-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Em3Tg3dQRT4fFdUdMvlBOmTQRxs450jHPEwyLl7dvzP2KgRo6r//UPZ83kaRqHwo ewzHCJnsWJPUAcaB2PA51A== 0000898430-97-004385.txt : 19971022 0000898430-97-004385.hdr.sgml : 19971022 ACCESSION NUMBER: 0000898430-97-004385 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971020 ITEM INFORMATION: FILED AS OF DATE: 19971021 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSISTED LIVING CONCEPTS INC CENTRAL INDEX KEY: 0000929994 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SOCIAL SERVICES [8300] IRS NUMBER: 931148702 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13498 FILM NUMBER: 97698375 BUSINESS ADDRESS: STREET 1: 10570 SE WASHINGTON STREET 2: STE 213 CITY: PORTLAND STATE: OR ZIP: 97216 BUSINESS PHONE: 5032526233 MAIL ADDRESS: STREET 1: 9955 SE WASHINGTON, SUITE 201 CITY: PORTLAND STATE: OR ZIP: 97216 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report: October 20, 1997 Date of earliest event reported: October 20, 1997 ASSISTED LIVING CONCEPTS, INC. (Exact name of registrant as specified in its charter) Nevada 1-13498 93-1148702 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation) Identification Number) 9955 S.E. Washington Street, Suite 201 Portland, OR 97216 (Address of principal executive offices) (Zip Code) (503) 252-6233 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Item 7. Exhibits -------- 4.1 Indenture, dated as of October 2 , 1997 by and between the Company and Harris Trust and Savings Bank, as Trustee. 10.1 Restricted Stock Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.2 Restricted Stock Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.3 Employment Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.4 Amended and Restated Employment Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.5 Indemnification Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.6 Indemnification Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.7 Amended and Restated 1994 Stock Option Plan of the Company. 10.8 Merger Agreement dated as of October 4, 1997 by and between the Company and Home and Community Care, Inc. 2 10.9 $20,440,000 Agreement to Purchase and Lease Assisted Living Residences dated October 3, 1997 by and between the Company and LTC Properties, Inc. 10.10 $50,000,000 Agreement to Purchase and Lease Assisted Living Residences dated October 3, 1997 by and between the Company and LTC Properties, Inc. 10.11 Management Agreement dated as of April 1, 1997 by and between the Company and Health Equity Investors, LLC. 10.12 Joint Venture Agreement dated as of April 1, 1997 by and between the Company and Health Equity Investors, LLC. 3 SIGNATURE 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. ASSISTED LIVING CONCEPTS, INC. Date: October 20, 1997 By: /s/ Stephen Gordon __________________________ Name: Stephen Gordon Title: Chief Financial Officer 4 EXHIBIT INDEX 4.1 Indenture, dated as of October 2 , 1997 by and between the Company and Harris Trust and Savings Bank, as Trustee. 10.1 Restricted Stock Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.2 Restricted Stock Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.3 Employment Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.4 Amended and Restated Employment Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.5 Indemnification Agreement dated October 3, 1997 by and between the Company and William McBride III. 10.6 Indemnification Agreement dated October 3, 1997 by and between the Company and Keren Brown Wilson. 10.7 Amended and Restated 1994 Stock Option Plan of the Company. 5 10.8 Merger Agreement dated as of October 4, 1997 by and between the Company and Home and Community Care, Inc. 10.9 $20,440,000 Agreement to Purchase and Lease Assisted Living Residences dated October 3, 1997 by and between the Company and LTC Properties, Inc. 10.10 $50,000,000 Agreement to Purchase and Lease Assisted Living Residences dated October 3, 1997 by and between the Company and LTC Properties, Inc. 10.11 Management Agreement dated as of April 1, 1997 by and between the Company and Health Equity Investors, LLC. 10.12 Joint Venture Agreement dated as of April 1, 1997 by and between the Company and Health Equity Investors, LLC. 6 EX-4.1 2 INDENTURE, DATED AS OF 10/2/97 EXHIBIT 4.1 ________________________________________________________________________________ ASSISTED LIVING CONCEPTS, INC. INDENTURE Dated as of October 2, 1997 HARRIS TRUST AND SAVINGS BANK, AS TRUSTEE Providing for Issuance of Securities in Series _________________________________________ TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions................................................. 1 SECTION 1.02 Other Definitions........................................... 5 SECTION 1.03 Incorporation by Reference to Trust Indenture Act.............................................. 6 SECTION 1.04 Rules of Construction....................................... 6 ARTICLE 2 THE SECURITIES SECTION 2.01 Forms Generally............................................. 6 SECTION 2.02 Amount Unlimited; Issuable in Series........................ 6 SECTION 2.03 Execution and Authentication................................ 9 SECTION 2.04 Registrar and Agents........................................ 10 SECTION 2.05 Paying Agent to Hold Money in Trust......................... 10 SECTION 2.06 Transfer and Exchange....................................... 11 SECTION 2.07 Replacement Securities...................................... 14 SECTION 2.08 Outstanding Securities...................................... 14 SECTION 2.09 Temporary Securities........................................ 15 SECTION 2.10 Cancellation................................................ 15 SECTION 2.11 Defaulted Interest.......................................... 15 SECTION 2.12 Securityholder Lists........................................ 16 SECTION 2.13 Persons Deemed Owners....................................... 16 SECTION 2.14 CUSIP Number................................................ 16 SECTION 2.15 Provisions in Global Security............................... 17 ARTICLE 3 REDEMPTION SECTION 3.01 Right of Redemption......................................... 18 SECTION 3.02 Selection of Securities to be Redeemed...................... 19 SECTION 3.03 Notice of Redemption by the Company......................... 20 SECTION 3.04 Effect of Notice of Redemption.............................. 20 SECTION 3.05 Deposit of Redemption Price................................. 21 SECTION 3.06 Securities Redeemed in Part................................. 21 ARTICLE 4 COVENANTS SECTION 4.01 Payment of the Securities................................... 21 SECTION 4.02 Commission Reports.......................................... 21 SECTION 4.03 Waiver of Stay, Extension or Usury Laws..................... 22 SECTION 4.04 Notice of Default........................................... 22 SECTION 4.05 Compliance Certificates..................................... 22 SECTION 4.06 Limitation on Dividends and Other Distributions.............................................. 23
ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 When Company May Merge, etc................................. 23 SECTION 5.02 Successor Corporation or Trust Substituted.................. 24 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default........................................... 24 SECTION 6.02 Acceleration................................................ 26 SECTION 6.03 Other Remedies.............................................. 27 SECTION 6.04 Waiver of Defaults and Events of Default.................... 27 SECTION 6.05 Control by Majority......................................... 27 SECTION 6.06 Rights of Holders to Receive Payment........................ 27 SECTION 6.07 Collection Suit by Trustee.................................. 28 SECTION 6.08 Trustee May File Proofs of Claim............................ 28 SECTION 6.09 Priorities.................................................. 29 SECTION 6.10 Undertaking for Costs....................................... 29 SECTION 6.11 Limitations on Suits........................................ 30 ARTICLE 7 TRUSTEE SECTION 7.01 Duties of Trustee........................................... 30 SECTION 7.02 Rights of Trustee........................................... 32 SECTION 7.03 Individual Rights of Trustee................................ 32 SECTION 7.04 Trustee's Disclaimer........................................ 33 SECTION 7.05 Notice of Defaults.......................................... 33 SECTION 7.06 Reports by Trustee to Holders............................... 33 SECTION 7.07 Compensation and Indemnity.................................. 34 SECTION 7.08 Replacement of Trustee...................................... 34 SECTION 7.09 Successor Trustee by Merger, etc............................ 36 SECTION 7.10 Eligibility; Disqualification............................... 36 SECTION 7.11 Preferential Collection of Claims Against Company.................................................... 36 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01 Satisfaction, Discharge and Defeasance of the Securities.................................................. 36 SECTION 8.02 Satisfaction and Discharge of Indenture..................... 37 SECTION 8.03 Survival of Certain Obligations............................. 38 SECTION 8.04 Application of Trust Money.................................. 38 SECTION 8.05 Paying Agent to Repay Monies Held........................... 39 SECTION 8.06 Return of Unclaimed Monies.................................. 39 SECTION 8.07 Reinstatement............................................... 39
-2- ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01 Supplemental Indentures Without Consent of Holders..................................................... 40 SECTION 9.02 Supplemental Indentures with Consent of Holders............. 41 SECTION 9.03 Compliance with Trust Indenture Act......................... 42 SECTION 9.04 Revocation and Effect of Consents........................... 42 SECTION 9.05 Notation on or Exchange of Securities....................... 43 SECTION 9.06 Effect of Supplemental Indentures........................... 43 SECTION 9.07 Reference in Securities to Supplemental Indentures................................................. 43 ARTICLE 10 CONVERSION OF SECURITIES SECTION 10.01 Right of Conversion; Conversion Price....................... 44 SECTION 10.02 Issuance of Shares on Conversion............................ 45 SECTION 10.03 No Adjustment for Interest or Dividends..................... 46 SECTION 10.04 Adjustment of Conversion Price.............................. 46 SECTION 10.05 Notice of Adjustment of Conversion Price.................... 49 SECTION 10.06 Notice of Certain Corporate Action.......................... 50 SECTION 10.07 Taxes on Conversions........................................ 51 SECTION 10.08 Fractional Shares........................................... 51 SECTION 10.09 Cancellation of Converted Securities........................ 51 SECTION 10.10 Provisions in Case of Consolidation, Merger or Sale of Assets.......................................... 52 SECTION 10.11 Disclaimer by Trustee of Responsibility for Certain Matters............................................ 52 SECTION 10.12 Covenant to Reserve Shares.................................. 53 ARTICLE 11 SUBORDINATION; SENIORITY SECTION 11.01 Securities Subordinated to Senior Indebtedness.............. 54 SECTION 11.02 Company Not to Make Payments with Respect to Junior Securities in Certain Circumstances................. 55 SECTION 11.03 Subrogation of Junior Securities............................ 57 SECTION 11.04 Authorization by Holders of Junior Securities............... 58 SECTION 11.05 Notices to Trustee.......................................... 59 SECTION 11.06 Trustee's Relation to Senior Indebtedness................... 60 SECTION 11.07 No Impairment of Subordination.............................. 60 SECTION 11.08 Article 11 Not To Prevent Events of Default................. 60 SECTION 11.09 Paying Agents other than the Trustee........................ 60 SECTION 11.10 Securities Senior to Subordinated Indebtedness............................................... 61
-3- ARTICLE 12 SINKING FUND SECTION 12.01 Mandatory and Optional Sinking Fund Payments............... 61 SECTION 12.02 Satisfaction of Sinking Fund Payments with Securities................................................ 61 SECTION 12.03 Redemption of Securities for Sinking Funds................. 62 ARTICLE 13 MISCELLANEOUS SECTION 13.01 Trust Indenture Act Controls............................... 63 SECTION 13.02 Notices.................................................... 63 SECTION 13.03 Communications by Holders with Other Holders............... 64 SECTION 13.04 Certificate and Opinion as to Conditions Precedent................................................. 64 SECTION 13.05 Statements Required in Certificate and Opinion............. 64 SECTION 13.06 Rules by Trustee and Agents................................ 65 SECTION 13.07 Record Date................................................ 65 SECTION 13.08 Legal Holidays............................................. 65 SECTION 13.09 Governing Law.............................................. 65 SECTION 13.10 No Adverse Interpretation of Other Agreements.............. 66 SECTION 13.11 No Recourse Against Others................................. 66 SECTION 13.12 Successors................................................. 66 SECTION 13.13 Multiple Counterparts...................................... 66 SECTION 13.14 Table of Contents, Headings, etc........................... 66 SECTION 13.15 Severability............................................... 66
-4- CROSS-REFERENCE TABLE ASSISTED LIVING CONCEPTS, INC.
Trust Indenture Act Section Indenture - --------------- --------- {310(a)(1) 7.10 (a)(2) 7.10 (a)(3) Not Applicable (a)(4) Not Applicable (b) 7.08; 7.10; 13.02 (c) Not Applicable {311(a) 7.11 (b) 7.11 (c) Not Applicable {312(a) 2.12 (b) 12.03 (c) 12.03 {313(a) 7.06 (b)(1) Not Applicable (b)(2) 7.06 (c) 7.06; 13.02 (d) 7.06 {314(a) 4.02; 13.02 (b) Not Applicable (c)(1) 12.04 (c)(2) 12.04 (c)(3) Not Applicable (d) Not Applicable (e) 12.05 (f) Not Applicable {315(a) 7.01(b) (b) 7.05; 13.02 (c) 7.01(a) (d) 7.01(c) (e) 6.10 {316(a)(last sentence) 13.06 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) Not Applicable (b) 6.06 {317(a)(1) 6.07 (a)(2) 6.08 (b) 2.05
{318(a) 11.01
__________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. INDENTURE dated as of October 2, 1997 between Assisted Living Concepts, Inc., a Nevada corporation ("Company"), and Harris Trust and Savings Bank, an Illinois banking corporation ("Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its securities (hereinafter called the "Securities") evidencing its unsecured indebtedness, to be issued in one or more fully registered series. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. To set forth or to provide for the establishment of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. ----------- "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by agreement or otherwise. "Agent" means any Registrar, Paying Agent, Conversion Agent, co- registrar or agent for service of notices and demands. "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal or State law for the relief of debtors. "Board of Directors of the Company" means the Board of Directors of the Company or any committee of the Board. "Board Resolution" means a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors of the Company and to be in -1- full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means any and all shares or other equivalents (however designated) of capital stock, including all common stock and all preferred stock. "Closing Price" means with respect to the shares of common stock of the Company on any day, (i) the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange, or (ii) if the shares of common stock are not listed or admitted to trading on the New York Stock Exchange, the last reported sales price regular way, or in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, on the principal national securities exchange on which the shares of common stock are listed or admitted to trading, or (iii) if the shares of common stock are not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 311 West Monroe Street, 12th Floor, Chicago, Illinois. "Custodian" means any receiver, trustee, liquidator or similar official under any Bankruptcy Law. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means, with respect to the Securities of any series issued in whole or in part in the form of a Global Security, the Person designated as Depositary by the Company pursuant to Section 2.02 until a successor Depositary shall have become such pursuant to the applicable procedures of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one Depositary with respect to the Securities of any such series, "Depositary" shall mean the Depositary with respect to the Securities of that series. -2- "Dollar" or "$" means the lawful money of the United States of America. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Global Security" means a Security in the form prescribed in Section 2.15 evidencing all or part of a Securities, issued to the Depositary for such series or its nominee, and registered in the name of such Depositary or nominee. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Indebtedness," as applied to any Person, means, without duplication (i) all indebtedness for borrowed money whether or not evidenced by a promissory note, draft or similar instrument, (ii) that portion of obligations with respect to leases that is properly classified as a liability on a balance sheet in accordance with generally accepted accounting principles, (iii) notes payable and drafts accepted representing extensions of credit, (iv) any balance owed for all or any part of the deferred purchase price of property or services, which purchase price is due more than six months from the date of incurrence of the obligation in respect thereof (except any such balance that constitutes (a) a trade payable or an accrued liability arising in the ordinary course of business or (b) a trade draft or note payable issued in the ordinary course of business in connection with the purchase of goods or services), if and to the extent such debt would appear as a liability upon a balance sheet of such Person prepared in accordance with generally accepted accounting principles, and (v) any deferral, amendment, renewal, extension, supplement or refunding of any of the foregoing indebtedness; provided, however, that, in computing the "Indebtedness" of any -------- ------- Person, there shall be excluded any particular indebtedness if, upon or prior to the maturity thereof and at the time of determination of such indebtedness, there shall have been deposited with a depository in trust money (or evidences of indebtedness if permitted by the instrument creating such indebtedness) in the necessary amount to pay, redeem or satisfy such indebtedness as it becomes due, and the amount so deposited shall not be included in any computation of the assets of such Person. "Indenture" means this Indenture as originally executed or, if amended or supplemented as provided in Article 9, as amended or supplemented from time to time. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, the Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer, Assistant Secretary or Assistant Controller of the Company. See -3- Sections 13.04 and 13.05. "Opinion of Counsel" means a written opinion from LathamE& Watkins or any other legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. See Sections 13.04 and 13.05. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal" of a Security means the principal of the Security plus, when appropriate, the premium, if any, on the Security. "Redemption Date" when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture as specified in such Security. "Senior Indebtedness" means the principal, premium, if any, and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement and indemnification obligations, and all other amounts payable under or in respect of Indebtedness of the Company for money borrowed, whether any such Indebtedness exists as of the date of this Indenture or shall hereafter be created, incurred, assumed or guaranteed. "Subordinated Indebtedness" means the principal, premium, if any, and interest on any Indebtedness of the Company which by its terms is expressly subordinated in right of payment to the Securities. "Subsidiary" means a corporation the majority of whose voting stock is owned by the Company or a subsidiary of the Company. Voting stock is Capital Stock having voting power under ordinary circumstances to elect directors. "Trust Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any Trust Officer or assistant Trust Officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to -4- those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "United States" means the United States of America. SECTION 1.02 Other Definitions. -----------------
Term Defined in Section ---- ------------------ "Company Order" 2.03 "Conversion Agent" 2.04 "conversion price" 10.01 "current market price" 10.04 "Event of Default" 6.01 "Junior Securities" 11.01 "Legal Holiday" 13.08 "mandatory sinking fund payments" 12.01 "Market Price" 3.01 "optional sinking fund payments" 12.01 "Paying Agent" 2.04 "Payment or Distribution" 11.01 "Redemption Price" 3.01 "Registrar" 2.04 "Rule 13e-3 Transaction" 10.06 "Securities" Recitals "TIA" 1.03 "U.S. Government Obligations" 8.01
SECTION 1.03 Incorporation by Reference to Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the Trust Indenture Act of 1939 (the "TIA"), the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Securities and Exchange Commission. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the indenture securities. -5- All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rules have the meanings assigned to them therein. SECTION 1.04 Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with United States generally accepted accounting principles in effect as of the time as to which such accounting principles are to be applied; (3) "or" is not exclusive; and (4) words in the singular include the plural, and in the plural include the singular. ARTICLE 2 THE SECURITIES SECTION 2.01 Forms Generally. --------------- The Securities of each series shall be in substantially the form (including any global form that is not inconsistent with this Indenture) as shall be established from time to time by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such variations as are required or permitted by this Indenture (including such other provisions as are necessary to reflect the global form of any Security, and the designation of a Depositary for such Global Security) and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules of any securities exchange or to conform to general usage, all as may be determined by the officers executing such Securities as evidenced by their execution of the Securities. SECTION 2.02 Amount Unlimited; Issuable in Series. ------------------------------------ The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities); -6- (2) the limit, if any, upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to this Indenture); (3) the date or dates on which the principal of (and premium, if any, on) the Securities of the series is payable; (4) the rate or rates, if any, at which the Securities of the series shall bear interest (or the method of determining such rate or rates), the date or dates from which such interest shall accrue, date or dates on which such interest shall be payable and the record date or dates for the interest payable; (5) the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable; (6) the period or periods within which or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company; (7) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Securityholder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (8) the price at which Securities of any one series are or may be converted into shares of Capital Stock of the Company; (9) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the maturity thereof; (10) whether any Securities of the series are to be issued in whole or in part in the form of one or more Global Securities and, if so, the Depositary for such Global Security or Securities (which Depositary shall be, if then required by applicable law or regulation, a clearing agency registered under the Exchange Act and any other applicable statute or -7- regulation) and whether beneficial owners of interests in such Global Security or Securities may exchange such interests for Securities of such series and any authorized form and denomination of such Securities and the circumstances under which any such exchanges may occur (if other than in the manner provided in Section 2.06); (11) the identity of each Paying Agent, Conversion Agent and Registrar (each as defined in Section 2.04) for the Securities of such series; and (12) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. If any of the terms of a series of Securities are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery to the Trustee of the Officers' Certificate or supplemental indenture setting forth the terms of the series. SECTION 2.03 Execution and Authentication. ---------------------------- Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall nevertheless be valid. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. Such signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue upon written order or orders of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company (a "Company Order"). The Trustee may appoint an authenticating agent to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication -8- by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. The Securities may be issued in registered form without coupons. The Securities shall be issuable only in denominations of $1,000 principal amount and any integral multiple thereof. The Trustee shall inform the Depositary with respect to the Securities of any series that the Trustee has endorsed pursuant to the provisions of Section 2.15. SECTION 2.04 Registrar and Agents. -------------------- The Company shall maintain an office or agency where Securities of any series may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities of any series may be presented for payment ("Paying Agent"), an office or agency where Securities of any series may be presented for conversion ("Conversion Agent") and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities of each series and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional Paying Agents and one or more additional Conversion Agents. The Company or any Subsidiary may act as Paying Agent and/or Conversion Agent. The term "Paying Agent" includes any additional paying agent and the term "Conversion Agent" includes any additional conversion agent. The Company may change any Paying Agent, Registrar, Conversion Agent or Co-Registrar on sixty (60) days' prior written notice to the Trustee. The Company shall notify the Trustee in writing of the name and address of any such Agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices and demands, or fails to give the foregoing notice, the Trustee shall act as such. -9- The Company and the Trustee initially appoint the Trustee as Registrar, Paying Agent, Conversion Agent and agent for service of notices and demands. SECTION 2.05 Paying Agent to Hold Money in Trust. ----------------------------------- Prior to each due date of the principal of, premium if any, and interest on any Securities of any series, the Company shall deposit with each Paying Agent a sum sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that it will hold in trust for the benefit of Holders of Securities of any series or the Trustee all money held by the Paying Agent for the payment of principal of, premium if any, or interest on the Securities of such series and to notify the Trustee in writing of any default by the Company (or any other obligor on the Securities of such series) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall on or before each due date of the principal of, premium, if any, or interest on any Securities of any series segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than the Company or a Subsidiary thereof) shall have no further liability for the money. SECTION 2.06 Transfer and Exchange. --------------------- (a) When a Security of any series is presented to the Registrar or a co-registrar with a request to register the transfer, the Registrar or co- registrar shall register the transfer as requested and when Securities of any series are presented to the Registrar or a co-registrar with a request to exchange them for a like aggregate principal amount of Securities of such series in other authorized denominations, the Registrar shall make the exchange as requested, provided that every Security presented or surrendered for registration or transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder thereof or his attorney-in-fact duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall issue and the Trustee or any authenticating agent shall authenticate Securities of such series at the Registrar's or co-registrar's written request. No service charge shall be made for any registration of transfer or exchange of Securities but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, but this provision shall not apply to any exchange pursuant to Section 2.09, 3.06, 9.05 or 10.02 not involving any transfer. Unless and until a Global Security is exchanged in -10- whole or in part for Securities in definitive form in accordance with the provisions of this Indenture, a Global Security may not be transferred, except as a whole, by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor of such Depositary or nominee. Unless otherwise provided as contemplated by Section 2.02 of this Indenture, the Depositary may not sell, assign, transfer or otherwise convey any beneficial interest in a Global Security evidencing all or part of the Securities of such series unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series. At the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations and of a like aggregate principal amount, upon surrender to the Registrar or a co- registrar of the Securities to be exchanged. