement of the Company to
deliver the Expense Note pursuant to Section 4.02(a), none of Investor, LFREI or
any of their Affiliates shall seek payment or reimbursement from the Company or
any of its Affiliates, and each of Investor, LFREI and their Affiliates waives
any right it may have to recover from the Company or any of its Affiliates any
attorneys' fees, costs and other litigation expenses heretofore or hereafter
incurred by Investor, LFREI or any of their Affiliates in connection with the
Delaware Litigation.
SECTION 4.03. Joint Press Release. Promptly following the
execution of this Agreement, the Company, Investor and the Investor Affiliates
shall issue a joint press release in substantially the form attached hereto as
Schedule 4.03.
SECTION 4.04. Litigation. (a) Effective as of the Closing, the
Company waives any right to appeal the California Litigation and shall dismiss
the appeal with prejudice. Pursuant to Rule 19 of the California Rules of Court,
the parties shall file a joint stipulation for abandonment of the appeal (the
"Joint Stipulation") in the appropriate court. The Joint Stipulation shall be
substantially in the form attached hereto as Schedule 4.04(a)-1(A) if the record
for the California Litigation is in the Superior Court of the State of
California for the County of Orange on the Closing Date. The Joint Stipulation
shall be substantially in the form attached hereto as Schedule 4.04(a)-1(B) if
the record for the California Litigation is in the Court of Appeal of the State
of California, Fourth Appellate District, Division Three on the Closing Date.
The parties acknowledge and consent to the judgment entered in the California
Litigation, a copy of which is attached hereto as Schedule 4.04(a)-2
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(b) Effective as of the Closing, Investor (as plaintiff)
shall dismiss with prejudice all of its claims against the Company, Howard G.
Phanstiel and John A. Booty (as defendants) in the Delaware Litigation, by
filing a stipulated motion to dismiss in substantially the form attached hereto
as Schedule 4.04(b) (the "Delaware Dismissal").
SECTION 4.05. Confidentiality. The parties hereby agree that the
terms and conditions of this Agreement and the Expense Note and all information
provided to any of them or any of their respective representatives pursuant to
the provisions of this Agreement or the Expense Note shall be kept confidential,
and such parties shall not (a) disclose such information to any persons other
than the directors, officers, employees, financial advisors, investors, lenders,
legal advisors, accountants, consultants and affiliates of such parties who
reasonably need to have access to the confidential information and who are
advised of the confidential nature of such information or (b) use such
information in a manner which would be detrimental to any of the parties;
provided, however, the foregoing obligation of any such party shall not (x)
relate to any information that (i) is or becomes publicly available other than
as a result of unauthorized disclosure by such party or by persons to whom such
party has made such information available or (ii) is or becomes available to
such party on a non-confidential basis from a third party that is not, to such
party's knowledge, bound by any other confidentiality agreement with the
parties, (y) prohibit disclosure of any information if required by law,
regulation, court order or other legal or government process, including
disclosures to shareholders or regulators or (z) prohibit the issuance of the
press release attached hereto as Schedule 4.03 or any other joint press release
in such form as may be mutually agreed to by the Company and LFREI.
SECTION 4.06. Competitive Activities. The Company hereby
specifically acknowledges and agrees that Investor, LFREI and their Affiliates
may engage, directly or indirectly, in other business ventures of every nature,
independently or with others, including without limitation the ownership,
management, development and/or operation of assisted living facilities wherever
located, whether or not competitive with the business of the Company, including
without limitation the ownership of securities of Atria Communities, Inc. and
Kapson Senior Quarters Corp., and neither the Company nor any of its Affiliates
shall have any right in such independent ventures or to the income and profits
derived therefrom.
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SECTION 4.07. Further Assurances. Each party shall execute and
deliver such further documents and take such other actions as another party may
reasonably request as being necessary or appropriate to consummate or implement
the releases and the settlement and other transactions contemplated by this
Agreement in accordance with this Agreement.
ARTICLE V
Mutual Release
SECTION 5.01. Company's Release of Investor. (a) Effective as of
the Closing and subject to the limitations set forth in Section 5.01(c), the
Company, for itself and its subsidiaries, and for its and their predecessors,
successors and assigns, hereby releases and forever discharges Investor and the
Investor Affiliates, their respective predecessors, successors and assigns, and
their respective past, present and future parents, subsidiaries, affiliates,
trustees, executors, administrators, officers, directors, owners, associates,
heirs, agents, insurers, reinsurers, stockholders, partners, employees,
licensees, representatives, lawyers, consultants, investment bankers,
accountants or any of them and including, without limitation, Robert P. Freeman,
Murry N. Gunty and Kenneth M. Jacobs ("Investor Releasees"), of and from any and
all manner of action or actions, cause or causes of action, in law or equity,
and any suits, debts, liens, liabilities, claims, counter-claims, cross-claims,
demands, rights, obligations, damages, losses, costs, expenses, attorneys' fees,
judgments, orders or indemnities of all and any nature whatsoever, whether
individual or derivative, state or Federal, known or unknown, fixed or
contingent, suspected or unsuspected, and whether or not concealed or hidden,
that against the Investor Releasees, or any of them, the Company or any of its
subsidiaries: (i) may have had or may now have up to the date of this Agreement,
(ii) may hereafter have based upon, connected with or related to any cause or
causes of action that were or could have been alleged in the Disputes or any of
the facts giving rise or allegedly giving rise to the Disputes or (iii) may have
had or may hereafter have based upon, in connection with or related to any claim
or cause or causes of action as set forth in the letter dated July 29, 1999 from
Robert P. Sugarman to the Company's Board of Directors with respect to
Investor's alleged violation of Section 16(b) of the Securities Exchange Act of
1934 in connection with the Company's 6.75% Convertible Subordinated Notes Due
2007 or any similar demand arising out of the redemption by the
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Company of the Company's 6.75% Convertible Subordinated Notes Due 2007 (clauses
(i), (ii) and (iii) collectively, the "Company Claims").
(b) The Company represents and warrants that there has been
no assignment or other transfer of any interest in the Company Claims or in any
claims, counterclaims, cross-claims, demands or causes of action that, but for
such assignment or transfer, would be subject to the releases set forth in
Section 5.01(a) of this Agreement, which it may have against the Investor
Releasees, or any of them, and the Company agrees to indemnify, defend and hold
the Investor Releasees, and each of them, harmless from any liabilities, action
or actions, cause or causes of action in law or equity, suits, debts, liens and
from any claims made upon, demands upon, damages asserted against, and costs,
expenses and attorneys' fees incurred (whether or not litigation is commenced)
by, the Investor Releasees, or any of them, based on or in connection with or
arising out of any such assignment or transfer made, purported or claimed. It is
the intention of the parties that this indemnity does not require payment as a
condition precedent to recovery by the Investor Releasees against the Company
under this indemnity.
(c) The releases set forth herein shall not extend to or be
construed as releasing Investor, the Investor Affiliates or the Investor
Releasees, or any of them, from their responsibilities, promises, obligations,
covenants, and agreements under or arising out of this Agreement. The term
"Company Claims" shall not extend to or be construed to include (i) any claims
arising out of or in connection with the responsibilities, promises,
obligations, covenants, and agreements of Investor, the Investor Affiliates or
the Investor Releasees, or any of them, under or arising out of this Agreement
or (ii) any claims with respect to (w) whether the Stockholders Agreement has
terminated, but only to the extent such claims are based on facts that occurred
prior to the Closing, regardless of when such claims are brought; (x) if the
Stockholders Agreement is not terminated, then any claims or available defenses
that relate to or arise in connection with the Stockholders Agreement based on
facts that occurred prior to the Closing and that are not otherwise precluded by
the decision in the California Litigation, regardless of when such claims are
brought; (y) relating to or arising out of the Emeritus Litigation; or (z)
relating to or arising in connection with the Rights Agreement dated as of July
14, 1997 between the Company and Chase Mellon Shareholder Services, L.L.C. as
Rights Agent (the "Rights Agreement"). Investor further acknowledges and agrees
that the Company shall retain the ability to pursue any rights it may have under
the
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exclusions from the Company's releases as set forth in clauses (i) and (ii) of
the definition of "Company Claims" in this Section 5.01(c) except as may be
barred as a result of the California Litigation.
SECTION 5.02 Investor's Release of Company. (a) Effective as of
the Closing and subject to the limitations set forth in Section 5.02(c), each of
Investor and the Investor Affiliates, for themselves and their respective
predecessors, successors and assigns, hereby release and forever discharge the
Company, its predecessors, successors and assigns, and its past, present and
future parents, subsidiaries, affiliates, trustees, executors, administrators,
officers, directors, owners, associates, heirs, agents, insurers, reinsurers,
stockholders, partners, employees, licensees, representatives, lawyers,
consultants, investment bankers, accountants or any of them ("Company
Releasees"), of and from any and all manner of action or actions, cause or
causes of action, in law or equity, and any suits, debts, liens, liabilities,
claims, counter-claims, cross-claims, demands, rights, obligations, damages,
losses, costs, expenses, judgments, orders, or indemnities of all and any nature
whatsoever, whether individual or derivative, state or Federal, known or
unknown, fixed or contingent, suspected or unsuspected, and whether or not
concealed or hidden, that against the Company Releasees, or any of them,
Investor or any Investor Affiliate: (i) may have had or may now have up to the
date of this Agreement or (ii) may hereafter have based upon, connected with or
related to any cause or causes of action that were or could have been alleged in
the Disputes or any of the facts giving rise or allegedly giving rise to the
Disputes (clauses (i) and (ii) collectively, the "Investor Claims").