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. (b) The Registrar shall not be required (i) to issue, register the transfer of, or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of any selection of Securities of such series for redemption under Section 3.02 and ending at the close of business on the day of selection, (ii) to register the transfer or exchange of any Security of any series so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part, or (iii) to register the transfer or exchange of any Securities of any series during a period beginning at the opening of business 15 days before the day of any selection of Securities of such series for redemption under Section 3.02 and ending at the close of business on the day interest is to be paid on Securities of such series. (c) If at any time the Depositary for any Securities of a series issued in the form of one or more Global Securities notifies the Company that it is unwilling or unable to continue as Depositary for such Securities or if at any time the Depositary for the Securities of such series shall no longer be eligible under Section 2.02 of this Indenture, the Company shall appoint a successor Depositary with respect to such Securities. If a successor Depositary for such Securities is not appointed by the Company within ninety (90) days after the Company receives such notice or becomes aware of such ineligibility, the Company's election to issue Global Securities pursuant to Section 2.02 shall no longer be effective with respect to such Securities and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate Securities of such series in definitive form, in authorized denominations, in an aggregate principal amount equal to the principal amount of the Global -11- Security or Securities in exchange for such Global Security or Securities and deliver such definitive Securities to the Securityholders of such series. The Company may at any time and in its sole discretion determine that the Securities of any series issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. The Company shall notify the Depositary and the Trustee of the date and time of such exchange in a Company Order. The Depositary shall surrender the Global Securities to the Trustee as the Company's agent for such purpose as shall be specified in the Company Order. The Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, will authenticate and deliver, Securities of such series in definitive form, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security or Securities in exchange for such Global Security or Securities. Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 2.02 of this Indenture, any Global Security shall be exchangeable only as provided in this paragraph. If the owners of beneficial interests in a Global Security of any series are entitled to exchange such interests for Securities of such series, as may be specified in accordance with Section 2.02 of this Indenture, then without unnecessary delay upon receipt of notice therefrom so specified as contemplated by Section 2.02 of this Indenture but in any event not later than one business day prior to the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities of such series, in authorized denominations, and in aggregate principal amount equal to the principal amount of such Global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such Global Security shall be surrendered by the Depositary as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities of such series, without charge, and the Trustee shall authenticate and deliver, in exchange for each portion of such Global Securities, a like aggregate principal amount of definitive Securities of the same series in authorized denominations as the portion of such Global Securities to be so exchanged; provided, however, that no such exchanges may occur for a period of 15 days immediately preceding the date notice is received by the Company requesting such changes. -12- SECTION 2.07 Replacement Securities. ---------------------- If a mutilated Security of any series is surrendered to the Trustee or if the Holder of a Security of any series presents evidence to the satisfaction of the Company and the Trustee that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security of such series if the requirements of the Trustee and the Company are met. An indemnity bond may be required by the Company or the Trustee that is sufficient in the judgment of the Company to protect the Company and is sufficient in the judgment of the Trustee to protect the Trustee or any Agent from any loss which it may suffer if a Security of such series is replaced. The Company may charge for its expense in replacing a Security. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its sole discretion may, instead of issuing a new Security, pay or authorize the payment or convert or authorize the conversion of such Security. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. SECTION 2.08 Outstanding Securities. ---------------------- Securities of any series outstanding at any time are all Securities of such series authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company or a Subsidiary) holds on a Redemption Date or maturity date money deposited with it by or on behalf of the Company sufficient to pay the principal of and accrued interest on Securities of any series payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. -13- A Security does not cease to be outstanding because the Company or an Affiliate holds the Security. SECTION 2.09 Temporary Securities. -------------------- Until definitive Securities of any series are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities of such series. Temporary Securities of any series shall be substantially in the form of definitive Securities of such series but may have non-material variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities of any series in exchange for temporary Securities of such series upon written order of the Company signed by two Officers. Until so exchanged, temporary Securities of any series represent the same rights as definitive Securities of such series. Upon request of the Trustee, the Company shall provide a certificate to the effect that the temporary Securities of any series meet the requirements of the second sentence of this Section 2.09. SECTION 2.10 Cancellation. ------------ The Company at any time may deliver Securities of any series to the Trustee for cancellation. The Registrar, the Paying Agent and the Conversion Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange, payment or conversion. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment or conversion and destroy canceled Securities in accordance with its customary destruction procedures and deliver a certificate of such destruction to the Company unless the Company directs the Trustee in writing prior to such destruction to deliver canceled Securities to the Company. Subject to Sections 2.07, 3.06 and the second paragraph of Section 10.02, the Company may not issue Securities to replace Securities that it has previously paid or delivered to the Trustee for cancellation or that a Securityholder has converted pursuant to Article 10 hereof. SECTION 2.11 Defaulted Interest. ------------------ If the Company defaults in a payment of interest on Securities of any series, it shall pay the defaulted interest to the Persons who are Holders of the Securities of such series on a subsequent special record date. After the deposit by the Company with the Trustee of money sufficient to pay such defaulted interest, the Trustee shall fix the record date and payment date. Each such special record date shall be not less than 10 days prior to such payment date. Each such payment date shall be not more than 60 days after the deposit by the Company of money to pay the defaulted interest. At least 15 days before the special record date, the Company shall mail to each Holder of a Security of such series a notice that states the special record date, the payment date, and the amount of defaulted interest to be paid. The Company may pay defaulted interest in any other lawful manner if, -14- after prior notice to the Trustee, such payment shall be deemed operationally practicable by the Trustee. SECTION 2.12 Securityholder Lists. -------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of Securities of each series. If the Trustee is not the Registrar, the Company or other obligor, if any, shall furnish to the Trustee at least seven Business Days prior to each semiannual interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders of Securities of each series upon which the Trustee may conclusively rely. The Trustee may destroy any such list upon receipt of a replacement list. The Paying Agent will solicit from each Securityholder a certification of social security number or taxpayer identification number in accordance with its customary practice and as required by law, unless the Paying Agent is in possession of such certification. Each Paying Agent is authorized to impose back-up withholding with respect to payments to be made to Securityholders to the extent required by law. SECTION 2.13 Persons Deemed Owners. --------------------- Prior to presentment of a Security of any series for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 2.14 CUSIP Number. ------------ The Company may use a "CUSIP" number when issuing Securities of any series, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Holders of Securities of such series; provided, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. SECTION 2.15 Provisions in Global Security. ----------------------------- (a) If Securities of a series are issuable in whole or in part as Global Securities, as may be specified in accordance with Section 2.02 of this Indenture, then in accordance with any such Global Security, such Global Security may represent such of the outstanding Securities of such series as shall be specified therein and may also provide that it represents the aggregate principal amount of outstanding Securities from time to time endorsed thereon and that the aggregate principal amount of outstanding Securities represented thereby may from time to time -15- be reduced to reflect exchanges. Global Securities may be permanent or temporary. Any endorsement of a Global Security to reflect the amount, or any increase or decrease in the principal amount, of outstanding Securities represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee and the Depositary pursuant to Section 2.03 or Section 2.09. Subject to the provisions of Section 2.03 and, if applicable, Section 2.09, the Depositary shall deliver and redeliver any permanent Global Security in the manner and upon written instructions given by the Person or Persons specified therein or in the applicable Company Order. (b) Notwithstanding the other provisions of this Indenture, unless otherwise specified in accordance with Section 2.02, payment of principal of (and premium, if any) and interest, if any, on any permanent Global Securities shall be made directly to owners of beneficial interest of such Global Security. (c) Notwithstanding the provisions of Section 2.13 of this Indenture, the Company, the Trustee and any agent of the Company or the Trustee shall treat the owners of beneficial interest of such Global Security as the Holders of such principal amounts of outstanding Securities represented by a Global Security as shall be specified in writing by the Depositary and delivered to the Company and the Trustee with respect to such Global Security only for purposes of obtaining any consents or directions required to be given by the Holders pursuant to this Indenture. (d) Unless otherwise provided as contemplated by Section 2.02, a Global Security of any series shall provide, in addition to the provisions established pursuant to Sections 2.01, 2.02 and 2.15(a) through (c), that the Depositary will not sell, assign, transfer or otherwise convey any beneficial interest in such Global Security unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series, and the Depository, by accepting such Global Security, agrees to be bound by such provision. Any Global Security shall also contain such other provisions as are necessary to reflect the global form of such Security and the designation of a Depositary for such Global Security. -16- ARTICLE 3 REDEMPTION SECTION 3.01 Right of Redemption. ------------------- (a) The Company may, at its option, redeem Securities of any series as permitted or required by the terms of such Securities, which redemption shall be made in accordance with the terms of such Securities and this Article. The election of the Company to redeem any Securities pursuant to this Section shall be evidenced by a Board Resolution. The Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and, in the case of any redemption at the election of the Company of less than all the Securities of any series, of the principal amount of Securities of that series to be redeemed. (b) If the Company wants to redeem the Securities of any series pursuant to the redemption provisions of the Securities of such series, it shall notify the Trustee of the Redemption Date and the principal amount of Securities of such series to be redeemed. The notice shall be in writing and accompanied by an Officers' Certificate stating that the redemption complies with the provisions of this Indenture and the provisions of the applicable Board Resolution, if any, and in the Securities of such series. The Company shall give each notice provided for in this Section 3.01 in writing and at least 45 but not more than 90 days before the Redemption Date or such other period as the Company and the Trustee may agree. -17- SECTION 3.02 Selection of Securities to be Redeemed. -------------------------------------- If any part of a series of Securities is to be redeemed, the Trustee shall select the Securities of such series to be redeemed pro rata or by lot or by any other method that the Trustee considers fair and appropriate under the circumstances. The Trustee shall promptly notify the Company of the Securities of such series to be so called for redemption. The Trustee shall make the selection from Securities of such series outstanding and not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000 principal amount. Securities and portions of them it selects shall be in principal amounts of $1,000 or multiples thereof. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee's selection of Securities for redemption by any method authorized by this Section 3.02 shall be conclusively deemed reasonable. SECTION 3.03 Notice of Redemption by the Company. ----------------------------------- At least 30 days but not more than 60 days before a Redemption Date with respect to Securities of any series, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities of such series to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent and the Conversion Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) that interest on Securities called for redemption ceases to accrue on and after the Redemption Date; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities of the same series in principal amount equal to the unredeemed portion thereof will be issued; and (7) any conversion rights with respect to the Securities and the applicable procedures required to be followed in connection with a conversion of Securities. -18- At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. If a CUSIP number is listed in such notice or printed on the Security, the notice shall state that no representation is made as to the correctness or accuracy of such CUSIP number. SECTION 3.04 Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed, Securities called for redemption become due and payable on the applicable Redemption Date and at the applicable Redemption Price. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price, plus accrued interest to the Redemption Date. SECTION 3.05 Deposit of Redemption Price. --------------------------- On or before the Redemption Date with respect to any series of Securities, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust or cause such Subsidiary to segregate and hold in trust) in immediately available funds money sufficient to pay the Redemption Price of and accrued interest on all Securities of such series to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money so received not required for that purpose. SECTION 3.06 Securities Redeemed in Part. --------------------------- Upon surrender of a Security of any series that is redeemed in part, the Trustee shall authenticate for the Holder, at the expense of the Company, a new Security of such series equal in principal amount to the unredeemed portion of the Security surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security. ARTICLE 4 COVENANTS SECTION 4.01 Payment of the Securities. ------------------------- The Company shall pay the principal of, premium, if any, and interest on the Securities of any series on the dates and in the manner provided in the Securities of such series and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on that date money designated for and sufficient to pay the installment. The Company shall pay interest on overdue principal and premium, if any, at the rate borne by the Security; it shall pay interest, including post-petition interest in the event of a proceeding under the Bankruptcy Laws, on overdue installments of interest at the same rate to the extent lawful. -19- SECTION 4.02 Commission Reports. ------------------ The Company shall file with the Trustee, promptly after it files them with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the other provisions of TIA (S) 314(a). So long as the Securities remain outstanding, the Company shall cause its annual reports to shareholders (containing audited financial statements) and any other financial reports furnished by it to shareholders to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. SECTION 4.03 Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Company expressly waives (to the extent that it may lawfully do so) any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of (premium, if any) or interest on Securities of any series as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture. SECTION 4.04 Notice of Default. ----------------- The Company will, so long as any Securities of any series are outstanding, deliver to the Trustee, within 10 days of becoming aware of any Default or Event of Default in the performance of any covenant, agreement or condition in this Indenture, an Officers' Certificate specifying such Default or Event of Default, the period of existence thereof and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05 Compliance Certificates. ----------------------- The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company (which as of the date hereof is December 31), a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company, stating, as to each signer thereof, that (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision and (2) to the best of his knowledge, based on such review, the Company has kept, observed, performed and fulfilled in all material respects each and every condition and covenant contained in this Indenture throughout such year, or, if there has -20- been a default in the fulfillment of any such condition or covenant, specifying each such default known to him and the nature and status thereof. The Company will give the Trustee written notice of a change in the fiscal year of the Company, within a reasonable time after such change is effected. SECTION 4.06 Limitation on Dividends and Other Distributions. ----------------------------------------------- The Company will not declare or pay any dividends or make any distribution to holders of its Capital Stock (other than dividends or distributions payable in Capital Stock of the Company), or purchase, redeem or otherwise acquire or retire for value any of its Capital Stock or permit any Subsidiary to purchase, redeem or otherwise acquire or retire for value any of the Company's Capital Stock if at the time of any of the aforementioned actions an Event of Default has occurred and is continuing or would exist immediately after giving effect to such action. -21- Notwithstanding the foregoing, the provisions of this Section 4.06 will not prevent (i) the payment of any dividend within 60 days after the date of declaration when the payment would have complied with the foregoing provisions on the date of declaration and (ii) the retirement of any share of the Company's Capital Stock by exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Subsidiary) of, other shares of its Capital Stock. ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 When Company May Merge, etc. ---------------------------- The Company shall not consolidate with or merge into, or transfer all or substantially all of its assets to, another Person in any transaction in which the Company is not the continuing or surviving entity unless (i) the resulting, surviving or transferee Person is a corporation or trust which assumes by supplemental indenture all the obligations of the Company under the Securities of each series and this Indenture; (ii) such corporation or trust is organized and existing under the laws of the United States, a State thereof or the District of Columbia although it in turn may be owned by a foreign entity; (iii)immediately after giving effect to such transaction no Default or Event of Default shall have happened and be continuing, and the Officers' Certificate referred to in the following clause reflects that such Officers are not aware of any such Default or Event of Default that shall have happened and be continuing, and (iv) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture comply with this Indenture, and thereafter all obligations of the Company shall terminate. SECTION 5.02 Successor Corporation or Trust Substituted. ------------------------------------------ Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor corporation or trust formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation or trust has been named as the Company herein. -22- ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default. ----------------- An "Event of Default" occurs if, with respect to any series of Securities: (1) the Company defaults in the payment of interest on any Security of such series when the same becomes due and payable and the default continues for a period of 30 days; (2) the Company defaults in the payment of the principal of (and premium, if any, on) any Security of such series when the same becomes due and payable at maturity, upon redemption or otherwise, and the default continues for five Business Days; (3) the Company fails to comply with any of its other agreements in the Securities of such series or this Indenture and the default continues for the period and after the notice specified in the last paragraph of this Section 6.01; (4) there shall be a default under any bond, debenture, note or other evidence of Indebtedness or under any mortgage, indenture or other instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any Subsidiary, whether any such Indebtedness now exists or shall hereafter be created, if (a) either (i) such event of default results from the failure to pay any such Indebtedness at maturity or (ii) as a result of such event of default, the maturity of such Indebtedness has been accelerated prior to its stated maturity and such acceleration shall not be rescinded or annulled or the accelerated amount paid within ten days after notice to the Company of such or acceleration, or such Indebtedness having been discharged and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal or interest thereon, or the maturity of which has been so accelerated, aggregates $5,000,000 or more; (5) the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding, (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or -23- (D) makes a general assignment for the benefit of its creditors; or (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case or proceeding, (B) appoints a Custodian of the Company or for all or substantially all of its property, or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; provided, however, that a default under this Section 6.01 is not an Event of - -------- ------- Default with respect to any series of Securities if a specified event is either applicable to a particular series other than such series or it is specifically deleted or modified in the supplemental indenture creating such series of Securities or in the form of Security for such series. -24- A default under clause (3) is not an Event of Default with respect to any series of Securities until the Trustee notifies the Company, or the Holders of a majority in principal amount of the Securities of such series then outstanding notify the Company and the Trustee in writing, of the default and the Company does not cure the default within 60 days after receipt of such notice. The notice must specify the default, demand that it be remedied and state that the notice is a "Notice of Default." The Trustee shall give such notice to the Company only if directed to do so in writing by the Holders of a majority in principal amount of the Securities then outstanding. Such notice by the Trustee shall not be deemed to be a certification by the Trustee as to whether an Event of Default has occurred. SECTION 6.02 Acceleration. ------------ If an Event of Default occurs and is continuing with respect to any series of Securities, the Trustee by notice to the Company, or the Holders of a majority in principal amount of the Securities of such series then outstanding by notice to the Company and the Trustee, may declare to be due and payable immediately the principal amount of the Securities of such series plus accrued interest to the date of acceleration. Upon any such declaration, such amount shall be due and payable immediately, and upon payment of such amount all of the Company's obligations with respect to the Securities of such series, other than obligations under Section 7.07, shall terminate. The Holders of a majority in principal amount of the outstanding Securities of such series by written notice to the Trustee may rescind an acceleration and its consequences if (x) all existing Events of Default with respect to the Securities of such series, other than the non-payment of the principal of the Securities of such series, which have become due solely by such declaration of acceleration, have been cured or waived, (y) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal which has become due otherwise than by such declaration of acceleration, has been paid, and (z) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. The Trustee may rely upon such notice of rescission without any independent investigation as to the satisfaction of conditions (x), (y) and (z). SECTION 6.03 Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal (and premium, if any) or interest on the Securities of such series or to enforce the performance of any provision of the Securities of such series or this Indenture. -25- The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04 Waiver of Defaults and Events of Default. ---------------------------------------- Subject to Section 9.02, the Holders of a majority in principal amount of the Securities of any series then outstanding, on behalf of the Holders of the Securities of such series, by written notice to the Trustee may waive a Default or Event of Default with respect to the Securities of such series and its consequences. When a Default or Event of Default is waived with respect to the Securities of any series, it is cured and ceases. SECTION 6.05 Control by Majority. ------------------- The Holders of a majority in principal amount of the Securities of any series then outstanding may direct in writing the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on it with respect to the Securities of such series. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Securityholders, it being understood that (subject to Section 7.01) the Trustee shall have no duty to ascertain whether or not such actions or forebearances are unduly prejudicial to such Securityholders or that may involve the Trustee in personal liability or for which the Trustee does not have adequate indemnification pursuant to Section 7.01(e); provided, -------- that, the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06 Rights of Holders to Receive Payment. ------------------------------------ Notwithstanding any other provision of this Indenture, the right of any Holder of a Security of any series to receive payment of principal of, premium, if any, and interest on such Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. -26- Notwithstanding any other provision of this Indenture (other than Section 3.01), the right of any Holder of any Security to convert such Security or to bring suit for the enforcement of such right shall not be impaired or affected without the written consent of the Holder. SECTION 6.07 Collection Suit by Trustee. -------------------------- If an Event of Default with respect to any series of Securities in payment of interest or principal (and premium, if any) specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities of such series for the whole amount of unpaid principal (and premium, if any) and accrued interest remaining unpaid on the Securities of such series, together with interest on overdue principal (and premium, if any) and to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate borne by the Securities of such series and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.08 Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of Securities of any series allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities of any series), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same. Any Custodian in any such judicial proceeding is hereby authorized by each Securityholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities of any series, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. -27- Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan or reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceedings. SECTION 6.09 Priorities. ---------- If the Trustee collects any money pursuant to this Article 6 with respect to the Securities of any series, it shall pay out the money in the following order: FIRST: to the Trustee for payment of costs and expenses of collection, including all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses and disbursements of the Trustee, its agents and counsel and all other amounts due under Section 7.07; SECOND: to holders of any Senior Indebtedness as required by Article 11; and THIRD: to Holders of Securities of such series for amounts due and unpaid on the Securities of such series for principal of (and premium, if any) and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities of such series for principal (and premium, if any) and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Holders of Securities of any series pursuant to this Section 6.09. SECTION 6.10 Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney's fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.10 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06 or a suit by Holders of more than 10% in principal amount of the Securities of any series then outstanding or a suit by any holder of Senior Indebtedness. -28- SECTION 6.11 Limitations on Suits. -------------------- Subject to Section 6.06, a Holder of any series of Securities may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder has given the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of such series of Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expenses; (4) The Trustee does not comply with the request within 60 days after receipt of the notice, request and offer of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in principal amount of such series of Securities then outstanding. A Holder of any Security may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. ARTICLE 7 TRUSTEE SECTION 7.01 Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default and after the curing or waiving of all such Events of Default which may have occurred: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture, and the Trustee shall not be liable except for the performance of such duties as are specifically set forth in this Indenture, and no others, and no implied covenants or obligation shall be read into this Indenture against the Trustee. -29- (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error in judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (4) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01 and subject to Sections 315 and 316 of the TIA. (e) Subject to subsection (c), the Trustee may refuse to perform any duty or exercise any right or power unless, subject to the provisions of the TIA, it receives indemnity satisfactory to it against any loss, liability, expense or fee. -30- (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02 Rights of Trustee. ----------------- (1) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to Section 13.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (3) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of such agents or attorneys appointed with due care and shall not be responsible for their supervision. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Trustee hereunder in good faith and reliance thereon. -31- (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. SECTION 7.03 Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities of any series and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, is subject to Sections 7.10 and 7.11. SECTION 7.04 Trustee's Disclaimer. -------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities of any series, it shall not be accountable for the Company's use of the proceeds from the Securities of any series, and it shall not be responsible for any statement of the Company in the Indenture or any statement in the Securities of any series other than its certificate of authentication or in any document used in the sale of the Securities of any series other than any statement in writing provided by the Trustee expressly for use in such document. SECTION 7.05 Notice of Defaults. ------------------ If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee with respect to the Securities of any series, the Trustee shall mail to each Holder of Securities of such series notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a default in payment of principal of, premium, if any, or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Holders of Securities of such series. Notwithstanding anything to the contrary expressed in this Indenture, the Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless and until a Trust Officer shall have actual knowledge thereof, or shall have received written notice thereof from the Company at its principal Corporate Trust Office in Chicago, Illinois. The Trustee shall not be deemed to have actual knowledge of an Event of Default hereunder, except in the case of an Event of Default under Sections 6.01(1) or 6.01(2) (provided that the Trustee is the Paying Agent), until a Trust Officer receives written notice thereof from the Company or any Securityholder that such an Event of Default has occurred. -32- SECTION 7.06 Reports by Trustee to Holders. ----------------------------- Within 60 days after each May 15 beginning with May 15 of the first year in which Securities are outstanding hereunder, the Trustee, if required by the provisions of TIA (S) 313(a), shall mail to each Securityholder a brief report dated as of May 15 of such year that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) (S) 313(b) and (S) 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the Commission and each stock exchange on which the Securities of any series are listed. The Company agrees to notify the Trustee in writing whenever the Securities of any series become listed or delisted on or from any stock exchange. SECTION 7.07 Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses may include, but shall not be limited to, the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the Securities or the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity and the Company may elect by written notice to the Trustee to assume the defense of any such claim at the Company's expense with counsel reasonably satisfactory to the Trustee; provided, however, that if the Trustee is advised by counsel that the interests of the Company and the Trustee conflict, the Trustee shall have the right to retain separate counsel. -33- The Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it through the Trustee's negligence or willful misconduct. The Company shall not be liable for any settlement of any claim or action effected without the Company's consent, which consent shall not be unreasonably withheld. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01 occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any applicable bankruptcy or comparable law. SECTION 7.08 Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign with respect to any series of Securities by so notifying the Company. The Holders of a majority in principal amount of the Securities of any series then outstanding may remove the Trustee with respect to such series of Securities by so notifying the Trustee and may appoint a successor Trustee with respect to such series of Securities with the Company's written consent. The Company may remove the Trustee with respect to any series of Securities (or, if clause (4) applies, with respect to all series) if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting with respect to any series of Securities. If the Trustee resigns or is removed with respect to any series of Securities or if a vacancy exists in the office of Trustee with respect to any series of Securities for any reason, the Company shall promptly appoint a successor Trustee with respect to such series. If a successor Trustee with respect to any series of Securities does not take office within 45 days after the retiring Trustee with respect to such series resigns or is removed, the retiring Trustee, the Company or the Holders of a -34- majority in principal amount of the Securities of such series then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. -35- A successor Trustee shall deliver a written acceptance of its appointment with respect to any series of Securities to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall, upon payment of its fees and expenses, transfer all property held by it as Trustee with respect to such series to the successor Trustee, subject to the lien provided for in Section 7.07, the resignation or removal of the retiring Trustee shall become effective with respect to such series, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture with respect to such series. Notwithstanding the replacement of the Trustee with respect to any series of Securities pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee with respect to expenses and liabilities incurred by it and compensation earned by it prior to such replacement or otherwise with respect to the Securities of such series or the Indenture. A successor Trustee with respect to any series of Securities shall mail notice of its succession to each Holder of Securities of such series. SECTION 7.09 Successor Trustee by Merger, etc. --------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10 Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b), including the optional provision permitted by the second sentence of TIA (S) 310(b)(9). SECTION 7.11 Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01 Satisfaction, Discharge and Defeasance of the --------------------------------------------- Securities. ---------- The Company shall be deemed to have paid and discharged the entire indebtedness on the Securities of any series -36- after the date of the deposit referred to in paragraph (a) below, the provisions of this Indenture shall no longer be in effect in respect of the Securities of such series, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of such indebtedness; provided that the following conditions shall have been satisfied: -------- (a) the Company has deposited or caused to be deposited with the Trustee irrevocably as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of all Securities of such series, with reference to this Section 8.01, (i) money or (ii) U.S. Government Obligations or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge the entire indebtedness on all the Securities of such series for principal, premium, if any, and interest, if any, to the maturity date of such series of Securities as such principal, premium, if any, or interest becomes due and payable in accordance with the terms of this Indenture and the Securities; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company in connection with all of the Securities of any series, including all fees and expenses of the Trustee; and (c) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on the Securities and the discharge of this Indenture and the termination of the Company's obligations hereunder have been complied with. -37- "U.S. Government Obligations" means direct, non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the timely payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. SECTION 8.02 Satisfaction and Discharge of Indenture. --------------------------------------- In addition to its rights under Section 8.01, the Company may terminate all of its obligations under this Indenture when: (a) All of the Securities of each series theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07 hereof and (B) Securities for whose payment money has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 2.05 and Section 8.06 hereof) have been delivered to the Trustee for cancellation; and -38- (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company in connection with the outstanding Securities, including all fees and expenses of the Trustee. SECTION 8.03 Survival of Certain Obligations. ------------------------------- Notwithstanding the satisfaction and discharge of this Indenture pursuant to Section 8.01, the respective obligations of the Company specified in Sections 2.04, 2.05, 2.06, 2.07, 2.12, 4.01, 7.07, 8.05, 8.06, 8.07 and in Article 10 shall survive until the Securities are no longer outstanding, and after the Securities are no longer outstanding, or upon compliance with Section 8.02, only the obligations of the Company in such Sections 7.07 and 8.06 shall survive. Nothing contained in this Article Eight shall abrogate any of the obligations or duties of the Trustee under this Indenture. SECTION 8.04 Application of Trust Money. -------------------------- (a) Subject to the provisions of Section 8.06, all money and U.S. Government Obligations deposited with the Trustee for the Securities of any series pursuant to Section 8.01 or Section 8.02, and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee for the Securities of any series pursuant to Section 8.01 or Section 8.02 shall be held in trust and reinvested by the Trustee in U.S. Government Obligations in accordance with the Company's written instructions and applied by the Trustee in accordance with the provisions of the Securities of such series and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, premium, if any, and interest, if any, on the Securities of such series; but such money need not be segregated from other funds except to the extent required by law. -39- (b) The Trustee shall deliver or pay to the Company from time to time upon the Company's written request any U.S. Government Obligations, or money held by it as provided in Section 8.01 or Section 8.02 which, in the written opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations, or money were deposited or received. SECTION 8.05 Paying Agent to Repay Monies Held. --------------------------------- Upon the satisfaction and discharge of this Indenture with respect to the Securities of any series, all monies then held by any Paying Agent for the benefit of Securities of such series under the provisions of this Indenture shall, upon written demand of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such monies. SECTION 8.06 Return of Unclaimed Monies. -------------------------- Any monies deposited with or paid to the Trustee or any Paying Agent for the Securities of any series, or then held by the Company in trust, for the payment of any principal, premium, if any, and interest, if any, on the Securities of any series and not applied but remaining unclaimed by the Holders of the Securities of such series for two years after the date upon which the principal of and interest, if any, on the Securities of such series, as the case may be, shall have become due and payable, shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by such Trustee or any Paying Agent on written demand by the Company or (if then held by the Company) shall be discharged from such trust; and the Holders of the Securities of such series entitled to receive such payment shall thereafter look only to the Company for the payment thereof; provided, however, that, before being required to make any such repayment, such - -------- ------- Trustee may, or shall at the written request of the Company, at the expense of the Company, cause to be published once in an authorized newspaper in the same city in which the place of payment with respect to the Securities of such series shall be located and in an authorized newspaper in the City of New York, or mail to each such Holder, a notice (in such form as may be deemed appropriate by such Trustee) that said monies remain unclaimed and that, after a date named therein, any unclaimed balance of said monies then remaining will be returned to the Company. SECTION 8.07 Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations with respect to the Securities of any series in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of -40- any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.04; provided, however, that if the Company has made -------- ------- any payment of interest on or principal of any Securities of any series because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01 Supplemental Indentures Without Consent of Holders. -------------------------------------------------- The Company, when authorized by Board Resolution, and the Trustee at any time and from time to time, may amend this Indenture or enter into one or more indentures supplemental hereto, to be in a form satisfactory to the Trustee without notice to or consent of any Securityholder for any of the following purposes: (1) to comply with Section 5.01; or (2) to provide for uncertificated Securities in addition to or in place of certificated Securities; or (3) to add to the covenants of the Company, for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series), or to surrender any right or power herein conferred upon the Company; or (4) to add any Events of Default (and if such Events of Default are to be applicable to less than all series of Securities, stating that such Events of Default are expressly being included solely to be applicable to such series); or (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to establish the form or terms of Securities of -41- any series as permitted by Sections 2.01 and 2.02; or (7) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with any provision of this Indenture, provided such other provisions shall not adversely affect the interests of the Holders of Securities of any series in any material respect. SECTION 9.02 Supplemental Indentures with Consent of Holders. ----------------------------------------------- With the written consent of the Holders of not less than a majority in aggregate principal amount of the Securities of each series at the time outstanding affected by such supplemental indenture, the Company, when authorized by Board Resolution, and the Trustee may amend this Indenture or from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as in force at the date of the execution thereof) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture, except as otherwise permitted by Section 9.01, or of modifying in any manner the rights of the Holders of the Securities of each such series. Subject to Section 9.04, without the consent of each Holder of Securities of any series affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) extend the fixed maturity of any Securities, or reduce the principal amount thereof or premium, if any, or reduce the rate or extend the time of payment of interest thereon, without the consent of the Holder of each Security so affected; (2) reduce the aforesaid percentage of Securities of each series, the consent of the Holders of which is required for any such supplemental indenture, without the consent of the Holders of all Securities then outstanding affected thereby; (3) waive (except, unless theretofore cured) a default in the payment of the principal of (and premium, if any on), interest on or redemption amounts with respect to any Security; (4) make any Security payable in money other than that stated in the Security; (5) make any change in Sections 6.04, 6.06 or 9.02 (this sentence); (6) make any change that adversely affects the right -42- to convert any Security; or (7) make any change in Article 11 that adversely affects the rights of any Securityholder. Upon the request of the Company, accompanied by a copy of a Board Resolution certified by the Secretary or an Assistant Secretary of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall mail a notice, setting forth in general terms the substance of such supplemental indenture, to all Holders of Securities of each series so affected as the names and addresses of such Holders shall appear on the registry books. Any failure of the Company so to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03 Compliance with Trust Indenture Act. ----------------------------------- Every amendment or supplement to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04 Revocation and Effect of Consents. --------------------------------- Subject to this Indenture, each amendment, supplement or waiver evidencing other action shall become effective in accordance with its terms. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Security of any series is a continuing consent by the Holder even if notation of the consent is not made on any Security. Any such Holder or subsequent Holder, however, may revoke the consent as to his Security or portion of a Security, if the Trustee receives the notice of revocation before the date the amendment, waiver or other action becomes effective. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were Holders at such record -43- date (or their duly designated proxies) and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consent from Holders of the principal amount of Securities of any series then outstanding required hereunder for such amendment, supplement or waiver to be effective shall have also been given and not revoked within such 90-day period. -44- After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (6) of Section 9.02. In that case the amendment, supplement or waiver shall only bind the Holders of a Security or portion of a Security of the same series. SECTION 9.05 Notation on or Exchange of Securities. ------------------------------------- If an amendment, supplement or waiver changes the terms of a Security of any series, the Trustee may request the Holder of the Security of such series to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determine, the Company in exchange for the Security of such series shall issue and the Trustee shall authenticate a new Security of such series that reflects the changed terms the cost and expense of which will be borne by the Company. SECTION 9.06 Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities of any applicable series theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.07 Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Securities outstanding of such series. ARTICLE 10 CONVERSION OF SECURITIES SECTION 10.01 Right of Conversion; Conversion Price. ------------------------------------- If provided in the Board Resolution or Supplemental Indenture with respect to such series of Securities, the Holder of any Security or Securities of a particular series shall have the right, at his option, at any time after such date as determined by such Board Resolution and before the close of business on such date as determined by such Board Resolution (except that, with -45- respect to any Security or portion of a Security of such series which shall be called for redemption, such right shall terminate at the close of business on the date fixed for redemption of such Security or portion of a Security unless the Company shall default in payment due upon redemption thereof), to convert, subject to the terms and provisions of this Article 10, the principal of any Security or Securities of such series or any portion thereof which is $1,000 principal amount or an integral multiple thereof into shares of common stock of the Company or Securities of another series of Securities, initially at the conversion price per share specified in the Securities of such series; or, in case an adjustment of such price has taken place pursuant to the provisions of Section 10.04, then at the price as last adjusted (such price or adjusted price being referred to herein as the "conversion price"), upon surrender of the Security or Securities, the principal of which is so to be converted, accompanied by written notice of conversion duly executed, to the Company, at any time during usual business hours at the office or agency maintained by it for such purpose, and, if so required by the Conversion Agent or Registrar, accompanied by a written instrument or instruments of transfer in form satisfactory to the Conversion Agent or Registrar duly executed by the Holder or his duly authorized representative in writing. For convenience, the conversion of any portion of the principal of any Security or Securities into shares of common stock of the Company or other Securities is hereinafter sometimes referred to as the conversion of such Security or Securities. SECTION 10.02 Issuance of Shares on Conversion. -------------------------------- As promptly as practicable after the surrender, as herein provided, of any Security or Securities of any series for conversion, the Company shall deliver or cause to be delivered at its said office or agency, to or upon the written order of the Holder of the Security or Securities so surrendered, certificates representing the number of fully paid and nonassessable shares of common stock of the Company or Securities of another series of the Company into which such Security or Securities may be converted in accordance with the provisions of this Article 10. Such conversion shall be deemed to have been made as of the close of business on the date that such Security or Securities shall have been surrendered for conversion by delivery thereof with a written notice of conversion duly executed, so that the rights of the Holder of such Security or Securities as a Securityholder shall cease at such time and, subject to the following provisions of this paragraph, the Person or Persons entitled to receive the shares of common stock or Securities of another series upon conversion of such Security or Securities shall be treated for all purposes as having become the record holder or holders of such shares of common stock or Securities of another series at such time and such conversion shall be at the conversion price in effect at such time; provided, however, that with respect to -------- ------- shares of the Company's common stock, no such surrender on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the Person or Persons entitled to -46- receive the shares of common stock upon such conversion as the record holder or holders of such shares of common stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of common stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the conversion price in effect on the date that such Security or Securities shall have been surrendered for conversion by delivery thereof, as if the stock transfer books of the Company had not been closed. The Company shall give or cause to be given to the Trustee written notice whenever the stock transfer books of the Company shall be closed. -47- Upon Conversion of any Security of any series which is converted in part only, the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Company, a new Security or Securities of such series of authorized denominations in principal amount equal to the unconverted portion of such Security. SECTION 10.03 No Adjustment for Interest or Dividends. --------------------------------------- No payment or adjustment in respect of interest on the Securities of any series or dividends on the shares of common stock shall be made upon the conversion of any Security or Securities; provided, however, that if a Security -------- ------- of any series or any portion thereof shall be converted subsequent to any regular record date and on or prior to the next succeeding interest payment date, the interest falling due on such interest payment date shall be payable on such interest payment date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name such Security is registered at the close of business on such regular record date and Securities surrendered for conversion during the period from the close of business on any regular record date to the opening of business on the corresponding interest payment date must be accompanied by payment of an amount equal to the interest payable on such interest payment date. SECTION 10.04 Adjustment of Conversion Price. ------------------------------ (1) With respect to any series of Securities that is convertible into shares of the Company's common stock, in case the Company shall pay or make a dividend or other distribution on any class of Capital Stock of the Company in shares of common stock, the conversion price for any series of Securities in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of common stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (2) With respect to any series of Securities that is convertible into shares of the Company's common stock, in case the Company shall issue rights or warrants to all or substantially all holders of its shares of common stock entitling them to subscribe for or purchase shares of common stock at a price per share (or having a conversion price per share) less than the current market price per share (determined as provided in paragraph (6) of this Section) of the shares of common stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the conversion price for any series of Securities in -48- effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of common stock which the aggregate of the subscription price of the total number of shares of common stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of common stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. In the event that all of the shares of common stock subject to such rights or warrants have not been issued when such rights or warrants expire, then the conversion price shall promptly be readjusted to the conversion price which would then be in effect had the adjustment upon the issuance of such rights or warrants been made on the basis of the actual number of shares of common stock issued upon the exercise of such rights or warrants. For the purposes of this paragraph (2), the number of shares of common stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of common stock. The Company will not issue any rights or warrants