(b) Investor and the Investor Affiliates jointly and
severally represent and warrant that there has been no assignment or other
transfer of any interest in the Investor Claims or in any claims, counterclaims,
cross-claims, demands or causes of action that, but for such assignment or
transfer, would be subject to the releases set forth in Section 5.02(a) of this
Agreement, which they may have against the Company Releasees, or any of them,
and Investor and the Investor Affiliates jointly and severally agree to
indemnify, defend and hold the Company Releasees, and each of them, harmless
from any liabilities, action or actions, cause or causes of action in law or
equity, suits, debts, liens and from any claims made upon, demands upon, damages
asserted against, and costs, expenses and attorneys' fees incurred (whether or
not litigation is commenced) by, the Company Releasees, or any of them, based on
or in connection with or arising out of any such assignment or transfer made,
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purported or claimed. It is the intention of the parties that this indemnity
does not require payment as a condition precedent to recovery by the Company
Releasees against Investor or any Investor Affiliate under this indemnity.
(c) The releases set forth herein shall not extend to or be
construed as releasing the Company or the Company Releasees, or any of them,
from their responsibilities, promises, obligations, covenants, and agreements
under or arising out of this Agreement, including, without limitation, their
responsibilities, promises, obligations, covenants, and agreements under or
arising out of the Expense Note. The term "Investor Claims" shall not extend to
or be construed to include (i) any claims arising out of or in connection with
the responsibilities, promises, obligations, covenants and agreements of the
Company or the Company Releasees, or any of them, under or arising out of this
Agreement, including, without limitation, their responsibilities, promises,
obligations, covenants, and agreements under or arising out of the Expense Note
or (ii) any claims with respect to (w) whether the Stockholders Agreement has
terminated, but only to the extent such claims are based on facts that occurred
prior to the Closing, regardless of when such claims are brought; (x) if the
Stockholders Agreement is not terminated, then any claims or available defenses
that relate to or arise in connection with the Stockholders Agreement based on
facts that occurred prior to the Closing and that are not otherwise precluded by
the decision in the California Litigation, regardless of when such claims are
brought; (y) relating to or arising out of the Emeritus Litigation; or (z)
relating to or arising in connection with the Rights Agreement. The Company
further acknowledges and agrees that each of Investor and the Investor
Affiliates shall retain the ability to pursue any rights it may have under the
exclusions from the releases of Investor and the Investor Affiliates as set
forth in clauses (i) and (ii) of the definition of "Investor Claims" in this
Section 5.02(c) except as may be barred as a result of the California
Litigation.
SECTION 5.03. Waiver of Statutory Rights. The parties, and each
of them, hereby represents, warrant, and acknowledge to the other parties, and
each of them, that they have received independent legal advice from their
respective attorneys regarding the advisability of executing this Agreement and
giving the releases provided for herein, and hereby acknowledge the provisions
of Section 1542 of the California Civil Code, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
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FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST
HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
The parties and each of them, being aware of Section 1542, hereby expressly
waive and relinquish any rights or benefits they have or may have thereunder in
connection with the releases provided herein, as well as under any other
California or any Federal or state statute or common law principle or similar
effect. Each party acknowledges that it is aware that it or its attorney may
hereafter discover facts different from or in addition to the facts which it or
its attorney now knows or believes to be true with respect to the subject matter
of this Agreement, but that it is their intention hereby to settle and release
fully, finally, absolutely and forever any and all claims, disputes and
differences, known or unknown, suspected or unsuspected, which now exist, may
hereafter exist, or heretofore have existed arising from, related to, or in any
way connected with the Company Claims or the Investor Claims, and without regard
to the subsequent discovery or existence or such different or additional facts
except as expressly set forth herein, which do now exist or heretofore have
existed between the Company, on the one hand, and Investor or any of the
Investor Affiliates, on the other hand. In furtherance of this intention, the
releases herein given shall be and remain in effect as full and complete
releases, except as set forth herein, notwithstanding discovery of any such
different or additional facts. The parties, and each of them, hereby further
represent, warrant, and acknowledge to the other parties, and each of them, that
there is a risk that, subsequent to the date of this Agreement, they will incur
damage or loss based upon, connected with or related to the Company Claims or
the Investor Claims, as the case may be, but which are unknown and unanticipated
as of the date of this Agreement, or that damages presently known may become
progressive, greater or more serious than is now known, expected or anticipated,
or that facts alleged in the Company Claims or the Investor Claims are found to
be different from the facts now believed by them to be true. The parties hereby
expressly accept such risks and agree that this Agreement is and will remain
effective notwithstanding such risks, if they occur.
ARTICLE VI
Closing
SECTION 6.01. Time and Place. The closing of the transactions
contemplated by this Agreement shall take place
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at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue,
New York, NY 10019, on such date and at such time as shall be mutually agreed
upon by the parties (the "Closing"); provided that such Closing shall not occur
later than October 6, 1999.
SECTION 6.02. Closing. At the Closing, the parties shall execute
and deliver such documents, and take such other actions, as are necessary to
consummate the transactions contemplated by this Agreement and to effectuate all
actions that, pursuant to this Agreement, are to be taken effective as of the
Closing, including: (a) the delivery of the executed Expense Note, (b) the
withdrawal of all filings with the court supporting the appeal of the California
Litigation, (c) the filing of the Joint Stipulation, (d) the filing of the
Delaware Dismissal, (e) the adoption of the Amendment, (f) the resignations of
John Booty and Murry N. Gunty from the Board, (g) the appointment of the
Compensation Committee and Audit Committee members and (h) the Board approval
contemplated by Section 2.04.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All notices and other communications to a
party under this Agreement shall be in writing and shall be deemed given if
personally delivered, sent by fax (with confirmation), sent by a
nationally-recognized overnight delivery service (with confirmation) or mailed
by certified mail (return receipt requested), in each case to that party's
address and fax number set forth below (or to such other address and fax number
as that party may designate by notice to the other parties):
If to the Company: ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, CA 92626-4539
Fax: 714-751-1743
Attention: Douglas M. Pasquale
With a copy to: O'Melveny & Myers LLP
610 Newport Center Drive,
17th Floor
Newport Beach, CA 92660-6429
Fax: 949-823-6994
Attention: Gary J. Singer, Esq.
If to Investor or any
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Investor Affiliate: c/o Lazard Freres Real Estate
Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-332-5980
Attention: Jeff Koblentz
With copies to: c/o Lazard Freres Real Estate
Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-632-6060
Attention: General Counsel
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax: 212-474-3700
Attention: Kevin J. Grehan
SECTION 7.02. Advice of Counsel. The parties acknowledge that
they have been represented in the negotiations for and in the performance of
this Agreement by counsel of their own choice; that they have read this
Agreement; that they have had it fully explained to them by such counsel; and
that they are fully aware of and understand the contents of this Agreement and
of its legal effect.
SECTION 7.03. Voluntary Execution. This Agreement is executed
voluntarily by each of the parties hereto without any duress or undue influence
on any of them. Nothing in this Agreement is, nor will it be deemed to be, an
admission of liability, fault or wrongdoing by any party.
SECTION 7.04. Joint Drafting. Each of the parties hereto has
cooperated in the drafting and preparation of this Agreement and has been
advised by their attorneys regarding the terms, effects, and consequences of
this Agreement. Accordingly, in any construction to be made of this Agreement,
this Agreement shall not be construed as having been drafted solely by or on
behalf of any one or more of the parties hereto. This Agreement shall not be
construed in favor of or against any particular party.
SECTION 7.05. Governing Law. This Agreement shall be governed
by, and shall be construed and enforced in accordance with, the laws of the
State of Delaware, without regard to conflicts of law principles.
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SECTION 7.06. Attorneys' Fees. If any party to this Agreement
brings an action or proceeding to enforce its rights hereunder, the prevailing
party shall be entitled to recover its costs and expenses, including court costs
and attorneys' fees, if any, incurred in connection with such action or
proceeding.
SECTION 7.07. Specific Enforcement. Each party acknowledges that
each other party would not have an adequate remedy at law for money damages in
the event that this Agreement is not performed in accordance with its terms, and
therefore agrees that each other party shall be entitled to specific enforcement
of the terms hereof in addition to any other remedy to which it may be entitled,
at law or in equity.
SECTION 7.08. Binding Effect. This Agreement shall bind, and
inure to the benefit of, the respective subsidiaries, parent and affiliated
corporations, successors, assigns and heirs of the parties.
SECTION 7.09. Amendment. This Agreement may be amended only by
agreement in writing signed by the Company and Investor and the Investor
Affiliates.
SECTION 7.10. Waiver. No waiver of any provision nor consent to
any exception to the terms of this Agreement or any other agreement contemplated
hereby shall be effective unless in writing and signed by the party to be bound,
and then only for the specific purposes, extent and instance so provided.