in respect of shares of common stock held in the treasury of the Company. (3) With respect to any series of Securities that is convertible into shares of the Company's common stock, in case the outstanding shares of common stock shall be subdivided into a greater number of shares, the conversion price for any series of Securities in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of common stock shall each be combined into a smaller number of shares, the conversion price for any series of Securities in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) With respect to any series of Securities that is convertible into shares of the Company's common stock, in case the Company shall, by dividend or otherwise, distribute to all or substantially all holders of shares of common stock evidences of indebtedness or assets (including securities, but excluding (i) any rights or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution not prohibited by Section 4.06 hereof and (iii) any dividend or distribution referred to in paragraph (1) of this Section), the conversion price for any series of Securities shall be adjusted so that the -49- same shall equal the price determined by multiplying the conversion price in effect immediately prior to the close of business on the day fixed for the determination of shareholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (6) of this Section) of the shares of common stock on the date fixed for such determination less the then fair market value as determined by the Board of Directors of the Company (whose determination shall be conclusive and described in a resolution of the Board of Directors of the Company filed with the Trustee) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of common stock and the denominator shall be such current market price per share of the shares of common stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution. (5) With respect to any series of Securities that is convertible into shares of the Company's common stock, in case the shares of common stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or a stock dividend described in paragraph (1) or paragraph (3) of this Section, or a consolidation, merger or sale of assets described in Section 10.10), then and in each such event the Holders of Securities of any series shall have the right thereafter to convert such Securities into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of common stock into which such Securities might have been converted immediately prior to such reorganization, reclassification or change. (6) For the purpose of any computation under paragraphs (2) and (4) of this Section, the current market price per share of common stock on any date shall be deemed to be the average of the Closing Prices for the 15 consecutive Business Days selected by the Company commencing not more than 30 and not less than 20 Business Days before the date in question. (7) No adjustment in the conversion price for the Securities of any series shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (7)) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (7) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (7) shall be made to the nearest cent. (8) The Company may, but shall not be required to, make such reductions in the conversion price for the Securities of any series, in addition to those required by paragraph (1), (2), -50- (3) and (4) of this Section, as the Board of Directors of the Company considers to be advisable in order to avoid or diminish any income tax to any holders of shares of common stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Company's Board of Directors of the Company shall have the power to resolve any ambiguity or correct any error in the adjustments made pursuant to this Section 10.04 and its actions in so doing shall be final and conclusive. (9) The adjustments provided for in this Section 10.04 shall be made successively whenever any event listed above shall occur. SECTION 10.05 Notice of Adjustment of Conversion Price. ---------------------------------------- Whenever the conversion price for the Securities of any series is adjusted as herein provided: (a) the Company shall compute the adjusted conversion price in accordance with Section 10.04 and shall prepare an Officers' Certificate setting forth the adjusted conversion price and showing the facts upon which such adjustment is based and the computation thereof, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 2.04 and with the Trustee; and (b) a notice stating that the conversion price has been adjusted and setting forth the adjusted conversion price shall as soon as practicable be mailed by the Company to all Holders of Securities of such series at their last addresses as they shall appear in the Security Register. -51- (c) If the conversion price is adjusted and the Company fails to file an Officers' Certificate with the Trustee as provided by Section 10.05(a) and the Trustee is acting as the Conversion Agent, the Trustee shall be entitled to rely conclusively on the conversion price set forth in the Officer's Certificate most recently received by the Trustee (or as set forth in this Indenture if the conversion price shall not have been adjusted). SECTION 10.06 Notice of Certain Corporate Action. ---------------------------------- (1) In case: (a) the Company shall authorize the granting to holders of its shares of common stock of rights or warrants entitling them to subscribe for or purchase any shares of Capital Stock of any class or of any other rights; or (b) of an y reclassification of the shares of common stock of the Company, or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities of any series pursuant to Section 2.04 and shall cause to be mailed to all Holders of Securities of such series that are convertible into shares of the Company's common stock at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the Holders of shares of common stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of shares of common stock of record shall be entitled to exchange their shares of common stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Such notice shall also state whether such transaction will result in any adjustment in the conversion price applicable to the Securities of such series and, if so, shall state what the adjusted conversion price will be and when it will become effective. Neither the failure to give the notice required by -52- this Section, nor any defect therein, to any particular Holder shall affect the sufficiency of the notice or the legality or validity of any such dividend, distribution, right, warrant, reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding-up, or the vote on any action authorizing such with respect to the other holders. -53- (2) In case the Company or any Affiliate of the Company shall propose to engage in a "Rule 13e-3 Transaction" as defined in the Commission's Rule 13e- 3 under the Exchange Act, the Company shall, no later than the date on which any information with respect to such Rule 13e-3 Transaction is first required to be given to the Commission or any other Person pursuant to such Rule 13e-3, cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, a copy of all information required to be given to the holders of the Company's Capital Stock pursuant to such Rule 13e-3. The information required to be given under this paragraph shall be in addition to and not in lieu of any other information required to be given by the Company pursuant to this Section 10.06 or any other provision of the Securities or this Indenture. SECTION 10.07 Taxes on Conversions. -------------------- The Company will pay any and all stamp or similar taxes that may be payable in respect of the issuance or delivery of shares of common stock or Securities of another series on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of common stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. SECTION 10.08 Fractional Shares. ----------------- No fractional shares or scrip representing fractional shares shall be issued upon any conversion of Securities. If any such conversion would otherwise require the issuance of a fractional share an amount equal to such fraction multiplied by the current market price per share of common stock (determined as provided in paragraph (6) of Section 10.04) on the day of conversion shall be paid to the Holder in cash by the Company. SECTION 10.09 Cancellation of Converted Securities. ------------------------------------ All Securities delivered for conversion shall be delivered to the Trustee or the Conversion Agent to be canceled by or at the direction of the Trustee or the Conversion Agent, which shall dispose of the same as provided in Section 2.10. SECTION 10.10 Provisions in Case of Consolidation, Merger or Sale of Assets. ------------------------------------------------------------- (1) In case of any consolidation of the Company with, or merger of the Company into, any other corporation or trust, or in case of any merger of another corporation or trust into the Company (other than a consolidation or merger which does not result in any reclassification, conversion, exchange or -54- cancellation of outstanding shares of common stock of the Company), or in case of any sale or transfer of all or substantially all of the assets of the Company, the corporation or trust formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security of any series then outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 10.01 to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of common stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, sale or transfer. Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales or transfers. -55- (2) The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or securities or property receivable by Holders upon the conversion of their Securities after any such reclassification, change, consolidation, merger, sale or conveyance or to any adjustment to be made with respect thereto. SECTION 10.11 Disclaimer by Trustee of Responsibility for Certain Matters. ----------------------------------------------------------- The Trustee shall not at any time be under any duty or responsibility to any Holder of Securities of any series to determine whether any facts exist which may require any adjustment of the conversion price for such series, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee shall not be accountable with respect to the validity, value, kind or amount of any shares of common stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Security; and it makes no representation with respect thereto. The Trustee shall not be responsible for any failure of the Company to issue, transfer or deliver any shares of common stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion or, subject to Section 7.01, to comply with any of the covenants of the Company contained in this Article. SECTION 10.12 Covenant to Reserve Shares. -------------------------- The Company covenants that it will at all times reserve and keep available, free from preemptive rights, out of its authorized shares of common stock, solely for the purpose of issuance upon conversion of Securities as herein provided, such number of shares of common stock as shall then be issuable upon the conversion of all outstanding Securities. The Company covenants that all shares of common stock which shall be so issuable shall be, when issued, duly and validly issued and fully paid and non-assessable. For purposes of this Section 10.12, the number of shares of common stock which shall be deliverable upon the conversion of all outstanding Securities shall be computed as if at the time of computation all outstanding Securities were held by a single holder. ARTICLE 11 SUBORDINATION; SENIORITY SECTION 11.01 Securities Subordinated to Senior Indebtedness. ---------------------------------------------- (a) Securities of any series which by their terms are subordinated and junior in right of payment of the principal of, premium, if any, and interest (all of the foregoing, a "Payment or -56- Distribution") on such Securities ("Junior Securities") to the prior payment in full of any Senior Indebtedness whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed, shall comply with the provisions of this Article 11, and each Holder of Junior Securities of such series by his acceptance thereof likewise agrees. A Payment or Distribution shall include any asset of any kind or character, and may consist of cash, securities or other property, by set-off or otherwise, and shall include, without limitation, any purchase, redemption or other acquisition of Junior Securities of the series or the making of any deposit of funds or securities pursuant to this Indenture (including, without limitation, any deposit pursuant to Article 8 hereof). (b) The Senior Indebtedness of the Company shall continue to be Senior Indebtedness and entitled to the benefit of these subordination provisions irrespective of any amendment, modification or waiver of any term of any instrument relating to refinancing of the Senior Indebtedness. (c) All the provisions of this Indenture and the Junior Securities of any series shall be subject to the provisions of this Article 11 so far as they may be applicable thereto, except that nothing in this Article 11 shall apply to claims for, or payments to, the Trustee under or pursuant to Section 7.07. (d) No right of any holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any failure to act on the part of the Company, any Paying Agent, the Holders of the Junior Securities of any series, the Trustee or the holders of the Senior Indebtedness, or by any noncompliance by the Company, any Paying Agent, the Holders of the Junior Securities of any series or the Trustee with any of the terms, provisions and covenants of the Securities or this Indenture, regardless of any knowledge thereof that any such holder of Senior Indebtedness may have or be otherwise charged with. -57- (e) In the event that the Junior Securities of any series are declared due and payable before their expressed maturity because of the occurrence of a default hereunder, the Company will give prompt notice in writing of such happening to the holders of Senior Indebtedness. SECTION 11.02 Company Not to Make Payments with Respect to Junior Securities in ----------------------------------------------------------------- Certain Circumstances. --------------------- No Payment or Distribution shall be made by the Company, the Trustee or the Paying Agent on account of principal of (or premium, if any) or interest on the Junior Securities of any series, whether upon stated maturity, upon redemption or acceleration, or otherwise, or on account of the purchase or other acquisition of Junior Securities of such series, whether upon stated maturity, upon redemption or acceleration, or otherwise, if there shall have occurred and be continuing a default with respect to any Senior Indebtedness permitting the acceleration thereof or with respect to the payment of any Senior Indebtedness and (a) such default is the subject of a judicial proceeding or (b) notice of such default in writing or by telegram has been given to the Company by any holder or holders of any Senior Indebtedness, unless and until the Company shall have received written notice from such holder or holders that such default or event of default shall have been cured or waived or shall have ceased to exist. Upon any acceleration of the principal of the Junior Securities of any series or any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash, or payment thereof provided for to the satisfaction of the holders thereof, before any Payment or Distribution is made on account of the redemption price or principal of (and premium, if any) or interest on the Junior Securities of such series; and (subject to the power of a court of competent jurisdiction to make other equitable provision, which shall have been determined by such court to give effect to the rights conferred in this Article upon the Senior Indebtedness and the holders thereof with respect to the Junior Securities of such series or the Holders thereof or the Trustee, by a lawful plan of reorganization or readjustment under applicable law) upon any such dissolution or winding up or liquidation or reorganization, any Payment or Distribution by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Junior Securities of any series or the Trustee would be entitled except for the provisions of this Article, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such Payment or Distribution directly to the holders of Senior Indebtedness of the Company or their representative or representatives, or to the -58- trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in cash, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any Payment or Distribution is made to the Holders of the Securities of such series or to the Trustee, except that the Trustee will have a lien for the payment of its fees and expenses. In the event that, notwithstanding the foregoing, any Payment or Distribution by the Company of any kind or character, whether such payment shall be in cash, property or securities, prohibited by the foregoing, and the Company shall have made payment to the Trustee or the Holders of the Junior Securities of any series before all Senior Indebtedness is paid in full in cash, or provision is made for such payment to the satisfaction of the holders thereof, and if such fact shall then have been or thereafter be made known to a Trust Officer of the Trustee or, as the case may be, such Holder, then and in such event such Payment or Distribution shall be paid over by the Trustee (if the Notice required by Section 11.05 has been received by the Trustee) or such Holder or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash, after giving effect to any concurrent Payment or Distribution to or for the holders of such Senior Indebtedness, and, until so delivered, the same shall be held in trust by any Holder of a Junior Security as the property of the holders of Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. Nothing in this Section shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. -59- The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holders of the Junior Securities of any series, without incurring responsibility to the Holders of the Junior Securities of such series and without impairing or releasing the obligations of the Holders of the Junior Securities of such series hereunder to the holders of Senior Indebtedness: (i) change the manner, place or terms of payment or change or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and/or (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 11.03 Subrogation of Junior Securities. -------------------------------- Subject to the payment in full in cash of all amounts then due (whether by acceleration of the maturity thereof or otherwise) on account of all Senior Indebtedness at the time outstanding, the Holders of the Junior Securities of any series shall be subrogated to the rights of the holders of Senior Indebtedness to receive Payments or Distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full; and, for the purposes of such subrogation, no Payments or Distributions to the holders of Senior Indebtedness to which the Holders of the Junior Securities of any series or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Junior Securities of any series or the Trustee, shall, as between the Company, the Company's creditors other than holders of Senior Indebtedness, and the Holders of the Junior Securities of such series, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. It is understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Junior Securities of any series, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities of each series, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities of any series the principal of (and premium, if any) and interest on the Securities of such series as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Junior Securities of any series and creditors of the Company other than -60- the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Junior Security of any series from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. -61- Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 7.01, and the Holders of the Junior Securities of any series shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding up, liquidation or reorganization proceedings are pending, or certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Junior Securities of such series, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 11.04 Authorization by Holders of Junior Securities. --------------------------------------------- Each holder of a Junior Security of any series by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the Holder of the Junior Security and the holders of Senior Indebtedness, the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes including, without limitation, to execute, verify, deliver and file any proofs of claim which any holder of Senior Indebtedness may at any time require in order to prove and realize upon any rights or claims pertaining to the Securities and to effectuate the full benefit of the subordination contained herein. Upon failure of the Trustee so to do, any such holder of Senior Indebtedness shall be deemed to be irrevocably appointed the agent and attorney-in-fact of the Holder to execute, verify, deliver and file any such proofs of claim. SECTION 11.05 Notices to Trustee. ------------------ The Company shall give prompt written notice to the Trustee of any fact known to it which would prohibit the making of any payment of moneys to or by the Trustee in respect of the Junior Securities of any series pursuant to the provisions of this Article. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of moneys to or by the Trustee in respect of the Junior Securities of any series pursuant to the provisions of this Article, unless and until a Trust Officer of the Trustee shall have received at its Corporate Trust Office written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 7.01, shall be entitled in all respects to assume that no such facts exist; provided, however, -------- ------- that if a Trust Officer of the Trustee shall not have received at least three Business Days prior to the date upon which by the terms hereof any such moneys may become payable for any -62- purpose (including, without limitation, the payment of the principal of (premium, if any) or interest on any Junior Security of any series) with respect to such moneys the notice provided for in this Section, then, anything herein contained to the contrary notwithstanding, the Trustee shall have the full power and authority to receive such moneys and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date. The Trustee shall be entitled to rely conclusively on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a trustee or agent on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 11.06 Trustee's Relation to Senior Indebtedness. ----------------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 7.11 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. -63- With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holder if it shall mistakenly pay over or distribute to Holders of the Junior Securities of any series or the Company or any other Person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 11.07 No Impairment of Subordination. ------------------------------ No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, the Trustee or the Holder of any of the Securities of any series or by any act, or failure to act, in good faith, by any such holder of Senior Indebtedness, or by any noncompliance by the Company, the Trustee or the Holder of any of the Securities of any series with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. SECTION 11.08 Article 11 Not To Prevent Events of Default. ------------------------------------------- The failure to make a payment on account of principal of (premium, if any) or interest on the Junior Securities of any series by reason of any provision in this Article 11 shall not be construed as preventing the occurrence of an Event of Default with respect to such series under Section 6.01. SECTION 11.09 Paying Agents other than the Trustee. ------------------------------------ In any case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 11 in addition to or in place of the Trustee. SECTION 11.10 Securities Senior to Subordinated Indebtedness. ---------------------------------------------- The indebtedness represented by the Securities of any series will be senior and prior in right of payment to all Subordinated Indebtedness, to the extent and in the manner provided in such Subordinated Indebtedness. -64- ARTICLE 12 SINKING FUND SECTION 12.01 Mandatory and Optional Sinking Fund Payments. -------------------------------------------- The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series, except as otherwise permitted or required by any form of Security of a series issued pursuant to this Indenture. The minimum amounts of any sinking fund payments provided for by the terms of Securities of any series are herein referred to as "mandatory sinking fund payments", and any payments in excess of those minimum amounts provided for by the terms of Securities of that series are herein referred to as "optional sinking fund payments". If provided for by the terms of the Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of that series. SECTION 12.02 Satisfaction of Sinking Fund Payments with Securities. ----------------------------------------------------- The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series, as provided for by the terms of that series (1) deliver to the Holders of outstanding Securities of that series (other than any of such Securities previously called for redemption or any of such Securities by mandatory sinking fund payment in respect of which cash shall have been released to the Company), (2) apply as a credit Securities of that series which have been redeemed either at the election of the Company pursuant to the terms of that series of Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, provided that no Securities of such series have been previously so credited and (3) apply as a credit Securities of that series which have been converted or exchanged into shares of the Company's common stock or Securities of another series pursuant to the terms of that series of Securities, provided that such series of Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section, the principal amount of Securities of that series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of that series for redemption, except upon the request of the Company, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any -65- cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series purchase by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company. SECTION 12.03 Redemption of Securities for Sinking Funds. ------------------------------------------ Not less than 60 days prior to each mandatory sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivery or credit of Securities pursuant to Section 12.02 hereof, and the optional amount, if any, to be added in cash to the mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officers' Certificate shall specify an optional amount to be added in cash to the mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 hereof and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.03 hereof. ARTICLE 13 MISCELLANEOUS SECTION 13.01 Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provisions shall control. SECTION 13.02 Notices. ------- Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, or first class mail, postage prepaid (except that any notice by the Trustee to the Company of a default or an Event of Default under this Indenture shall be by registered or certified mail, postage prepaid, return receipt requested), or by a nationally-recognized overnight express courier service (which notices or communications shall be deemed received the business day after the receipt thereof by such service), addressed as follows: -66- if to the Company: Assisted Living Concepts, Inc. 9955 S.E. Washington, Suite 201 Portland, Oregon 97216 Attention: President if to the Trustee: Harris Trust and Savings Bank 311 West Monroe Street 12th Floor Chicago, IL 60606 Attention: Corporate Trust Department The Company or the Trustee by notice to the other may designate additional or different addresses as shall be furnished in writing by either party. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered, and five (5) calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Securityholder shall be mailed to the address of such Securityholder as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice, as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. If the Company mails any notice or communication to Securityholders, it shall mail a copy to the Trustee and all Agents at the same time. SECTION 13.03 Communications by Holders with Other Holders. -------------------------------------------- Securityholders of any series may communicate pursuant to TIA (S) 312(b) with other Securityholders of such series with respect to their rights under this Indenture or the Securities of such series. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). -67- SECTION 13.04 Certificate and Opinion as to Conditions ---------------------------------------- Precedent. --------- Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 13.05) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 13.05) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05 Statements Required in Certificate and Opinion. ---------------------------------------------- Each Certificate and Opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and -68- (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. SECTION 13.06 Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Conversion Agent may make reasonable rules for its functions. SECTION 13.07 Record Date. ----------- Whenever the Company or the Trustee solicits an act of Securityholders of any series, the Company or the Trustee may fix in advance of the solicitation of such act a date as the record date for determining Securityholders of such series entitled to perform said act. The record date shall be not more than 15 days prior to the date fixed for the solicitation of said act. SECTION 13.08 Legal Holidays. -------------- A "Legal Holiday" is a Saturday, a Sunday or a day on which banks or trust companies in the city in which either the Trustee or the Company is located are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. -69- SECTION 13.09 Governing Law. ------------- THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 13.10 No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.11 No Recourse Against Others. -------------------------- No shareholder, director or officer, as such, past, present or future, of the Company or of any successor corporation or trust shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security of any series by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. SECTION 13.12 Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 13.13 Multiple Counterparts. --------------------- The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement. SECTION 13.14 Table of Contents, Headings, etc. -------------------------------- The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 13.15 Severability. ------------ In case any provision in this Indenture or in the Securities of any series shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. -70- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. ASSISTED LIVING CONCEPTS, INC. By: /s/ Stephen Gordon __________________________________ Name: Steven Gordon Title: Chief Financial Officer and Chief Administrative Officer This rest of this page intentionally left blank. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. HARRIS TRUST AND SAVINGS BANK, as Trustee By: /s/ Dan Donovan _______________________________ Authorized Officer The rest of this page intentionally left blank. EX-10.1 3 RESTRICTED STOCK AGREEMENT DATED 10/3/97 EXHIBIT 10.1 RESTRICTED STOCK AGREEMENT FOR EMPLOYEES ---------------------------------------- THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), effective as of October 3, 1997, between Assisted Living Concepts, Inc., a Nevada corporation (the "Company"), and William McBride III, an employee of the Company (the employee is hereinafter referred to as the "Employee"): WHEREAS, the Company has established the Assisted Living Concepts, Inc. Amended and Restated 1994 Stock Option Plan (the "Plan"); and WHEREAS, the Company wishes to carry out the Plan (the terms of which are hereby incorporated by reference and made a part of this Agreement); and WHEREAS, the Plan provides for the issuance of shares of Common Stock, par value $.01 per share, subject to certain restrictions thereon (hereinafter referred to as "Restricted Stock"); and WHEREAS, the Compensation Committee of the Company's Board of Directors, appointed to administer the Plan, has determined that it would be to the advantage and best interest of the Company and its stockholders to issue the Restricted Stock provided for herein to the Employee in consideration of the Employee's past and future services to the Company and other good and valuable consideration provided for herein, and has advised the Company thereof and instructed the undersigned officers to issue said Restricted Stock; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE 1 DEFINITIONS ----------- Whenever the following terms are used in this Agreement they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. All capitalized terms used herein without definition shall have the meaning ascribed to such terms in the Plan. Section 1.1 - Board - ----------- ----- "Board" shall mean the Board of Directors of the Company. Section 1.2 - Cause - ----------- ----- "Cause" shall have the meaning ascribed to such term in the Employee's employment agreement with the Company or a Subsidiary; provided, however, that -------- ------- if "Cause" is not defined therein or if no such employment agreement is then in effect, then "Cause" shall have such meaning, in conformance with applicable law, as the Committee, in its sole and absolute discretion, shall determine is appropriate. Section 1.3 - Code - ----------- ---- "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.4 - Committee - ----------- --------- "Committee" shall mean the Compensation Committee of the Board, appointed as provided in the Plan. Section 1.5 - Company - ----------- ------- "Company" shall mean Assisted Living Concepts, Inc., a Nevada corporation. Section 1.6 - Employment Agreement - ----------- -------------------- "Employment Agreement" shall mean that certain employment agreement between the parties which is being executed and delivered contemporaneously herewith, as it may be amended from time to time by the parties. Section 1.7 - Exchange Act - ----------- ------------ "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.8 - Plan - ----------- ---- "Plan" shall mean the Assisted Living Concepts, Inc. Amended and Restated 1994 Stock Option Plan, as amended from time to time. Section 1.9 - Restricted Stock - ----------- ---------------- "Restricted Stock" shall mean Common Stock of the Company issued under this Agreement and subject to the Restrictions imposed hereunder. Section 1.10 - Restrictions - ------------ ------------ "Restrictions" shall mean the restrictions on sale or other transfer set forth in Section 4.2 and the exposure to forfeiture set forth in Section 3.1. 2 Section 1.11 - Secretary - ------------ --------- "Secretary" shall mean the Secretary of the Company. Section 1.12 - Subsidiary - ------------ ---------- "Subsidiary" shall mean any corporation in which stock possessing fifty percent or more of the total combined voting power, or fifty percent or more of the value, of all classes of stock is owned directly or indirectly by the Company. ARTICLE 2 ISSUANCE OF RESTRICTED STOCK ---------------------------- In consideration of the execution by the Employee of the Employment Agreement and for other good and valuable consideration, on the date hereof the Company irrevocably issues to the Employee 200,000 shares of its $.01 par value Common Stock upon the terms and conditions set forth in this Agreement. ARTICLE 3 RESTRICTIONS ------------ Section 3.1 - Forfeiture of Restricted Stock - ----------- ------------------------------ Immediately upon a termination of employment under the Employment Agreement for Cause or by reason of voluntary resignation (not for "Good Reason" as defined in the Employment Agreement), the Employee's rights in the Restricted Stock then subject to Restrictions shall be forfeited. Section 3.2 - Legend - ----------- ------ Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all Restrictions lapse or shall have been removed and new certificates are issued pursuant to Section 3.3, bear the following legend: "The shares represented by this certificate are subject to reacquisition by Assisted Living Concepts, Inc., and such shares may not be sold or otherwise transferred except pursuant to the provisions of the Restricted Stock Agreement by and between Assisted Living Concepts, Inc. and the registered owner of such shares." Section 3.3 - Lapse of Restrictions - ----------- --------------------- (a) Subject to Sections 3.1, 3.4, and 3.5, the Restrictions shall lapse in four (4) cumulative installments commencing on the fourth anniversary of the date of this Agreement 3 as follows: on the forth, fifth, sixth, and seventh anniversaries of the date of this Agreement, twenty-five percent (25%) of the shares of Restricted Stock and the Restrictions on such shares shall lapse. (b) Upon the lapse of the Restrictions, the Company shall cause new certificates to be issued with respect to such shares and delivered to the Employee or his legal representative, free from the legend provided for in Section 3.2 and any of the other Restrictions. Notwithstanding the foregoing, no such new certificate shall be delivered to the Employee or his legal representative unless and until the Employee or his legal representative shall have paid to the Company in cash the full amount of all federal and state withholding or other employment taxes applicable to the taxable income of the Employee resulting from the grant of Restricted Stock or the lapse or removal of the Restrictions. Section 3.4 - Removal of Restrictions; Acceleration of Lapse of Restrictions, - ----------- --------------------------------------------------------------- Etc. - ---- (a) By resolution, the Committee may, on such terms and conditions as it deems appropriate, remove any or all of the Restrictions. (b) Subject to Section 3.5, if the shares of the Company's Common Stock as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, the Committee, in its sole and absolute discretion, shall have the discretion and power to determine and to make effective provision for acceleration of the time or times at which any Restrictions shall lapse or be removed. In addition, in the case of the occurrence of any event described in this subsection 3.4, the Committee, subject to the provisions of the Plan and this Agreement, shall make an appropriate and proportionate adjustment in the number and kind of shares of Restricted Stock, to the end that after such event the Employee's proportionate interest shall be maintained as before the occurrence of such event. Any such adjustment made by the Committee shall be final and binding upon the Employee, the Company and all other interested persons. Section 3.5 - Lapse of Restrictions - ----------- --------------------- The Restrictions shall lapse, and the Restricted Stock shall cease to be subject to forfeiture under Section 3.1, in the event that Employee shall be entitled to the termination benefits payable under Section 6(a) or 6(b) of the Employment Agreement. Section 3.6 - Restrictions On New Shares - ----------- -------------------------- In the event that the Employee receives any new or additional or different shares or securities by reason of any transaction or event described in subsection 3.4, such new or additional or different shares or securities which are attributable to the Employee in his capacity as the owner of the Restricted Stock then subject to Restrictions, shall be considered to be Restricted Stock and shall be subject to all of the Restrictions, unless the Committee provides, pursuant to Section 3.4, for the removal or lapse of the Restrictions on the shares of 4 Restricted Stock underlying the distribution of the new or additional shares or securities, or unless the Restrictions automatically lapse pursuant to Section 3.5. ARTICLE 4 MISCELLANEOUS ------------- Section 4.1 - Administration - ----------- -------------- The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or the Restricted Stock. Section 4.2 - Restricted Stock Not Transferable - ----------- --------------------------------- Restricted Stock (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall be subject to the following Restrictions until such Restrictions lapse or shall be removed pursuant to this Agreement: Neither the Restricted Stock nor any interest or right therein or part thereof shall be liable for the debts, contracts, or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.2 -------- ------- shall not prevent transfers by will or by the applicable laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder. Section 4.3 - Conditions to Issuance of Stock Certificates - ----------- -------------------------------------------- Shares of Restricted Stock may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange 5 Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience; and (e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax. Section 4.4 - Escrow - ----------- ------ The Secretary or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing the Restricted Stock, including shares of Restricted Stock issued pursuant to Section 3.4, until all of the Restrictions lapse or shall have been removed; provided, -------- however, that in no event shall the Employee retain physical custody of any - ------- certificates representing Restricted Stock issued to him. Section 4.5 - Notices - ----------- ------- Any notice to be given by the Employee under the terms of this Agreement shall be addressed to the Secretary of the Company or his office. Any notice to be given to the Employee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 4.6 - Rights as Stockholder - ----------- --------------------- Except as otherwise provided herein, upon the delivery of Restricted Stock to the escrow holder pursuant to Section 4.4, the holder of the Restricted Stock shall have all the rights of a stockholder with respect to the Restricted Stock (excluding the right to vote the Restricted Stock), including the right to receive all dividends or other distributions paid or made with respect to the Restricted Stock; provided, however, that any and all shares of Common Stock -------- ------- received by holders of Restricted Stock with respect to such Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization shall also be subject to the Restrictions until the Restrictions on the underlying shares of Restricted Stock lapse or are removed pursuant to this Agreement. 6 Section 4.7 - Titles - ----------- ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 4.8 - Construction - ----------- ------------ This Agreement shall be administered, interpreted and enforced under the internal laws of the state of incorporation of the Company without regard to the principles of conflicts of laws thereof. Section 4.9 - Conformity to Securities Laws - ----------- ----------------------------- The Employee acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to the Securities Act of 1933, as amended, and the Exchange Act) and to such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Restricted Stock is granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan, this Agreement and the Restricted Stock shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 4.10 - Amendments - ------------ ---------- This Agreement and the Plan may be amended without the consent of the Employee provided that such amendment would not impair any rights of the Employee under this Agreement. No amendment of this Agreement shall, without the consent of the Employee, impair any rights of the Employee under this Agreement. 7 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. ASSISTED LIVING CONCEPTS, INC., a Nevada corporation. By /s/ Stephen Gordon Name: Chief Financial Officer Title: Stephen Gordon Employee /s/ William McBride III William McBride III Address Employee's Taxpayer Identification Number: ------------------------------------------ 8 EX-10.2 4 RESTRICTED STOCK AGREEMENT DATED 10/3/97 EXHIBIT 10.2 RESTRICTED STOCK AGREEMENT FOR EMPLOYEES ---------------------------------------- THIS RESTRICTED STOCK AGREEMENT (the "Agreement"), effective as of October 3, 1997, between Assisted Living Concepts, Inc., a Nevada corporation (the "Company"), and Keren Brown Wilson, an employee of the Company (the employee is hereinafter referred to as the "Employee"): WHEREAS, the Company has established the Assisted Living Concepts, Inc. Amended and Restated 1994 Stock Option Plan (the "Plan"); and WHEREAS, the Company wishes to carry out the Plan (the terms of which are hereby incorporated by reference and made a part of this Agreement); and WHEREAS, the Plan provides for the issuance of shares of Common Stock, par value $.01 per share, subject to certain restrictions thereon (hereinafter referred to as "Restricted Stock"); and WHEREAS, the Compensation Committee of the Company's Board of Directors, appointed to administer the Plan, has determined that it would be to the advantage and best interest of the Company and its stockholders to issue the Restricted Stock provided for herein to the Employee in consideration of the Employee's past and future services to the Company and other good and valuable consideration provided for herein, and has advised the Company thereof and instructed the undersigned officers to issue said Restricted Stock; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE 1 DEFINITIONS ----------- Whenever the following terms are used in this Agreement they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. All capitalized terms used herein without definition shall have the meaning ascribed to such terms in the Plan. Section 1.1 - Board - ----------- ----- "Board" shall mean the Board of Directors of the Company. Section 1.2 - Cause - ----------- ----- "Cause" shall have the meaning ascribed to such term in the Employee's employment agreement with the Company or a Subsidiary; provided, however, that -------- ------- if "Cause" is not defined therein or if no such employment agreement is then in effect, then "Cause" shall have such meaning, in conformance with applicable law, as the Committee, in its sole and absolute discretion, shall determine is appropriate. Section 1.3 - Code - ----------- ---- "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.4 - Committee - ----------- --------- "Committee" shall mean the Compensation Committee of the Board, appointed as provided in the Plan. Section 1.5 - Company - ----------- ------- "Company" shall mean Assisted Living Concepts, Inc., a Nevada corporation. Section 1.6 - Employment Agreement - ----------- -------------------- "Employment Agreement" shall mean that certain employment agreement between the parties which is being executed and delivered contemporaneously herewith, as it may be amended from time to time by the parties. Section 1.7 - Exchange Act - ----------- ------------ "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.8 - Plan - ----------- ---- "Plan" shall mean the Assisted Living Concepts, Inc. Amended and Restated 1994 Stock Option Plan, as amended from time to time. Section 1.9 - Restricted Stock - ----------- ---------------- "Restricted Stock" shall mean Common Stock of the Company issued under this Agreement and subject to the Restrictions imposed hereunder. Section 1.10 - Restrictions - ------------ ------------ "Restrictions" shall mean the restrictions on sale or other transfer set forth in Section 4.2 and the exposure to forfeiture set forth in Section 3.1. 2 Section 1.11 - Secretary - ------------ --------- "Secretary" shall mean the Secretary of the Company. Section 1.12 - Subsidiary - ------------ ---------- "Subsidiary" shall mean any corporation in which stock possessing fifty percent or more of the total combined voting power, or fifty percent or more of the value, of all classes of stock is owned directly or indirectly by the Company. ARTICLE 2 ISSUANCE OF RESTRICTED STOCK ---------------------------- In consideration of the execution by the Employee of the Employment Agreement and for other good and valuable consideration, on the date hereof the Company irrevocably issues to the Employee 50,000 shares of its $.01 par value Common Stock upon the terms and conditions set forth in this Agreement. ARTICLE 3 RESTRICTIONS ------------ Section 3.1 - Forfeiture of Restricted Stock - ----------- ------------------------------ Immediately upon a termination of employment under the Employment Agreement for Cause or by reason of voluntary resignation (not for "Good Reason" as defined in the Employment Agreement), the Employee's rights in the Restricted Stock then subject to Restrictions shall be forfeited. Section 3.2 - Legend - ----------- ------ Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all Restrictions lapse or shall have been removed and new certificates are issued pursuant to Section 3.3(b), bear the following legend: "The shares represented by this certificate are subject to reacquisition by Assisted Living Concepts, Inc., and such shares may not be sold or otherwise transferred except pursuant to the provisions of the Restricted Stock Agreement by and between Assisted Living Concepts, Inc. and the registered owner of such shares." Section 3.3 - Lapse of Restrictions - ----------- --------------------- (a) Subject to Sections 3.1, 3.4, and 3.5, the Restrictions shall lapse in four (4) cumulative installments commencing on the fourth anniversary of the date of this Agreement 3 as follows: on the forth, fifth, sixth, and seventh anniversaries of the date of this Agreement, twenty-five percent (25%) of the shares of Restricted Stock and the Restrictions on such shares shall lapse. (b) Upon the lapse of the Restrictions, the Company shall cause new certificates to be issued with respect to such shares and delivered to the Employee or his legal representative, free from the legend provided for in Section 3.2 and any of the other Restrictions. Notwithstanding the foregoing, no such new certificate shall be delivered to the Employee or his legal representative unless and until the Employee or his legal representative shall have paid to the Company in cash the full amount of all federal and state withholding or other employment taxes applicable to the taxable income of the Employee resulting from the grant of Restricted Stock or the lapse or removal of the Restrictions. Section 3.4 - Removal of Restrictions; Acceleration of Lapse of Restrictions, - ----------- --------------------------------------------------------------- Etc. - ---- (a) By resolution, the Committee may, on such terms and conditions as it deems appropriate, remove any or all of the Restrictions. (b) Subject to Section 3.5, if the shares of the Company's Common Stock as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, the Committee, in its sole and absolute discretion, shall have the discretion and power to determine and to make effective provision for acceleration of the time or times at which any Restrictions shall lapse or be removed. In addition, in the case of the occurrence of any event described in this subsection 3.4(b), the Committee, subject to the provisions of the Plan and this Agreement, shall make an appropriate and proportionate adjustment in the number and kind of shares of Restricted Stock, to the end that after such event the Employee's proportionate interest shall be maintained as before the occurrence of such event. Any such adjustment made by the Committee shall be final and binding upon the Employee, the Company and all other interested persons. Section 3.5 - Lapse of Restrictions - ----------- --------------------- The Restrictions shall lapse, and the Restricted Stock shall cease to be subject to forfeiture under Section 3.1, in the event that Employee shall be entitled to the termination benefits payable under Section 6(a) or 6(b) of the Employment Agreement. Section 3.6 - Restrictions On New Shares - ----------- -------------------------- In the event that the Employee receives any new or additional or different shares or securities by reason of any transaction or event described in subsection 3.4(b), such new or additional or different shares or securities which are attributable to the Employee in his capacity as the owner of the Restricted Stock then subject to Restrictions, shall be considered to be Restricted Stock and shall be subject to all of the Restrictions, unless the Committee provides, pursuant to Section 3.4, for the removal or lapse of the Restrictions on the shares of 4 Restricted Stock underlying the distribution of the new or additional shares or securities, or unless the Restrictions automatically lapse pursuant to Section 3.5. ARTICLE 4 MISCELLANEOUS ------------- Section 4.1 - Administration - ----------- -------------- The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or the Restricted Stock. Section 4.2 - Restricted Stock Not Transferable - ----------- --------------------------------- Restricted Stock (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall be subject to the following Restrictions until such Restrictions lapse or shall be removed pursuant to this Agreement: Neither the Restricted Stock nor any interest or right therein or part thereof shall be liable for the debts, contracts, or engagements of the Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.2 -------- ------- shall not prevent transfers by will or by the applicable laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder. Section 4.3 - Conditions to Issuance of Stock Certificates - ----------- -------------------------------------------- Shares of Restricted Stock may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange 5 Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience; and (e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax. Section 4.4 - Escrow - ----------- ------ The Secretary or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing the Restricted Stock, including shares of Restricted Stock issued pursuant to Section 3.4(b), until all of the Restrictions lapse or shall have been removed; provided, -------- however, that in no event shall the Employee retain physical custody of any - ------- certificates representing Restricted Stock issued to him. Section 4.5 - Notices - ----------- ------- Any notice to be given by the Employee under the terms of this Agreement shall be addressed to the Secretary of the Company or his office. Any notice to be given to the Employee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Employee shall, if the Employee is then deceased, be given to the Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section. Any notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 4.6 - Rights as Stockholder - ----------- --------------------- Except as otherwise provided herein, upon the delivery of Restricted Stock to the escrow holder pursuant to Section 4.4, the holder of the Restricted Stock shall have all the rights of a stockholder with respect to the Restricted Stock (excluding the right to vote the Restricted Stock), including the right to receive all dividends or other distributions paid or made with respect to the Restricted Stock; provided, however, that any and all shares of Common Stock -------- ------- received by holders of Restricted Stock with respect to such Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization shall also be subject to the Restrictions until the Restrictions on the underlying shares of Restricted Stock lapse or are removed pursuant to this Agreement. 6 Section 4.7 - Titles - ----------- ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 4.8 - Construction - ----------- ------------ This Agreement shall be administered, interpreted and enforced under the internal laws of the state of incorporation of the Company without regard to the principles of conflicts of laws thereof. Section 4.9 - Conformity to Securities Laws - ----------- ----------------------------- The Employee acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to the Securities Act of 1933, as amended, and the Exchange Act) and to such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Restricted Stock is granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan, this Agreement and the Restricted Stock shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 4.10 - Amendments - ------------ ---------- This Agreement and the Plan may be amended without the consent of the Employee provided that such amendment would not impair any rights of the Employee under this Agreement. No amendment of this Agreement shall, without the consent of the Employee, impair any rights of the Employee under this Agreement. 7 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. ASSISTED LIVING CONCEPTS, INC., a Nevada corporation. By /s/ Stephen Gordon Name: Chief Financial Officer Title: Stephen Gordon Employee /s/ Keren Brown Wilson Keren Brown Wilson Address Employee's Taxpayer Identification Number: ------------------------------------------ 8 EX-10.3 5 EMPLOYMENT AGREEMENT DATED 10/3/97 EXHIBIT 10.3 EMPLOYMENT AGREEMENT This Employment Agreement (the "AGREEMENT") is made as of October 3, 1997 (the "COMMENCEMENT DATE"), by and between Assisted Living Concepts, Inc., a corporation organized under the laws of the state of Nevada ("ALC" or the "COMPANY") and William McBride III ("EXECUTIVE"). NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Appointment, Title and Duties. ----------------------------- (a) ALC hereby employs Executive to serve as its Chief Executive Officer of ALC. In such capacity, Executive shall report to the Board of Directors of the Company, and shall have such duties, powers and responsibilities as are customarily assigned to the Chief Executive Officer of a publicly held corporation in a business such as that conducted by Company. (b) Executive shall serve as the Chairman of the Board of Assisted Living Concepts Services, Inc. ("ALCS"), a wholly-owned subsidiary of ALC. (c) Executive's duties may require him to travel. When Executive is not travelling on behalf of ALC, or as otherwise provided under this Agreement, Executive may exercise his discretion whether to perform his duties in an office provided him by Company at its corporate headquarters, which as of the date hereof, is in Portland, Oregon, or in California. 2. Term of Agreement. ----------------- (a) The initial term of this Agreement shall be for a four (4) year period from and after the Commencement Date, unless terminated earlier by (i) termination for Cause; (ii) the voluntary resignation of Executive for Good Reason; (iii) the expiration of six (6) months from and after the date Executive provides written notice of termination to Company; or (iv) Executive's death or Permanent Disability (defined in SECTION 5(a) below). (b) If this Agreement has not terminated as of the date of the expiration of the initial term, this Agreement shall be automatically extended on a continuous basis daily from and after that date, until the occurrence of one of the following events of termination: (i) termination for Cause; (ii) voluntary resignation of Executive for Good Reason; (iii) Executive's death or Permanent Disability; (iv) the expiration of six (6) months from and after the date Executive provides written notice of intent not to renew this Agreement to Company; or (v) the expiration of four (4) years from and after the date Company provides written notice of intent not to renew this Agreement to Executive. (c) A termination hereunder shall constitute a termination of employment with any wholly owned subsidiary or other affiliate of Company. 