Failure by any party to enforce any rights under this Agreement shall not be
construed as a waiver of such rights, and a waiver by either party of a default
hereunder in any instance shall not be construed as constituting a continuing
waiver or as a waiver in other instances.
SECTION 7.11. Severability. If any provision of this Agreement
is determined to be invalid, illegal or unenforceable, the remaining provisions
of this Agreement shall remain in full force and effect. In the event of any
such determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intent and purposes
hereof. To the extent permitted by law, the parties hereby to the same extent
waive any provisions of law that render any provision hereof prohibited or
unenforceable in any respect.
SECTION 7.12. Counterparts. This Agreement may be executed and
delivered in counterparts, and by each party in a separate counterpart, each of
which when so executed and
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delivered shall constitute an original and all of which taken together shall
constitute one and the same instrument.
SECTION 7.13. Headings. The headings used herein are for
reference purposes only and shall not affect the construction of this Agreement.
SECTION 7.14. Exhibits and Schedules. The exhibits and schedules
referred to in this Agreement hereby are incorporated herein and made part of
this Agreement.
SECTION 7.15. Entire Agreement. This Agreement (including the
schedules and exhibits attached hereto) and the Expense Note represent the sole
and entire agreement between the parties with respect to the settlement set
forth herein and the other subject matters covered hereby and supersede all
prior agreements, negotiations, and discussions among the parties hereto or
their respective counsel with respect to the subject matters covered hereby
(including, without limitation, that certain Amended and Restated Stockholders
Agreement (the "Stockholders Agreement"), that certain Amended and Restated
Stock and Note Purchase Agreement (the "Stock Purchase Agreement"), and that
certain letter regarding the investment by an affiliate of LFREI in Kapson
Senior Quarters Corp. (the "Kapson Letter"), each by and among the Company,
Investor and LFREI, each dated as of October 29, 1997. Notwithstanding the
foregoing, the parties acknowledge and agree that each party hereto shall retain
the ability to pursue claims that are specifically excluded under clause (i) or
(ii) of Section 5.01(c) or clause (i) or (ii) of Section 5.02(c) of this
Agreement. Nothing in this Agreement shall be deemed to terminate the Amended
and Restated Registration Rights Agreement among the Company and Investor dated
October 29, 1997, which shall survive until it is terminated or expires in
accordance with its terms.
SECTION 7.16. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
INCLUDING THE EXPENSE NOTE, OR ANY ACTIONS CONTEMPLATED HEREBY OR THEREBY. THE
PROVISIONS OF THIS SECTION 7.16 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT
OR THE EXPENSE NOTE.
SECTION 7.17. Consent to Jurisdiction; Service of Process. (a)
All disputes, litigation, proceedings or legal actions by any party to this
Agreement in connection with or relating to this Agreement or the Expense
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Note or any matters described or contemplated in this Agreement or the Expense
Note shall be instituted in the Court of Chancery of the State of Delaware in
and for New Castle County. Each party to this Agreement irrevocably submits to
the exclusive jurisdiction of the Court of Chancery of the State of Delaware in
and for New Castle County in connection with any such dispute, litigation,
action or proceeding arising out of or relating to this Agreement or the Expense
Note.
(b) Each party to this Agreement agrees that service of all
writs, process and summonses in any dispute, litigation or proceeding pursuant
to Section 7.17(a) may be effected by mailing the copies thereof by registered
or certified mail, postage prepaid and return receipt requested, to it at its
address set forth in Section 7.01 (with copies to such other Persons as
specified therein), such service to become effective 10 days after such mailing;
provided that nothing contained in this Section 7.17(b) shall affect the rights
of the parties to serve process in any other manner permitted by law.
(c) Each party to this Agreement irrevocably waives, to the
fullest extent permitted by applicable law, any defense or objection it may now
or hereafter have to the laying of venue of any proceeding under this Agreement
or the Expense Note brought in the Court of Chancery of the State of Delaware in
and for New Castle County and any claim that any proceeding under this Agreement
brought in any such court has been brought in an inconvenient forum.
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IN WITNESS WHEREOF, the parties have executed this Settlement
Agreement as of the date first above written.
THE COMPANY:
ARV Assisted Living, Inc.,
a Delaware corporation,
By: /s/ DOUGLAS M. PASQUALE
------------------------------------
Name: Douglas M. Pasquale
Title: President and CEO
INVESTOR:
Prometheus Assisted Living, LLC,
a Delaware limited liability company,
By: LF Strategic Realty Investors II L.P.,
its Managing Member
By: Lazard Freres Real Estate Investors
L.L.C., its General Partner
By: /s/ MARK S. TICOTIN
--------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
INVESTOR AFFILIATES:
Lazard Freres Real Estate Investors L.L.C.,
a New York limited liability company,
By: /s/ MARK S. TICOTIN
---------------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
LF Strategic Realty Investors II L.P.,
a Delaware limited partnership,
By: Lazard Freres Real Estate Investors
L.L.C., its General Partner
By: /s/ MARK S. TICOTIN
--------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
LFSRI II Alternative Partnership L.P.,
a Delaware limited partnership,
By: Lazard Freres Real Estate Investors
L.L.C., its General Partner
By: /s/ MARK S. TICOTIN
--------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
27
LFSRI II-CADIM Alternative Partnership
L.P., a Delaware limited partnership,
By: Lazard Freres Real Estate Investors
L.L.C., its General Partner
By: /s/ MARK S. TICOTIN
--------------------------------
Name: Mark S. Ticotin
Title: Chief Operating Officer
Atria Communities, Inc., a Delaware
corporation,
By: /s/ W.P. MULLOY II
--------------------------------
Name: W.P. Mulloy II
Title: President and CEO
Kapson Senior Quarters Corp., a Delaware
corporation,
By: /s/ W.P. MULLOY II
--------------------------------
Name: W.P. Mulloy II
Title: President and CEO
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Schedule 2.01(d)
Form of Amendment to By-laws
The Bylaws (the "Bylaws") of ARV Assisted Living, Inc., a Delaware
corporation, are hereby amended as follows:
1. Section 3.1 of the Bylaws is hereby amended and restated to read in
its entirety as follows:
"Section 3.1. Number, Election and Tenure. The Board shall consist of a
minimum of five and a maximum of ten members. The number of members on the Board
shall not exceed ten without the written consent of Prometheus Assisted Living
LLC ("Prometheus") for as long as the provisions of Section 2.01 of the
Settlement Agreement dated as of September 29, 1999 between the corporation and
Prometheus (the "Settlement Agreement") shall remain in effect. Until otherwise
determined by resolution of the Board, the Board shall consist of five (5)
persons. The Board will be divided into classes as specified in the Certificate
of Incorporation."
2. Section 3.2 of the Bylaws is hereby amended and restated to read in
its entirety as follows:
"Section 3.2. Vacancies. Vacancies on the Board of Directors may be
filled in the manner provided in the Certificate of Incorporation; provided
that, for so long as the provisions of Section 2.01 of the Settlement Agreement
remain in effect, (i) if any Investor Designee (as such term is defined in the
Settlement Agreement) ceases to serve on the Board for any reason (including,
without limitation, due to death, resignation or removal), the resulting vacancy
shall be filled by a person designated by Prometheus until such time as a
stockholder vote is held to fill such vacancy and (ii) if the number of members
on the Board is increased to exceed six (6) persons, at least one of the
vacancies created as a result of such increase shall be filled by a person
designated by Prometheus until such time as a stockholder vote is held to fill
such vacancy."
3. Section 7.1 of the Bylaws is hereby amended to add the following
sentence at the end of the first sentence of such Section:
"; provided that neither Section 3.1 nor Section 3.2 of these Bylaws may
be amended without the consent of all of the members of the Board nominated by
Prometheus."
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Schedule 4.02
Form of Promissory Note
Promissory Note
U.S. $1,500,000.00 , 1999
Costa Mesa, California
FOR VALUE RECEIVED, the undersigned, ARV Assisted Living, Inc.,
a Delaware corporation (the "Company"), does hereby promise to pay to the order
of Prometheus Assisted Living LLC, a Delaware limited liability company (the
"Investor"), at c/o Lazard Freres Real Estate Investors L.L.C., 30 Rockefeller
Plaza, New York, New York 10020, or such other place as the Investor may from
time to time designate in writing, the principal amount of One Million Five
Hundred Thousand United States Dollars (U.S. $1,500,000.00) on April , 2002 (the
"Stated Maturity Date"), or upon any earlier maturity of this Note, whether by
acceleration, prepayment or otherwise. Interest shall accrue on such principal
amount beginning on April , 2001, at a rate equal to the 30-day Treasury bill
rate quoted by the Wall Street Journal as of the most recent auction date prior
to such date, and the Company shall make monthly interest payments on such
principal amount on the first day of each month beginning on May 1, 2001
through and including the Stated Maturity Date (or until the earlier maturity of
this Note, whether by acceleration, prepayment or otherwise); provided that from
and after the occurrence of any Event of Default (as defined herein), and during
the continuation thereof, interest shall accrue at a rate per annum equal to a
rate that is 4% above the interest rate otherwise in effect; and provided
further that notwithstanding any provision contained herein, the total liability
of the Company for payment of interest on this Note shall not exceed the maximum
amount permitted by law to be charged, collected or received from the Company.