3. Acceptance of Position. Executive accepts the position set forth ---------------------- in SECTION 1 above and agrees that during the term of this Agreement, Executive will faithfully perform Executive's duties and, except as expressly approved by the Board of Directors of ALC and except as set forth herein, will devote substantially all of Executive's business time to the business and affairs of ALC, and will not engage, for Executive's own account or for the account of any other person or entity, in a business which competes with ALC. During the term of this Agreement, Executive shall not directly own, or own as part of a consortium, more than five percent (5%) of a publicly held corporation which conducts the same business as does ALC or its affiliates. It is acknowledged and agreed that Executive may, from time to time during the term of this Agreement, serve as a member of the Board of Directors of other companies, in which event the Board of Directors of ALC must expressly approve such service. As of the date hereof, the Board of ALC approves of Executive serving on the Board of Directors of MALAN. In addition, as of the date hereof, the Board of ALC approves of Executive serving as an officer of Home and Community Care, Inc. until it is merged into ALC or until November 30, 1997, whichever occurs earlier. 4. Salary and Benefits. During the term of this Agreement: ------------------- (a) ALC shall pay to Executive a base salary in an annual amount of not less than Two Hundred Sixty-five Thousand Dollars ($265,000) per annum, paid in approximately equal installments at intervals in accordance with the then prevailing policy of the Company with respect to its senior executives generally, but in no event, less frequently than monthly. ALC agrees to consider from time to time increases in such base salary in the discretion of the Board of Directors. Any increase, once granted by the Board of Directors, shall be deemed to automatically amend this Agreement to provide that thereafter Executive's base salary shall not be less than the annual amount to which the base salary has been increased. (b) Concurrently herewith ALC and Executive shall execute and deliver a Restricted Stock Agreement for Employees in substantially the same form as that attached hereto as EXHIBIT "A," pursuant to which Executive shall be issued 200,000 shares of restricted common stock of ALC pursuant to the Amended and Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock Agreement provides that the restrictions on the stock shall be lifted to the extent of 25% of the stock per year commencing on the fourth anniversary date from the Effective Date hereof, subject to earlier acceleration as provided in the Restricted Stock Agreement. (c) Executive shall participate in all health, retirement, Company- paid insurance, sick leave, disability, expense reimbursement and other benefit programs which ALC makes available to any of its senior executives, and shall be eligible for bonuses in the discretion (as to bonuses) of the Board of Directors. (d) Executive shall be entitled to vacation time of not less than four (4) weeks per year, provided that not more than two (2) weeks of such vacation time may be taken consecutively without prior notice to, and non-objection by, the Compensation Committee of the Board of Directors or, if there is no Compensation Committee, the Board of Directors. 2 5. Certain Terms Defined. For purposes of this Agreement: --------------------- (a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a physical or mental condition occurs and persists which, in the written opinion of a licensed physician selected by the Board of Directors in good faith, has rendered Executive unable to perform Executive's duties hereunder for a period of ninety (90) days or more and, in the written opinion of such physician, the condition will continue for an indefinite period of not less than an additional ninety (90) day period, rendering the Executive unable to return to Executive's duties. (b) A termination of Executive's employment by ALC shall be deemed for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of Directors entitled to vote, at a meeting in which a quorum is present at the time of the vote, vote for such termination and the termination is based upon one or more of the following: (i) conviction of a felony; (ii) material disloyalty to the Company such as embezzlement, misappropriation of corporate assets or, except as provided in SECTION 3 of this Agreement, breach of Executive's agreement not to engage in business for another enterprise of the type engaged in by the Company or not to purchase more than five percent (5%) of stock in a publicly held corporation which conducts the same business as does ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal behavior which is of public nature, brings ALC into disrepute, and results in material damage to the Company. The Company shall have the right to suspend Executive, with pay, for a reasonable period to investigate allegations of conduct which, if proven, would establish a right to terminate this Agreement for Cause, or to permit a felony charge to be tried. Immediately upon the conclusion of such temporary period, unless Cause to terminate this Agreement has been established, Executive shall be restored to all duties and responsibilities as if such suspension had never occurred. (c) A resignation by Executive shall not be deemed to be voluntary and shall be deemed to be a resignation with "GOOD REASON" if it is based upon one or more of the following: (i) a material diminution in Executive's title, duties or salary; (ii) a reduction in benefits which is not part of an across- the-board reduction in benefits of all senior executive personnel; or (iii) a direction by the Board of Directors that Executive report to any person or group other than the Board of Directors. It shall also constitute Good Reason for Executive to resign Executive's employment if the shareholders of ALC shall fail to elect or re-elect Executive to the Board of Directors of ALC, unless Executive declines to be elected to such Board of Directors, or if the directors fail to elect Executive to serve as Chief Executive Officer of ALC and/or Chairman of the Board, unless Executive declines to be elected such. Executive's statement that a resignation was based upon one of the events stated in this SECTION 5(c) shall be conclusive and binding for purposes of this Agreement, if the resignation occurs within three (3) months following the event. (d) "AFFILIATE" means any corporation affiliated with any Person whose actions result in a Change in Control (or which, as a result of the completion of the transactions causing a Change in Control shall become affiliated) within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "CODE"). 3 (e) "BASE SALARY" means, as of any date of termination of employment, the highest annual base salary of Executive in any of the last five fiscal years preceding such date of termination of employment. (f) "BENEFICIAL OWNER" shall have the meaning given to such term in Rule 13d-3 under Exchange Act (defined in SUBSECTION (i) below); (g) A "CHANGE IN CONTROL" occurs if: (i) any Person (other than Executive) or that Person's Affiliate is or becomes the Beneficial Owner, directly or indirectly, of securities of ALC representing 30% of more of the combined voting power of ALC's then outstanding securities; or (ii) the stockholders of ALC approve a merger or consolidation of ALC with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of ALC outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of ALC or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of ALC (or similar transaction) in which no Person acquires more than 30% of the combined voting power of ALC's then outstanding securities shall not constitute a Change in Control; or (iii) the stockholders of ALC approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of ALC's assets; or (iv) a majority of the members of the Board of Directors of ALC cease to be Continuing Directors. (h) "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of ALC who (i) was a member of such Board of Directors on the date of the Agreement or (ii) was nominated for election or elected to such Board of Directors who were members of such Board at the time of such nomination or election. (i) "PERSON" is given the meaning as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); provided, however, that unless this Agreement provides to the contrary, the term shall not include ALC, any trustee or other fiduciary holding securities under an employee benefit plan of ALC, or any corporation owned, directly or indirectly, by the stockholders of ALC in substantially the same proportions as their ownership of stock of ALC. 6. Certain Benefits Upon Termination. --------------------------------- (a) If Executive's employment by ALC terminates for any reason (including by reason of death or Permanent Disability), except for a termination for Cause or a voluntary resignation by Executive without a Good Reason or pursuant to SECTION 2(a)(iii) or 4 2(b)(iv), and SECTION 6(b) is inapplicable to such termination, then ALC shall pay Executive a lump sum severance payment (the "SEVERANCE PAYMENT") equal to four times Executive's Base Salary. (b) If within one (1) year after a Change in Control of the Company, Executive gives notice of termination of employment for any reason, gives notice of non-renewal, or Executive otherwise terminates employment (other than due to Executive's death or Permanent Disability) or is terminated by the Company without Cause, ALC shall pay Executive a Severance Payment in cash equal to $4 million. In the event of a Change in Control and Executive dies or becomes Permanently Disabled within one year after such Change in Control, then the Severance Payment shall be equal to four times Executive's Base Salary. (c) Company shall offer to Executive the opportunity to participate in whatever Company-provided medical and dental plans exist as of the date of termination from that date for a period of three (3) years commencing Executive's date of termination, if such plans permit such participation; provided, however, in the event there is a Change in Control of the Company and Executive's employment terminates, then Executive shall not be given the opportunity to participate in any such medical and dental plans except as may otherwise be provided by law. (d) In the event either (a) or (b) above occurs, (i) ALC shall pay all accrued but unpaid or unused vacation, sick pay and expense reimbursement benefit, (ii) all restrictions on Executive's restricted stock shall lapse, (iii) the exercisability of all stock options held by Executive shall accelerate and (iv) all other benefits shall vest (unless a plan governs vesting, such as the deferred compensation plan, in which event the plan's terms and conditions shall govern vesting). In the event that Executive holds stock options covered by agreements that are affected by the provisions of SECTION 6(d)(iii), Company shall promptly take such steps as are necessary to effect the amendment of such agreements to reflect such provisions. Executive acknowledges that he has been advised by his own legal counsel as to the effect of such amendments on the status of any such options as "qualified" options under the Code, the tax effect on Executive of such amendment, and the ramifications for Executive of such amendments under Section 16 of the Securities Exchange Act of 1934 and the reporting and short-swing profit provisions thereof. (e) In the event that Executive's employment terminates by reason of Executive's death, all benefits provided in this SECTION 6 shall be paid to Executive's estate or as Executive's executor shall direct, but payment may be deferred until Executive's executor or personal representative has been appointed and qualified pursuant to the laws in effect in Executive's jurisdiction of residence at the time of Executive's death. (f) Company shall make all cash payments to which Executive is entitled hereunder within thirty (30) days following the date of termination of Executive's employment or earlier, if required by applicable law. (g) In the event Executive has provided notice to the Company of his intent to terminate or not renew this Agreement pursuant to SECTION 2(a)(iii) OR 2(b)(iv) or 5 Company has provided written notice to the Executive of its intent not to renew this Agreement pursuant to SECTION 2(b)(v): (i) Salary and Benefits. The salary and other benefits to ------------------- which Executive would have otherwise been entitled shall continue through the remainder of the period of notice specified by SECTION 2(a)(iii), 2(b)(iv) OR 2(b)(v), provided that Executive is otherwise in compliance with the terms of this Agreement, unless (I) Executive subsequently terminates his employment without Good Reason or the Company terminates Executive's employment with Cause, (II) Executive is entitled to the extraordinary payment provided in SECTION 6(a) pursuant to the provisions of SECTION 6(g)(ii), or (III) Executive is entitled to the extraordinary payment provided in SECTION 6(b). (ii) Section 6(a) Benefit. Executive shall be entitled to -------------------- the extraordinary payment provided in SECTION 6(a) (unless Executive is otherwise entitled to the extraordinary payment provided by SECTION 6(b)) in the event that, subsequent to such notice, (I) Executive is terminated without Cause by the Company, (II) Executive's employment terminates due to death or Permanent Disability, or (III) Executive terminates his employment with Good Cause. (iii) Section 6(b) Benefit. Executive shall have no rights -------------------- under SECTION 6(b); provided, however, that if Company and a third party have executed a commitment letter or agreement under which a Change in Control is to occur and such agreement was entered into prior to the Company having provided notice to Executive of its intent not to renew pursuant to SECTION 2, then Executive shall be entitled to the extraordinary payment provided in SECTION 6(b), if that Change in Control in fact occurs and Executive otherwise is entitled to those benefits as set forth in SECTION 6(b). (h) In the event Executive is entitled hereunder to any payments or benefits set forth in SECTION 6(a) OR (b), Executive shall have no obligation to notify Company of employment subsequent to Executive's termination or to offset Company's obligation by payments due to such employment and shall have no duty to mitigate. (i) The provisions for Severance Payments contained in this SECTION 6 may be triggered only once during the term of this Agreement, so that, for instance, should Executive terminate owing to a Permanent Disability and should there thereafter be a Change in Control, then Executive would be entitled to be paid only under 6(a) and not under 6(b) as well. In addition, Executive shall not be entitled to receive severance benefits of any kind from any wholly owned subsidiary or other affiliated entity of ALC if in connection with the same event of series of events the Severance Payments provided for in this SECTION 6 have been triggered. (j) Gross-Up. -------- (i) If it is determined that any payment, distribution or benefit received or to be received by Executive from the Company (whether payable pursuant to the 6 terms of this Agreement or any other plan, arrangements or agreement with the Company or an affiliate of the Company ("PAYMENTS") would be subject to the excise tax imposed by Section 4999 of the Code (the "EXCISE TAX"), then Executive shall be entitled to receive an additional payment (the "EXCISE TAX GROSS-UP PAYMENT") in an amount such that the aggregate amount of the Payment and Excise Tax Gross-Up Payment to be retained by Executive, after the deduction of any Excise Tax on the Payments and any federal, state and local income taxes and excise tax on the Excise Tax Gross-Up Payment provided for in this SECTION 6(j)(i) , shall be equal to the Payments. In determining this amount, the amount of the Excise tax Gross-Up Payment attributable to federal income taxes shall be reduced by the maximum reduction in federal income taxes that could be obtained by the deduction of the portion of the Excise Tax Gross-Up Payment attributable to state and local income taxes. Finally, the Excise Tax Gross-Up Payment shall be reduced by income or excise tax withholding payments made by the Company or any affiliate of either to any federal, state or local taxing authority with respect to the Excise Tax Gross-Up Payment that was not deducted from compensation payable to Executive. (ii) All determinations required to be made under this SECTION 6 (j), including whether and when an Excise Tax Gross-Up Payment is required and the amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in arriving at such determination, except as specified in SECTION 6(j)(i) above, shall be made by the Company's independent auditors (the "ACCOUNTING FIRM"), which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days after the Company makes any Payments to Executive. Such determination of tax liability made by the Accounting Firm shall be subject to review by Executive's tax advisor and, if Executive's tax advisor does not agree with such determination reached by the Accounting Firm, then the Accounting Firm and Executive's tax advisor shall jointly designate a nationally recognized public accounting firm, which shall make such determination. All reasonable fees and expenses of the accountants and tax advisors retained by either Executive or the Company shall be borne by the Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this SECTION 6(J), shall be paid by the Company to Executive within five (5) days after the receipt of such determination. Any determination by a jointly designated public accounting firm shall be binding upon the Company and Executive. (iii) As a result of the uncertainty in the application of Subsection 4999 of the Code at the time of the initial determination hereunder, it is possible that Excise Tax Gross-up Payment will not have been made by the Company that should have been made consistent with the calculations required to be made hereunder ("UNDERPAYMENT"). In the event that Executive thereafter is required to make a payment of any Excise Tax, any such Underpayment calculated in accordance with and in the same manner as the Excise Tax Gross-up Payment exceeds the amount subsequently determined to be due, such excess shall constitute a loan from the Company to Executive payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274 (b)(2)(B) of the Code). (k) Company agrees to take reasonable steps to ensure that in the event Company has an obligation to perform under SECTION 6(b), Company shall have the financial 7 ability to do so. 7. Indemnification. --------------- (a) ALC and Executive shall enter into an indemnification agreement in substantially the same form as that which is attached hereto as EXHIBIT "B" and incorporated herein by this reference. (b) ALC shall include Executive as an insured in its directors and officers insurance policy and shall provide evidence of such coverage to Executive upon Executive's written request. 8. Dispute Resolution. ------------------ (a) Mediation. If a dispute arises out of or relates to this --------- Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be settled through negotiation, the parties agree first to attempt in good faith to settle the Dispute by nonbinding mediation under the then effective rules of the Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no longer doing business, then under the Mediation Rules of the American Arbitration Association (the "AAA") before resorting to arbitration. (b) Arbitration. In the event the parties fail to resolve the ----------- Dispute through mediation, then either party or both of them shall have the right to submit the Dispute to final and binding arbitration by the Service or, if the Service is no longer doing business, then by the American Arbitration Association. The parties agree to arbitration as an alternative to court proceedings in order (i) to obtain a prompt evidentiary hearing and an arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and (iii) to do so economically. During the arbitration proceeding, the arbitrator, in the arbitrator's sole discretion, shall have the right to grant requests for discovery of documents, the taking of depositions, and the issuance of subpoenas in accordance with Rules of the Service or AAA, whichever is applicable. Each party hereby promises to cooperate in the arbitration process to effectuate these purposes. The arbitration shall be conducted in accordance with the Rules of the Service or, if the Service is no longer doing business, then in accordance with the Rules of the AAA which are in effect at the time of the arbitration. Judgment rendered by the arbitrator may be entered in any court having competent jurisdiction in accordance with Oregon law. (c) Waiver of Jury Trial. By submitting a Dispute to mediation and -------------------- arbitration, the parties hereto understand that they will not enjoy the benefits of a jury trial. Accordingly, the parties hereto expressly waive the right to a jury trial. (d) Nonexclusive Remedy. Notwithstanding the above provisions -------------------- regarding mediation and arbitration, the parties each retain their respective rights to seek injunctive relief or other provisional remedies provided under the law in any court having competent jurisdiction. 8 9. Attorneys Fees. -------------- (a) In the event of mediation, the parties shall bear their own attorneys fees and costs, except that the cost of mediation shall be shared equally. (b) In the event of arbitration, the arbitrator shall award reasonable attorneys fees and costs of the mediation and arbitration to the prevailing party, including the fees of the arbitrator, unless such award of fees and costs would be manifestly unjust for reasons set forth by the arbitrator in his written decision. In determining the amount of reasonable attorneys fees to a party, the arbitrator may take into account (i) each party's respective efforts to achieve an economical and expeditious resolution of the dispute in accordance with this SECTION; and (ii) the final settlement offers, if any, of the parties at least ten (10) calendar days prior to the commencement of the hearing. In accordance with the rules of evidence, however, settlement offers shall not be considered in relation to the merits of any Dispute that is subject to this SECTION other than the award of attorneys fees and costs. (c) Notwithstanding (b) above, if a suit, action or other proceeding of any nature whatsoever (including any contested matter or adversary proceeding under the U.S. Bankruptcy Code) is instituted in connection with any controversy arising out of this Agreement or to interpret or enforce any rights hereunder, the prevailing party shall be entitled to recover its reasonable attorneys, paralegals, accountants and other experts fees, and all other fees, costs and expenses actually incurred in connection therewith, as determined by the judge at trial or on appeal or review, in addition to all other amounts provided by law. (d) ALC agrees to reimburse Executive in an amount not to exceed $2500 for Executive's attorneys fees incurred in the negotiations for, and preparation of, this Agreement. 10. Notices. All notices and other communications provided to either ------- party under this Agreement shall be in writing and delivered by overnight courier or other personal delivery to such party at its address set forth below its signature hereto, or at such other address as may be designated by such party in a notice to the other party. Any notice, if so delivered and properly addressed with postage prepaid, shall be deemed given when received. 11. Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of Executive's heirs, representatives and executors and ALC's successors and assigns, respectively. 12. Construction. In construing this Agreement, if any portion of ------------ this Agreement shall be found to be invalid or unenforceable, the remaining terms and provisions of this Agreement shall be given effect to the maximum extent permitted without considering the void, invalid or unenforceable provision. In construing this Agreement, the singular shall include the plural, the masculine shall include the feminine and neuter genders as appropriate, and no meaning or effect shall be given to the captions of the sections in this Agreement, which are inserted for convenience of reference only. 9 13. Headings. The section headings hereof have been inserted for -------- convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. 14. Governing Law. The provisions of this Agreement shall be ------------- construed and interpreted in accordance with the internal laws of the State of Oregon as at the time in effect. 15. Entire Agreement. This Agreement constitutes the final and ---------------- entire agreement and supersedes all other prior agreements and undertakings, both written and oral, including without limitation the Prior Employment Agreement, among Executive and the Company, with respect to the subject matter hereof. 16. Counterpart. This Agreement may be executed in one or more ------------ counterparts, each of which shall be an original, but all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, this Agreement has been executed on the dates set forth below, to be effective as of the date specified in the first paragraph of this Agreement. "EXECUTIVE" Date: 10/3, 1997 /s/ William McBride III _____________________________________ William McBride III, as an individual Home Address: _____________________________________ _____________________________________ "ALC OR COMPANY" Date: 10/3, 1997 Assisted Living Concepts, Inc. /s/ Stephen Gordon _____________________________________ Stephen Gordon, Chief Financial Officer Address: 9955 S.E. Washington St., Third Floor Portland, OR 97216 10 EX-10.4 6 AMENDED & RESTATED EMPLOYMENT AGREE. DATED 10/3/97 EXHIBIT 10.4 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (the "AGREEMENT") is made as of _______________________, 1997 (the "EFFECTIVE DATE"), by and between Assisted Living Concepts, Inc., a corporation organized under the laws of the state of Nevada ("ALC" or the "COMPANY") and Keren Brown Wilson ("EXECUTIVE"), amends and restates the Employment Agreement, dated October 24, 1994, by and between ALC and Executive (the "PRIOR EMPLOYMENT AGREEMENT"). NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Appointment, Title and Duties. ----------------------------- (a) ALC hereby employs Executive to serve as its President and Chief Executive Officer; provided, however, in the event William McBride accepts ALC's offer to become Chief Executive Officer of ALC, then Executive shall serve as ALC's President and Chief Operating Officer. In such capacity, Executive shall report to the Board of Directors of the Company, and shall have such duties, powers and responsibilities as are customarily assigned to persons serving in such capacities for a publicly held corporation in a business such as that conducted by the Company. Executive shall serve as Vice Chairman of the Board of Directors of ALC. (b) The parties understand and agree that Executive also shall serve as the President and Chief Executive Officer of the wholly-owned development and operations subsidiary, Assisted Living Concepts Services, Inc., a Nevada corporation, and shall serve as Chairman of its Board of Directors. 2. Term of Agreement. ----------------- (a) The initial term of this Agreement shall be for a four (4) year period from and after the Effective Date, unless terminated earlier by (i) termination for Cause; (ii) the voluntary resignation of Executive for Good Reason; or (iii) the expiration of six (6) months from and after the date Executive provides written notice of termination to Company; or (iv) Executive's death or Permanent Disability (defined in SECTION 5(A) below). (b) If this Agreement has not terminated as of the date of the expiration of the initial term, this Agreement shall be automatically extended on a continuous basis daily from and after that date, until the occurrence of one of the following events of termination: (i) termination for Cause; (ii) voluntary resignation of Executive for Good Reason; (iii) Executive's death or Permanent Disability; (iv) the expiration of six (6) months from and after the date Executive provides written notice of intent not to renew this Agreement to Company; or (v) the expiration of four (4) years from and after the date Company provides written notice of intent not to renew this Agreement to Executive. (c) A termination hereunder shall constitute a termination of employment with any wholly owned subsidiary or other affiliate of Company. 3. Acceptance of Position. Executive accepts the position set forth ---------------------- in SECTION 1 above and agrees that during the term of this Agreement, Executive will faithfully perform Executive's duties and, except as expressly approved by the Board of Directors of ALC and except as set forth herein, will devote substantially all of Executive's business time to the business and affairs of ALC, and will not engage, for Executive's own account or for the account of any other person or entity, in a business which competes with ALC. During the term of this Agreement, Executive shall not directly own, or own as part of a consortium, more than five percent (5%) of a publicly held corporation which conducts the same business as does ALC or its affiliates. It is acknowledged and agreed that Executive may, from time to time during the term of this Agreement, serve as a member of the Board of Directors of other companies, in which event the Board of Directors of ALC must expressly approve such service. 4. Salary and Benefits. During the term of this Agreement: ------------------- (a) ALC shall pay to Executive a base salary in an annual amount of not less than Two Hundred Thousand Dollars ($200,000) per annum, paid in approximately equal installments at intervals in accordance with the then prevailing policy of the Company with respect to its senior executives generally, but in no event, less frequently than monthly. ALC agrees to consider from time to time increases in such base salary in the discretion of the Board of Directors. Any increase, once granted by the Board of Directors, shall be deemed to automatically amend this Agreement to provide that thereafter Executive's base salary shall not be less than the annual amount to which the base salary has been increased. (b) Concurrently herewith ALC and Executive shall execute and deliver a Restricted Stock Agreement for Employees in substantially the same form as that attached hereto as EXHIBIT "A," pursuant to which Executive shall be issued 50,000 shares of restricted common stock of ALC pursuant to ALC's Amended and Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock Agreement provides that the restrictions on the stock shall be lifted to the extent of 25% of the stock per year commencing on the fourth anniversary date from the Effective Date hereof, subject to earlier acceleration as provided in the Restricted Stock Agreement. (c) Executive shall participate in all health, retirement, Company-paid insurance, sick leave, disability, expense reimbursement and other benefit programs which ALC makes available to any of its senior executives, and shall be eligible for bonuses in the discretion (as to bonuses) of the Board of Directors. (d) Executive shall be entitled to vacation time of not less than four (4) weeks per year, provided that not more than two (2) weeks of such vacation time may be taken consecutively without prior notice to, and non- objection by, the Compensation Committee of the Board of Directors or, if there is no Compensation Committee, the Board of Directors. 2 5. Certain Terms Defined. For purposes of this Agreement: --------------------- (a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a physical or mental condition occurs and persists which, in the written opinion of a licensed physician selected by the Board of Directors in good faith, has rendered Executive unable to perform Executive's duties hereunder for a period of ninety (90) days or more and, in the written opinion of such physician, the condition will continue for an indefinite period of not less than an additional ninety (90) day period, rendering the Executive unable to return to Executive's duties. (b) A termination of Executive's employment by ALC shall be deemed for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of Directors entitled to vote, at a meeting in which a quorum is present at the time of the vote, vote for such termination and the termination is based upon one or more of the following: (i) conviction of a felony; (ii) material disloyalty to the Company such as embezzlement, misappropriation of corporate assets or, except as provided in SECTION 3 of this Agreement, breach of Executive's agreement not to engage in business for another enterprise of the type engaged in by the Company or not to purchase more than five percent (5%) of stock in a publicly held corporation which conducts the same business as does ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal behavior which is of public nature, brings ALC into disrepute, and results in material damage to the Company. The Company shall have the right to suspend Executive, with pay, for a reasonable period to investigate allegations of conduct which, if proven, would establish a right to terminate this Agreement for Cause, or to permit a felony charge to be tried. Immediately upon the conclusion of such temporary period, unless Cause to terminate this Agreement has been established, Executive shall be restored to all duties and responsibilities as if such suspension had never occurred. (c) A resignation by Executive shall not be deemed to be voluntary and shall be deemed to be a resignation with "GOOD REASON" if it is based upon one or more of the following: (i) a material diminution in Executive's title, duties or salary; (ii) a reduction in benefits which is not part of an across- the-board reduction in benefits of all senior executive personnel; or (iii) a direction by the Board of Directors that Executive report to any person or group other than the Board of Directors. It shall also constitute Good Reason for Executive to resign Executive's employment if the shareholders of ALC shall fail to elect or re-elect Executive to the Board of Directors of ALC, unless Executive declines to be elected to such Board of Directors, or if the directors fail to elect Executive Vice Chairman of the Board, unless Executive declines to be elected such. Executive's statement that a resignation was based upon one of the events stated in this SECTION 5(C) shall be conclusive and binding for purposes of this Agreement, if the resignation occurs within three (3) months following the event. (d) "AFFILIATE" means any corporation affiliated with any Person whose actions result in a Change in Control (or which, as a result of the completion of the transactions causing a Change in Control shall become affiliated) within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "CODE"). (e) "BASE SALARY" means, as of any date of termination of employment, 3 the highest annual base salary of Executive in any of the last five fiscal years preceding such date of termination of employment. (f) "BENEFICIAL OWNER" shall have the meaning given to such term in Rule 13d-3 under Exchange Act (defined in Subsection (i) below); (g) A "CHANGE IN CONTROL" occurs if: (i) any Person (other than Executive) or that Person's Affiliate is or becomes the Beneficial Owner, directly or indirectly, of securities of ALC representing 30% of more of the combined voting power of ALC's then outstanding securities; or (ii) the stockholders of ALC approve a merger or consolidation of ALC with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of ALC outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of ALC or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of ALC (or similar transaction) in which no Person acquires more than 30% of the combined voting power of ALC's then outstanding securities shall not constitute a Change in Control; or (iii) the stockholders of ALC approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of ALC's assets; or (iv) a majority of the members of the Board of Directors of ALC cease to be Continuing Directors. (h) "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of ALC who (i) was a member of such Board of Directors on the date of the Agreement or (ii) was nominated for election or elected to such Board of Directors who were members of such Board at the time of such nomination or election. (i) "PERSON" is given the meaning as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); provided, however, that unless this Agreement provides to the contrary, the term shall not include ALC, any trustee or other fiduciary holding securities under an employee benefit plan of ALC, or any corporation owned, directly or indirectly, by the stockholders of ALC in substantially the same proportions as their ownership of stock of ALC. 6. Certain Benefits Upon Termination. --------------------------------- (a) If Executive's employment by ALC terminates for any reason (including by reason of death or Permanent Disability), except for a termination for Cause or 4 a voluntary resignation by Executive without a Good Reason or pursuant to SECTION 2(A)(III) or 2(B)(IV), and SECTION 6(B) is inapplicable to such termination, then ALC shall pay Executive a lump sum severance payment (the "SEVERANCE PAYMENT") equal to four times Executive's Base Salary. (b) If within one (1) year after a Change in Control of the Company, Executive gives notice of termination of employment for any reason, gives notice of non-renewal, or Executive otherwise terminates employment (other than due to Executive's death or Permanent Disability) or is terminated by the Company without Cause, ALC shall pay Executive a Severance Payment in cash equal to $3 million. In the event of a Change in Control and Executive dies or becomes Permanently Disabled within one year after such Change in Control, then the Severance Payment shall be equal to four times Executive's Base Salary. (c) Company shall offer to Executive the opportunity to participate in whatever Company-provided medical and dental plans exist as of the date of termination from that date for a period of three (3) years commencing Executive's date of termination, if such plans permit such participation; provided, however, in the event there is a Change in Control of the Company and Executive's employment terminates, then Executive shall not be given the opportunity to participate in any such medical and dental plans except as may otherwise be provided by law. (d) In the event either (a) or (b) above occurs, (i) ALC shall pay all accrued but unpaid or unused vacation, sick pay and expense reimbursement benefit, (ii) all restrictions on Executive's restricted stock shall lapse, (iii) the exercisability of all stock options held by Executive shall accelerate and (iv) all other benefits shall vest (unless a plan governs vesting, such as the deferred compensation plan, in which event the plan's terms and conditions shall govern vesting). (e) In the event that Executive's employment terminates by reason of Executive's death, all benefits provided in this SECTION 6 shall be paid to Executive's estate or as Executive's executor shall direct, but payment may be deferred until Executive's executor or personal representative has been appointed and qualified pursuant to the laws in effect in Executive's jurisdiction of residence at the time of Executive's death. (f) Company shall make all cash payments to which Executive is entitled hereunder within thirty (30) days following the date of termination of Executive's employment or earlier, if required by applicable law. (g) In the event Executive has provided notice to the Company of his intent to terminate or not renew this Agreement pursuant to SECTION 2(A)(III) OR 2(B)(IV) or Company has provided written notice to the Executive of its intent not to renew this Agreement pursuant to SECTION 2(B)(V): (i) Salary and Benefits. The salary and other benefits to ------------------- which Executive would have otherwise been entitled shall continue through the remainder of the period of notice specified by SECTION 2(A)(III), 2(B)(IV) OR 2(B)(V), provided that Executive is otherwise in compliance with the terms of this 5 Agreement, unless (I) Executive subsequently terminates his employment without Good Reason or the Company terminates Executive's employment with Cause, (II) Executive is entitled to the extraordinary payment provided in SECTION 6(A) pursuant to the provisions of SECTION 6(G)(II), or (III) Executive is entitled to the extraordinary payment provided in SECTION 6(B). (ii) Section 6(a) Benefit. Executive shall be entitled to -------------------- the extraordinary payment provided in SECTION 6(A) (unless Executive is otherwise entitled to the extraordinary payment provided by SECTION 6(B)) in the event that, subsequent to such notice, (I) Executive is terminated without Cause by the Company, (II) Executive's employment terminates due to death or Permanent Disability, or (III) Executive terminates his employment with Good Cause. (iii) Section 6(b) Benefit. Executive shall have no rights -------------------- under SECTION 6(B); provided, however, that if Company and a third party have executed a commitment letter or agreement under which a Change in Control is to occur and such agreement was entered into prior to the Company having provided notice to Executive of its intent not to renew pursuant to SECTION 2, then Executive shall be entitled to the extraordinary payment provided in SECTION 6(B), if that Change in Control in fact occurs and Executive otherwise is entitled to those benefits as set forth in SECTION 6(B). (h) In the event Executive is entitled hereunder to any payments or benefits set forth in SECTION 6(A) OR (B), Executive shall have no obligation to notify Company of employment subsequent to Executive's termination or to offset Company's obligation by payments due to such employment and shall have no duty to mitigate. (i) The provisions for Severance Payments contained in this SECTION 6 may be triggered only once during the term of this Agreement, so that, for instance, should Executive terminate owing to a Permanent Disability and should there thereafter be a Change in Control, then Executive would be entitled to be paid only under 6(a) and not under 6(b) as well. In addition, Executive shall not be entitled to receive severance benefits of any kind from any wholly owned subsidiary or other affiliated entity of ALC if in connection with the same event of series of events the Severance Payments provided for in this SECTION 6 have been triggered. (j) Gross-Up. -------- (i) If it is determined that any payment, distribution or benefit received or to be received by Executive from the Company (whether payable pursuant to the terms of this Agreement or any other plan, arrangements or agreement with the Company or an affiliate of Company ("PAYMENTS") would be subject to the excise tax imposed by Section 4999 of the Code (the "EXCISE TAX"), then Executive shall be entitled to receive an additional payment (the "EXCISE TAX GROSS-UP PAYMENT") in an amount such that the aggregate amount of the Payment and Excise Tax Gross-Up Payment to be retained by Executive, after the deduction of any Excise Tax on the Payments and any federal, state and local income taxes and excise tax on the Excise Tax Gross-Up Payment provided for in this SECTION 6(J)(I), shall be equal to the 6 Payments. In determining this amount, the amount of the Excise tax Gross-Up Payment attributable to federal income taxes shall be reduced by the maximum reduction in federal income taxes that could be obtained by the deduction of the portion of the Excise Tax Gross-Up Payment attributable to state and local income taxes. Finally, the Excise Tax Gross-Up Payment shall be reduced by income or excise tax withholding payments made by the Company or any affiliate of either to any federal, state or local taxing authority with respect to the Excise Tax Gross-Up Payment that was not deducted from compensation payable to Executive. (ii) All determinations required to be made under this SECTION 6 (J), including whether and when an Excise Tax Gross-Up Payment is required and the amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in arriving at such determination, except as specified in SECTION 6(J)(I) above, shall be made by the Company's independent auditors (the "ACCOUNTING FIRM"), which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days after the Company makes any Payments to Executive. Such determination of tax liability made by the Accounting Firm shall be subject to review by Executive's tax advisor and, if Executive's tax advisor does not agree with such determination reached by the Accounting Firm, then the Accounting Firm and Executive's tax advisor shall jointly designate a nationally recognized public accounting firm, which shall make such determination. All reasonable fees and expenses of the accountants and tax advisors retained by either Executive or the Company shall be borne by the Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this SECTION 6(J), shall be paid by the Company to Executive within five (5) days after the receipt of such determination. Any determination by a jointly designated public accounting firm shall be binding upon the Company and Executive. (iii) As a result of the uncertainty in the application of Subsection 4999 of the Code at the time of the initial determination hereunder, it is possible that Excise Tax Gross-up Payment will not have been made by the Company that should have been made consistent with the calculations required to be made hereunder ("UNDERPAYMENT"). In the event that Executive thereafter is required to make a payment of any Excise Tax, any such Underpayment calculated in accordance with and in the same manner as the Excise Tax Gross-up Payment exceeds the amount subsequently determined to be due, such excess shall constitute a loan from the Company to Executive payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274 (b)(2)(B) of the Code). (k) Company agrees to take reasonable steps to ensure that in the event Company has an obligation to perform under SECTION 6(B), Company shall have the financial ability to do so. 7. Indemnification. --------------- (a) ALC and Executive shall enter into an indemnification agreement in substantially the same form as that which is attached hereto as EXHIBIT "B" and incorporated herein by this reference. (b) ALC shall include Executive as an insured in its directors and officers 7 insurance policy and shall provide evidence of such coverage to Executive upon Executive's written request. 8. Dispute Resolution. ------------------ (a) Mediation. If a dispute arises out of or relates to this --------- Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be settled through negotiation, the parties agree first to attempt in good faith to settle the Dispute by nonbinding mediation under the then effective rules of the Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no longer doing business, then under the Mediation Rules of the American Arbitration Association (the "AAA") before resorting to arbitration. (b) Arbitration. In the event the parties fail to resolve the ----------- Dispute through mediation, then either party or both of them shall have the right to submit the Dispute to final and binding arbitration by the Service or, if the Service is no longer doing business, then by the American Arbitration Association. The parties agree to arbitration as an alternative to court proceedings in order (i) to obtain a prompt evidentiary hearing and an arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and (iii) to do so economically. During the arbitration proceeding, the arbitrator, in the arbitrator's sole discretion, shall have the right to grant requests for discovery of documents, the taking of depositions, and the issuance of subpoenas in accordance with Rules of the Service or AAA, whichever is applicable. Each party hereby promises to cooperate in the arbitration process to effectuate these purposes. The arbitration shall be conducted in accordance with the Rules of the Service or, if the Service is no longer doing business, then in accordance with the Rules of the AAA which are in effect at the time of the arbitration. Judgment rendered by the arbitrator may be entered in any court having competent jurisdiction in accordance with Oregon law. (c) Waiver of Jury Trial. By submitting a Dispute to mediation -------------------- and arbitration, the parties hereto understand that they will not enjoy the benefits of a jury trial. Accordingly, the parties hereto expressly waive the right to a jury trial. (d) Nonexclusive Remedy. Notwithstanding the above provisions -------------------- regarding mediation and arbitration, the parties each retain their respective rights to seek injunctive relief or other provisional remedies provided under the law in any court having competent jurisdiction. 9. Attorneys Fees. -------------- (a) In the event of mediation, the parties shall bear their own attorneys fees and costs, except that the cost of mediation shall be shared equally. (b) In the event of arbitration, the arbitrator shall award reasonable attorneys fees and costs of the mediation and arbitration to the prevailing party, including the fees of the arbitrator, unless such award of fees and costs would be manifestly unjust for reasons set forth by the arbitrator in his written decision. In determining the amount of reasonable attorneys fees to a party, the arbitrator may take into account (i) each party's respective efforts 8 to achieve an economical and expeditious resolution of the dispute in accordance with this SECTION; and (ii) the final settlement offers, if any, of the parties at least ten (10) calendar days prior to the commencement of the hearing. In accordance with the rules of evidence, however, settlement offers shall not be considered in relation to the merits of any Dispute that is subject to this SECTION other than the award of attorneys fees and costs. (c) Notwithstanding (b) above, if a suit, action or other proceeding of any nature whatsoever (including any contested matter or adversary proceeding under the U.S. Bankruptcy Code) is instituted in connection with any controversy arising out of this Agreement or to interpret or enforce any rights hereunder, the prevailing party shall be entitled to recover its reasonable attorneys, paralegals, accountants and other experts fees, and all other fees, costs and expenses actually incurred in connection therewith, as determined by the judge at trial or on appeal or review, in addition to all other amounts provided by law. (d) ALC agrees to reimburse Executive in an amount not to exceed $2500 for Executive's attorneys fees incurred in the negotiations for, and preparation of, this Agreement. 10. Notices. All notices and other communications provided to either ------- party under this Agreement shall be in writing and delivered by overnight courier or other personal delivery to such party at its address set forth below its signature hereto, or at such other address as may be designated by such party in a notice to the other party. Any notice, if so delivered and properly addressed with postage prepaid, shall be deemed given when received. 11. Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of Executive's heirs, representatives and executors and ALC's successors and assigns, respectively. 12. Construction. In construing this Agreement, if any portion of ------------ this Agreement shall be found to be invalid or unenforceable, the remaining terms and provisions of this Agreement shall be given effect to the maximum extent permitted without considering the void, invalid or unenforceable provision. In construing this Agreement, the singular shall include the plural, the masculine shall include the feminine and neuter genders as appropriate, and no meaning or effect shall be given to the captions of the sections in this Agreement, which are inserted for convenience of reference only. 13. Headings. The section headings hereof have been inserted for -------- convenience of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement. 14. Governing Law. The provisions of this Agreement shall be ------------- construed and interpreted in accordance with the internal laws of the State of Oregon as at the time in effect. 15. Entire Agreement. This Agreement constitutes the final and ---------------- entire agreement and supersedes all other prior agreements and undertakings, both written and oral, 9 including without limitation the Prior Employment Agreement, among Executive and the Company, with respect to the subject matter hereof. 16. Counterpart. This Agreement may be executed in one or more ------------ counterparts, each of which shall be an original, but all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, this Agreement has been executed on the dates set forth below, to be effective as of the date specified in the first paragraph of this Agreement. "EXECUTIVE" /s/ Keren Brown Wilson Date: 10/3 1997 _______________________________________ Keren Brown Wilson, as an individual Home Address: __________________________ Portland, OR "ALC OR COMPANY" /s/ Stephen Gordon Date: 10/3 1997 _______________________________________ Stephen Gordon, Chief Financial Officer Address: 9955 S.E. Washington St., Third Floor Portland, OR 97216 10 EX-10.5 7 INDEMNIFICATION AGREEMENT DATED 10/3/97 EXHIBIT 10.5 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT is made and entered into as of the 3rd day of October 1997 by and between William McBride III ("Indemnitee") and Assisted Living Concepts, Inc. a Nevada corporation (the "Company"). RECITALS I. The Company has recognized the difficulty that publicly held corporations are having in attracting and retaining qualified directors, officers and key employees as a result of the increasing risk of claims and actions against them arising out of their association with the Company. II. Indemnitee is an officer, director and/or key employee of the Company. III. Indemnitee is willing to serve, to continue to serve and to take on additional service for or on behalf of the Company. IV. In view of the mutual desire of the parties that Indemnitee render valuable services to the Company, the parties have agreed to enter into this Indemnification Agreement. THEREFORE IT IS AGREED: A. Definitions. The following definitions shall apply to this Agreement: ----------- 1. "Act" shall be the Nevada Corporation Act, NRS (S)(S) 78.010- .795, and all amendments thereto hereinafter enacted. 2. "Expenses" shall include, without limitation, expenses of investigations, judicial or administrative proceedings or appeals and attorneys' fees and disbursements and any expenses of establishing a right to indemnification under this Agreement. 3. "Liability" means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable Expenses incurred with respect to a Proceeding. 4. "Party" includes an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding. 5. "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. B. Indemnification. The Company shall indemnify Indemnitee against --------------- Liability and Expenses actually and necessarily incurred by him or her in any Proceeding in which he or she is made a Party by reason of being or having been a director, officer or key employee of the Company, except in relation to matters as to which indemnification is prohibited by the Act; but such indemnification shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any bylaw or agreement of the Company, general or specific action of the Company's board of directors, vote of the Company's shareholders or otherwise. C. Procedure for Indemnification. After the final disposition of any ----------------------------- Proceeding in which Indemnitee may be entitled to indemnification pursuant to this Agreement, Indemnitee may send to the Company a written request for indemnification. The Company shall, in accordance with the provisions of the Act regarding determination and authorization of indemnification, make a finding whether the indemnification requested is permitted by the laws of the state of Nevada no later than 60 days following receipt by the Company of such request. The Company shall cause the indemnification requested to be authorized and paid unless the Company finds that the indemnification requested is not so permitted. Indemnitee shall be given an opportunity to be heard and to present evidence in connection with the consideration of the party or parties determining Indemnitee's right to indemnification under the Act. If the Company does not authorize indemnification hereunder, Indemnitee shall have the right to seek court-ordered indemnification in accordance with the provisions of the Act. In any such action, neither the making of, nor the failure to make, any finding by the Company that indemnification of the Indemnitee is proper or not proper in the circumstances shall be a defense to such action or create a presumption that the Indemnitee has not met the standard of conduct required by the Act. In making its determination and in any court proceeding, the Company shall have the burden of proving that Indemnitee has not met the standard of conduct required by the Act to entitle Indemnitee to indemnification. D. Procedure for Advancement of Expenses. The Company shall pay for or ------------------------------------- reimburse the reasonable Expenses incurred by Indemnitee as a result of being Party to a Proceeding in advance of final disposition of the Proceeding promptly upon receipt of a written request for payment of such Expenses that is in accordance with the requirements of the Act for such written statements. Such written statement shall also include or be accompanied by documentation of the Expenses incurred certified true and correct by Indemnitee. When available, such documentation of expenses shall include copies of bills or statements evidencing the Expenses incurred. If the requirements of this Section 4 are met, the Company shall pay the amount requested promptly notwithstanding the absence of a final disposition of the Proceeding. E. Partial Indemnity. If Indemnitee is entitled under any provision of ----------------- this Agreement to indemnification by the Company for some or a portion of the Expenses or Liability incurred by Indemnitee in the preparation, investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall indemnify Indemnitee for the portion of such Expenses or Liability to which Indemnitee is entitled in accordance with this Agreement. 