This Note has been issued in accordance with the Settlement
Agreement dated as of September 29, 1999 (the "Settlement Agreement"), among the
Company, the Investor and the Investor Affiliates (as defined therein), and is
the "Expense Note" referred to therein.
All payments of principal of and interest on this Note shall be
made in lawful money of the United States of America in same day funds. Whenever
any payment on this Note shall be stated to be due on a day that is not a
business
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day, such payment shall instead be made on the next succeeding business day, and
such extension of time shall be included in the computation of interest payable
on this Note. Any amount payable under this Note shall be payable without
deduction or offset and shall be made free and clear of any taxes, withholdings,
or deductions of any nature whatsoever. In the event that any withholding or
deduction from any payment to be made by the Company hereunder is required by
law, then the Company shall pay to the Investor such additional amount as is
necessary to ensure that the net amount actually received by the Investor after
such withholding or deduction (including withholdings or deductions on amounts
payable under this sentence) will equal the full amount the Investor would have
received had no such withholding or deduction been required.
Upon the occurrence of an Event of Default (as defined below),
the entire unpaid principal balance of this Note and all interest accrued
thereon shall be automatically and immediately due and payable, without
presentment, demand, notice, protest or other requirement of any kind (all of
which are hereby expressly waived by the Company). In addition, upon the
occurrence of any Event of Default, the Investor, acting in its sole discretion
and without the necessity of any consent of or notice to any other person, may
proceed to protect and enforce its rights hereunder in any manner or order it
deems expedient without regard to any equitable principles of marshaling or
otherwise.
An "Event of Default" shall mean the occurrence of any of the
following events:
(a) the Company fails to pay any principal with respect to this
Note, when and as the same shall become due and payable;
(b) the Company fails to pay any interest with respect to this
Note, when and as the same shall become due and payable, and such
failure is not cured within 3 days;
(c) any representation, warranty, certification or other
statement of the Company made in the Settlement Agreement or in any
statement or certificate at any time given in writing pursuant hereto or
thereto or in connection herewith or therewith shall be false in any
material respect on the date as of which made;
(d) the Company fails to observe or perform any covenant or
agreement contained in this Note, the Settlement Agreement (other than
Section 2.01 of the
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Settlement Agreement) or any future agreement between the Company and/or
any of its affiliates, on the one hand, and the Investor, Lazard Freres
Real Estate Investors L.L.C. and/or any of its or their affiliates, on
the other hand, that specifies any event or condition that shall be an
Event of Default hereunder, and such failure is not cured within 30 days
after notice thereof from Investor to the Company;
(e) there is a default (other than defaults listed on Annex I to
the Settlement Agreement (the "GECC Defaults"), so long as there is no
reasonable likelihood that such GECC Defaults could result in a material
adverse effect on the financial condition, results of operations or
business of the Company and its subsidiaries (to the extent of the
Company's interests therein) taken as a whole) under any mortgage,
indenture, instrument or other agreement under which there may be issued
or by which there may be secured or evidenced any Indebtedness (as
defined below) of the Company or any subsidiary of the Company (or the
payment of which is guaranteed by the Company or any subsidiary of the
Company), whether such Indebtedness or guarantee now exists or is
created after the date hereof, which default enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or
holders of any Indebtedness or any trustee or agent on its or their
behalf to cause any Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its
scheduled maturity;
(f) one or more judgments (other than any judgment in favor of
Emeritus Corporation in Case No. 793420 (BWS) in the Superior Court of
the State of California in the County of Orange between Emeritus
Corporation (as plaintiff) and the Company (as defendant)) for the
payment of money in an aggregate amount of $100,000 or more shall be
rendered against the Company, any of the Company's subsidiaries or any
combination thereof and the same shall remain undischarged for a period
of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to
attach or levy upon any assets of the Company or any of its subsidiaries
to enforce any such judgment;
(g) the Company or any of its subsidiaries shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy,
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insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h)
of this definition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Company or any of its subsidiaries or for a substantial
part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Company or any of its
subsidiaries or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Company or any of its subsidiaries or for a substantial
part of its assets, and, in any such case, such proceeding or petition
shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered;
(i) the Company or any of its subsidiaries shall become unable,
admit in writing its inability or fail generally to pay its debts as
they become due; or
(j) the Company fails to observe or perform any covenant or
agreement contained in Section 2.01 of the Settlement Agreement.
"Indebtedness" means, with respect to any person, all principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any indebtedness, whether
or not contingent, of such person (i) (a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of such person which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, and including, but not limited to, the Company's 6.75% Convertible
Subordinated Notes due 2007 and the Company's 6-
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3/4% Notes due 2006, (c) under a lease required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles in the United
States or under any lease or related document (including a purchase agreement)
which provides that such person is contractually obligated to purchase or to
cause a third party to purchase such leased property, (d) under any lease
pursuant to which the Company or any affiliate thereof (including any affiliated
partnerships in which the Company owns an interest) is the tenant relating to an
assisted living facility or skilled nursing facility, whether denominated as
fixed rent, additional rent or other charges, (e) in respect of letters of
credit, bank guarantees, bankers' acceptances or guarantees related to any
partnerships formed by the Company or any of its subsidiaries for the purpose of
acquiring or developing affordable apartments and to accrue related tax benefits
under the Federal Law Income Housing Tax Credit program, (f) with respect to
indebtedness secured by a mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance to which the property or
assets of such person are subject, whether or not the obligation secured thereby
shall have been assumed or Guaranteed by or shall otherwise be such person's
legal liability, (g) in respect of the balance of deferred and unpaid purchase
price of any property or assets, and (h) under interest rate or currency swap
agreements, cap, floor and collar agreements, spot and forward contracts and
similar agreements and arrangements; (ii) with respect to any obligation of
others of the type described in the preceding clause (i) or under clause (iii)
below, assumed by or Guaranteed in any manner by such person or in effect
Guaranteed by such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or otherwise
(and the obligations of such person under any such assumptions, Guarantees or
other such arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing. "Guarantee" means a guarantee (other than by endorsement
of negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
The Company shall have the right at any time and from time to
time to prepay this Note in whole or in part at a prepayment price equal to 91%
of the aggregate principal amount of this Note on such prepayment date if
prepaid prior to November , 1999. Such prepayment price shall increase by 0.5%
of the aggregate principal amount of this Note on the
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10th day of each month thereafter until April , 2001. From April , 2001 until
the Stated Maturity Date, the prepayment price shall equal 100% of the aggregate
principal amount of this Note on such prepayment date plus accrued and unpaid
interest through the prepayment date.
In the event any one or more of the provisions contained in this
Note should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). This Note shall be governed by, and construed in accordance with,
the laws of the State of New York.
No failure or delay on the part of the Investor or any other
holder of this Note to exercise any right, power or privilege under this Note
and no course of dealing between the Company and the Investor shall impair such
right, power or privilege or operate as a waiver of any default or an
acquiescence therein, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative to, and not exclusive of, any rights or
remedies which the Investor would otherwise have. No notice to or demand on the
Company in any case shall entitle the Company to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
the Investor to any other or further action in any circumstances without notice
or demand. Every right and remedy granted to the Investor under this Note may be
exercised from time to time and as often as shall be deemed appropriate by the
Investor, acting in its sole discretion and without the necessity of any consent
of or notice to any other Person, or any other holder hereof.
The Company waives any asserted lack of diligence by the
Investor in taking any action to collect any sums owing under this Note or in
proceeding against any of the rights or interests in or to any collateral or
guarantee securing payment of this Note. The Company has consented to
jurisdiction and service of process with respect to this Note, and has waived a
jury trial with respect to any claim concerning this Note.
The words "Investor" and the "Company" whenever occurring herein
shall be deemed and construed to include the respective successors and assigns
of the Investor and the
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Company. No assignment by the Company of its obligations under this Note shall
be permitted without the prior written consent of the Investor.
All notices and other communications to a party under this Note
shall be in writing and shall be deemed given if personally delivered, sent by
fax (with confirmation), sent by a nationally-recognized overnight delivery
service (with confirmation) or five days after being mailed by certified mail
(return receipt requested), in each case to that party's address and fax number
set forth below (or to such other address and fax number as that party may
designate by notice to the other parties):
If to the Company: ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, CA 92626-4593
Fax: 714-751-1743
Attention: Douglas M. Pasquale
With a copy to: O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660-6429
Fax: 949-823-6994
Attention: Gary J. Singer, Esq.
If to Investor: c/o Lazard Freres Real Estate
Investors L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-332-5980
Attention: Jeff Koblentz
With copies to: Lazard Freres Real Estate Investors
L.L.C.
30 Rockefeller Plaza
New York, NY 10020
Fax: 212-632-6060
Attention: General Counsel
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Fax: 212-474-3700
Attention: Kevin J. Grehan, Esq.
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No provision of this Note may be waived, amended or modified
except pursuant to a written agreement entered into among the Company and the
Investor.
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IN WITNESS WHEREOF, the Company has caused this Note to be
executed on the date and year first above written.
ARV ASSISTED LIVING, INC., a
Delaware corporation,
by
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Name:
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Title:
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