2 F. Insurance. The Company may, but shall not be required to, purchase --------- and keep in force during the term of this Agreement a policy or policies of liability insurance on behalf of Indemnitee against Liability and Expenses incurred in any Proceeding. Nothing herein shall be construed to prohibit Indemnitee from maintaining his or her own policy of liability insurance. G. Exclusions. The Company shall not be liable to make any payment ---------- hereunder: 1. If it shall be finally adjudicated that such payment is prohibited by law; 2. On account of any Proceeding brought under Section 16(b) of the Securities Exchange Act of 1934, as such law is amended from time to time, or under any similar law that replaces Section 16(b), in which judgment is rendered against Indemnitee for an accounting for profits made from the purchase or sale by Indemnitee of the securities of the Company; 3. For Liability or Expenses in any Proceeding brought by Indemnitee against the Company unless (i) the Proceeding is brought as a Proceeding for indemnity under this Agreement, (ii) Indemnitee is successful in whole or in part in a Proceeding or (iii) the indemnification is included in a settlement of the Proceeding or is awarded by a court; 4. To the extent payment is actually made to Indemnitee under a valid, enforceable and collectible insurance policy, whether provided by the Company or by Indemnitee (the "Insurance Policy"), by or out of a fund created by the Company and under the control of a trustee or otherwise (the "Fund") or from other sources provided by the Company ("Other Sources"); or 5. For amounts paid in settlement of a claim effected without the Company's prior written consent, which consent shall not be unreasonably withheld. If Indemnitee shall become obligated or required to pay any amount that the Company would be obligated to pay hereunder except for the exclusion in Section 7.4, the Company shall advance such amount to Indemnitee if payment is not reasonably expected to be made under the Insurance Policy, by the Fund or from Other Sources prior to the time that Indemnitee must make such payment, provided, however, that Indemnitee shall immediately pay over to the Company, from the funds Indemnitee later receives under the Insurance Policy, from the Fund or from Other Sources, an amount equal to the amount advanced. H. Defense of Claim. If any Proceeding asserted or commenced against ---------------- Indemnitee is also asserted or commenced against the Company, the Company shall be entitled to participate in the Proceeding at its own expense and, except as otherwise provided herein below, to the extent that it may wish the Company shall be entitled to assume the defense thereof. After notice from the Company to Indemnitee of its election to assume the defense of any such Proceeding, Indemnitee shall have the right to employ Indemnitee's own counsel in such Proceeding, but the Expenses of such counsel incurred after notice from the 3 Company to Indemnitee of its assumption of the defense thereof shall be the Expenses of Indemnitee, and the Company may not be obligated to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection therewith other than the reasonable costs of investigation, travel and lodging Expenses arising out of Indemnitee's participation in the defense of such Proceeding unless (i) otherwise authorized by the Company, (ii) Indemnitee's counsel shall have reasonably concluded, and so notified the Company in writing, that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such Proceeding or (iii) the Company shall not in fact have employed counsel to assume the defense of such Proceeding. If the Company may be obligated for some or all of the Expenses of Indemnitee under this Section 8, the determination of Indemnitee's entitlement to indemnification shall be made in accordance with Section 3. I. Change in Control. ----------------- 1. The Company agrees that, if there is a Change in Control (as hereinafter defined) of the Company, then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification and Expense advances under this Agreement, the Company shall seek legal advice only from special, independent counsel selected by the Company with the consent of Indemnitee, which consent shall not be unreasonably withheld, with respect to matters arising out of this Agreement, including but not limited to the right of Indemnitee to indemnification hereunder. Such counsel shall, among other things, render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under the Act and as to the amount of reasonable indemnification. Such written opinion shall be binding upon the Company and Indemnitee. The Company shall agree to pay the reasonable fees of such special counsel and to indemnify fully such counsel against any and all expenses, including attorney fees, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 2. For the purpose of this Section 9, a "Change in Control" shall be deemed to have occurred if: a. Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of the Company, becomes the "Beneficial Owner," as defined in Rule 13d-3 under the 1934 Act, directly or indirectly, of securities of the Company representing twenty- five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities ("Voting Stock"); b. During any period of twenty-four (24) consecutive months, not including any period prior to the execution of this Agreement, individuals who at the beginning of such period constitute the board of directors of the Company and any new director, other than a director designated by a person who has entered into an agreement with 4 the Company to effect a transaction described in Section 9.2.1 or 9.2.3, whose election was approved by a vote of at least two-thirds (2/3rds) of the shares entitled to vote, cease for any reason to constitute a majority of the board; or c. The stockholders of the Company (i) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the Voting Stock outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into Voting Stock of the surviving entity, at least seventy percent (70%) of the combined voting power of the Voting Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, (ii) approve a plan of complete liquidation of the Company or (iii) approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. J. Potential Change in Control. --------------------------- 1. In the event of a Potential Change in Control (as hereinafter defined), the Company shall, upon written request by Indemnitee, create a trust (the "Trust") for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Proceeding for which Indemnitee may be entitled to indemnification under this Agreement, and any and all Liability for which Indemnitee is entitled to indemnification hereunder from time to time actually paid, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligations shall be determined in accordance with the provisions of the Act with regard to determination and authorization of indemnification. 2. The terms of the Trust shall provide that upon a Change in Control: a. The Trust shall not be revoked or the principal thereof invaded without the prior written consent of Indemnitee; b. The trustee of the Trust (the "Trustee") shall advance, within two (2) business days of a written request by Indemnitee in accordance with the requirements of Section 4, any and all Expenses to Indemnitee, and Indemnitee hereby agrees to reimburse the Trust under the circumstances under which Indemnitee would be required to reimburse the Company pursuant to the Act and Section 4; c. The Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above; d. The Trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and 5 e. All unexpended funds in the Trust shall revert to the Company upon a final determination by the special counsel established in accordance with Section 9 or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. 3. The Trustee shall be selected by Indemnitee with the consent of the Company, which consent shall not be unreasonably withheld, and all reasonable expenses, fees and other disbursements of the Trustee in connection with the establishment and administration of the Trust shall be paid by the Company. 4. Nothing in this Section 10 shall relieve the Company of any of its obligations under this Agreement. 5. A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person, including the Company, publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of stock of the Company representing nine and one-half percent (9.5%) or more of the combined voting power of the Company's then outstanding Voting Stock, increases his or her beneficial ownership of such stock by five (5) percentage points or more over the percentage so owned by such person; or (iv) the board of directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. K. Nonexclusivity and Continuation of Rights. The indemnification ----------------------------------------- provided by this Agreement shall not be deemed exclusive of any other rights consistent with the laws of the state of Nevada to which Indemnitee may be entitled under the Company's articles of incorporation, bylaws or any other agreement, vote of shareholders or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Company, and shall continue notwithstanding that Indemnitee may have ceased to be connected with the Company. L. Heirs, Successors and Assigns. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the heirs, successors and assigns of the Company and Indemnitee. M. Severability. Wherever possible, each provision in this Agreement ------------ shall be interpreted in such manner as to be effective and valid under the laws of the state of Nevada, but if any provision of this Agreement shall be invalidated by any court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 6 N. Subrogation. In the event of payment under this Agreement, the Company ----------- shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. O. Modification and Amendment. No amendment, modification, termination -------------------------- or claimed waiver of any of the provisions hereof shall be valid unless in writing and signed by both of the parties hereto. P. Notices. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: If to Indemnitee: If to the Company: William McBride III Assisted Living Concepts, Inc. _______________________ Attn: Corporate Secretary _______________________ 9955 SE Washington, Suite 201 _______________________ Portland, OR 97216 or to such other address as may have been furnished to the other party. 7 Q. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the state of Nevada. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first hereinabove written. INDEMNITEE Assisted Living Concepts, Inc. a Nevada corporation /s/ William McBride III /s/ Stephen Gordon _________________________ By ___________________________ William McBride III Chief Financial Officer Stephen Gordon 8 EX-10.6 8 INDEMNIFICATION AGREEMENT DATED 10/3/97 EXHIBIT 10.6 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT is made and entered into as of the 3rd day of October 1997 by and between Keren Brown Wilson ("Indemnitee") and Assisted Living Concepts, Inc. a Nevada corporation (the "Company"). RECITALS A. The Company has recognized the difficulty that publicly held corporations are having in attracting and retaining qualified directors, officers and key employees as a result of the increasing risk of claims and actions against them arising out of their association with the Company. B. Indemnitee is an officer, director and/or key employee of the Company. C. Indemnitee is willing to serve, to continue to serve and to take on additional service for or on behalf of the Company. D. In view of the mutual desire of the parties that Indemnitee render valuable services to the Company, the parties have agreed to enter into this Indemnification Agreement. THEREFORE IT IS AGREED: 1. Definitions. The following definitions shall apply to this Agreement: ----------- 1.1 "Act" shall be the Nevada Corporation Act, NRS (S)(S) 78.010- .795, and all amendments thereto hereinafter enacted. 1.2 "Expenses" shall include, without limitation, expenses of investigations, judicial or administrative proceedings or appeals and attorneys' fees and disbursements and any expenses of establishing a right to indemnification under this Agreement. 1.3 "Liability" means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable Expenses incurred with respect to a Proceeding. 1.4 "Party" includes an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding. 1.5 "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. 2. Indemnification. The Company shall indemnify Indemnitee against --------------- Liability and Expenses actually and necessarily incurred by him or her in any Proceeding in which he or she is made a Party by reason of being or having been a director, officer or key employee of the Company, except in relation to matters as to which indemnification is prohibited by the Act; but such indemnification shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any bylaw or agreement of the Company, general or specific action of the Company's board of directors, vote of the Company's shareholders or otherwise. 3. Procedure for Indemnification. After the final disposition of any ----------------------------- Proceeding in which Indemnitee may be entitled to indemnification pursuant to this Agreement, Indemnitee may send to the Company a written request for indemnification. The Company shall, in accordance with the provisions of the Act regarding determination and authorization of indemnification, make a finding whether the indemnification requested is permitted by the laws of the state of Nevada no later than 60 days following receipt by the Company of such request. The Company shall cause the indemnification requested to be authorized and paid unless the Company finds that the indemnification requested is not so permitted. Indemnitee shall be given an opportunity to be heard and to present evidence in connection with the consideration of the party or parties determining Indemnitee's right to indemnification under the Act. If the Company does not authorize indemnification hereunder, Indemnitee shall have the right to seek court-ordered indemnification in accordance with the provisions of the Act. In any such action, neither the making of, nor the failure to make, any finding by the Company that indemnification of the Indemnitee is proper or not proper in the circumstances shall be a defense to such action or create a presumption that the Indemnitee has not met the standard of conduct required by the Act. In making its determination and in any court proceeding, the Company shall have the burden of proving that Indemnitee has not met the standard of conduct required by the Act to entitle Indemnitee to indemnification. 4. Procedure for Advancement of Expenses. The Company shall pay for or ------------------------------------- reimburse the reasonable Expenses incurred by Indemnitee as a result of being Party to a Proceeding in advance of final disposition of the Proceeding promptly upon receipt of a written request for payment of such Expenses that is in accordance with the requirements of the Act for such written statements. Such written statement shall also include or be accompanied by documentation of the Expenses incurred certified true and correct by Indemnitee. When available, such documentation of expenses shall include copies of bills or statements evidencing the Expenses incurred. If the requirements of this Section 4 are met, the Company shall pay the amount requested promptly notwithstanding the absence of a final disposition of the Proceeding. 5. Partial Indemnity. If Indemnitee is entitled under any provision of ----------------- this Agreement to indemnification by the Company for some or a portion of the Expenses or Liability incurred by Indemnitee in the preparation, investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall indemnify Indemnitee for the portion of such Expenses or Liability to which Indemnitee is entitled in accordance with this Agreement. -2- 6. Insurance. The Company may, but shall not be required to, purchase --------- and keep in force during the term of this Agreement a policy or policies of liability insurance on behalf of Indemnitee against Liability and Expenses incurred in any Proceeding. Nothing herein shall be construed to prohibit Indemnitee from maintaining his or her own policy of liability insurance. 7. Exclusions. The Company shall not be liable to make any payment ---------- hereunder: 7.1 If it shall be finally adjudicated that such payment is prohibited by law; 7.2 On account of any Proceeding brought under Section 16(b) of the Securities Exchange Act of 1934, as such law is amended from time to time, or under any similar law that replaces Section 16(b), in which judgment is rendered against Indemnitee for an accounting for profits made from the purchase or sale by Indemnitee of the securities of the Company; 7.3 For Liability or Expenses in any Proceeding brought by Indemnitee against the Company unless (i) the Proceeding is brought as a Proceeding for indemnity under this Agreement, (ii) Indemnitee is successful in whole or in part in a Proceeding or (iii) the indemnification is included in a settlement of the Proceeding or is awarded by a court; 7.4 To the extent payment is actually made to Indemnitee under a valid, enforceable and collectible insurance policy, whether provided by the Company or by Indemnitee (the "Insurance Policy"), by or out of a fund created by the Company and under the control of a trustee or otherwise (the "Fund") or from other sources provided by the Company ("Other Sources"); or 7.5 For amounts paid in settlement of a claim effected without the Company's prior written consent, which consent shall not be unreasonably withheld. If Indemnitee shall become obligated or required to pay any amount that the Company would be obligated to pay hereunder except for the exclusion in Section 7.4, the Company shall advance such amount to Indemnitee if payment is not reasonably expected to be made under the Insurance Policy, by the Fund or from Other Sources prior to the time that Indemnitee must make such payment, provided, however, that Indemnitee shall immediately pay over to the Company, from the funds Indemnitee later receives under the Insurance Policy, from the Fund or from Other Sources, an amount equal to the amount advanced. 8. Defense of Claim. If any Proceeding asserted or commenced against ---------------- Indemnitee is also asserted or commenced against the Company, the Company shall be entitled to participate in the Proceeding at its own expense and, except as otherwise provided herein below, to the extent that it may wish the Company shall be entitled to assume the defense thereof. After notice from the Company to Indemnitee of its election to assume the defense of any such Proceeding, Indemnitee shall have the right to employ Indemnitee's own counsel in such Proceeding, but the Expenses of such counsel incurred after notice from the Company to Indemnitee of its assumption of the defense thereof shall be the Expenses of Indemnitee, and the -3- Company may not be obligated to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection therewith other than the reasonable costs of investigation, travel and lodging Expenses arising out of Indemnitee's participation in the defense of such Proceeding unless (i) otherwise authorized by the Company, (ii) Indemnitee's counsel shall have reasonably concluded, and so notified the Company in writing, that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such Proceeding or (iii) the Company shall not in fact have employed counsel to assume the defense of such Proceeding. If the Company may be obligated for some or all of the Expenses of Indemnitee under this Section 8, the determination of Indemnitee's entitlement to indemnification shall be made in accordance with Section 3. 9. Change in Control. ----------------- 9.1 The Company agrees that, if there is a Change in Control (as hereinafter defined) of the Company, then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification and Expense advances under this Agreement, the Company shall seek legal advice only from special, independent counsel selected by the Company with the consent of Indemnitee, which consent shall not be unreasonably withheld, with respect to matters arising out of this Agreement, including but not limited to the right of Indemnitee to indemnification hereunder. Such counsel shall, among other things, render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under the Act and as to the amount of reasonable indemnification. Such written opinion shall be binding upon the Company and Indemnitee. The Company shall agree to pay the reasonable fees of such special counsel and to indemnify fully such counsel against any and all expenses, including attorney fees, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 9.2 For the purpose of this Section 9, a "Change in Control" shall be deemed to have occurred if: 9.2.1 Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of the Company, becomes the "Beneficial Owner," as defined in Rule 13d-3 under the 1934 Act, directly or indirectly, of securities of the Company representing twenty- five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities ("Voting Stock"); 9.2.2 During any period of twenty-four (24) consecutive months, not including any period prior to the execution of this Agreement, individuals who at the beginning of such period constitute the board of directors of the Company and any new director, other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 9.2.1 or 9.2.3, whose election was approved by a vote of at -4- least two-thirds (2/3rds) of the shares entitled to vote, cease for any reason to constitute a majority of the board; or 9.2.3 The stockholders of the Company (i) approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the Voting Stock outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into Voting Stock of the surviving entity, at least seventy percent (70%) of the combined voting power of the Voting Stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, (ii) approve a plan of complete liquidation of the Company or (iii) approve an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 10. Potential Change in Control. --------------------------- 10.1 In the event of a Potential Change in Control (as hereinafter defined), the Company shall, upon written request by Indemnitee, create a trust (the "Trust") for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Proceeding for which Indemnitee may be entitled to indemnification under this Agreement, and any and all Liability for which Indemnitee is entitled to indemnification hereunder from time to time actually paid, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligations shall be determined in accordance with the provisions of the Act with regard to determination and authorization of indemnification. 10.2 The terms of the Trust shall provide that upon a Change in Control: 10.2.1 The Trust shall not be revoked or the principal thereof invaded without the prior written consent of Indemnitee; 10.2.2 The trustee of the Trust (the "Trustee") shall advance, within two (2) business days of a written request by Indemnitee in accordance with the requirements of Section 4, any and all Expenses to Indemnitee, and Indemnitee hereby agrees to reimburse the Trust under the circumstances under which Indemnitee would be required to reimburse the Company pursuant to the Act and Section 4; 10.2.3 The Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above; 10.2.4 The Trustee shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and -5- 10.2.5 All unexpended funds in the Trust shall revert to the Company upon a final determination by the special counsel established in accordance with Section 9 or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. 10.3 The Trustee shall be selected by Indemnitee with the consent of the Company, which consent shall not be unreasonably withheld, and all reasonable expenses, fees and other disbursements of the Trustee in connection with the establishment and administration of the Trust shall be paid by the Company. 10.4 Nothing in this Section 10 shall relieve the Company of any of its obligations under this Agreement. 10.5 A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person, including the Company, publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of stock of the Company representing nine and one-half percent (9.5%) or more of the combined voting power of the Company's then outstanding Voting Stock, increases his or her beneficial ownership of such stock by five (5) percentage points or more over the percentage so owned by such person; or (iv) the board of directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 11. Nonexclusivity and Continuation of Rights. The indemnification ----------------------------------------- provided by this Agreement shall not be deemed exclusive of any other rights consistent with the laws of the state of Nevada to which Indemnitee may be entitled under the Company's articles of incorporation, bylaws or any other agreement, vote of shareholders or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Company, and shall continue notwithstanding that Indemnitee may have ceased to be connected with the Company. 12. Heirs, Successors and Assigns. This Agreement shall be binding upon ----------------------------- and inure to the benefit of the heirs, successors and assigns of the Company and Indemnitee. 13. Severability. Wherever possible, each provision in this Agreement ------------ shall be interpreted in such manner as to be effective and valid under the laws of the state of Nevada, but if any provision of this Agreement shall be invalidated by any court of competent jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. -6- 14. Subrogation. In the event of payment under this Agreement, the Company ----------- shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 15. Modification and Amendment. No amendment, modification, termination -------------------------- or claimed waiver of any of the provisions hereof shall be valid unless in writing and signed by both of the parties hereto. 16. Notices. All notices, requests, demands and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: If to Indemnitee: If to the Company: Keren Brown Wilson Assisted Living Concepts, Inc. _______________________ Attn: Corporate Secretary _______________________ 9955 SE Washington, Suite 201 _______________________ Portland, OR 97216 or to such other address as may have been furnished to the other party. 17. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the state of Nevada. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first hereinabove written. INDEMNITEE Assisted Living Concepts, Inc. a Nevada corporation /s/ Keren Brown Wilson /s/ Stephen Gordon _________________________ By ________________________ Keren Brown Wilson Chief Financial Officer Stephen Gordon -7- EX-10.7 9 AMENDED AND RESTATED 1994 STOCK OPTION PLAN OF CO. EXHIBIT 10.7 ASSISTED LIVING CONCEPTS, INC. AMENDED AND RESTATED 1994 STOCK OPTION PLAN 1. PURPOSE This Stock Option Plan (the "Plan") is intended as a performance incentive for officers, employees, consultants and other key persons of Assisted Living Concepts, Inc. (the "Company") or its Subsidiaries (as hereinafter defined) to enable the persons to whom options or restricted stock are granted (the "Grantees") to acquire or increase a proprietary interest in the success of the Company. The Company intends that this purpose will be effected by the granting of "incentive stock options" ("Incentive Options") as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options ("Nonqualified Options") (each individually and collectively, an "Option) and restricted stock ("Restricted Stock"). The term "Subsidiaries" includes any corporations in which at the time of the grant of any Option hereunder, stock possessing fifty percent or more of the total combined voting power, or fifty percent or more of the value, of all classes of stock is owned directly or indirectly by the Company. For purposes of Section 422 of the Internal Revenue Code only, the portion of the Plan providing for the grant of Restricted Stock is a separate plan. 2. OPTIONS TO BE GRANTED AND ADMINISTRATION (a) Incentive and Nonqualified Options. Options granted under the Plan may ---------------------------------- be either Incentive Options or Nonqualified Options, and shall be designated as such at the time of grant. Each Option intended to qualify as an "incentive stock option" under the Code shall be labeled as an "Incentive Stock Option" at the time of grant and, if such option shall fail so to qualify, it shall be deemed to be a Nonqualified Option. (b) Compensation Committee. The Plan shall be administered by a committee ---------------------- (the "Compensation Committee") which shall consist solely of two or more directors of the Company appointed by the Board of Directors of the Company (the "Board of Directors") each of whom is both a "non-employee director" as defined by Rule 16b-3 or any successor rule thereto promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and an "outside director" for purposes of Section 162(m) of the Code. Action by the Compensation Committee shall require the affirmative vote of a majority of all its members. The Board of Directors shall conduct the general administration of the Plan with respect to Options granted to non-employee Directors. In addition, the Board of Directors, in its absolute discretion, may at any time and from time to time exercise any and all rights or duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole and absolute discretion of the Committee. (c) Powers of Committee. Subject to the Award Limit (as defined below) and ------------------- the terms and conditions of the Plan, the Compensation Committee shall have the power: (A) To determine from time to time the Options and Restricted Stock to be granted to eligible persons under the Plan and to prescribe the terms and provisions (which need not be identical) of Options and Restricted Stock granted under the Plan to such persons; (B) To construe and interpret the Plan and grants thereunder and to establish, amend, and revoke rules and regulations for administration of the Plan. In this connection, the Compensation Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, in any Option agreement or restricted stock agreement, or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. All decisions and determinations by the Compensation Committee in the exercise of this power shall be final and binding upon the Company and the Grantees; and (C) Generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. 3. STOCK (a) Number of Shares. The stock granted under the Plan, or subject to the ---------------- Options and Restricted Stock granted under the Plan, shall be shares of the Company's authorized but unissued common stock, par value $.01 per share (the "Common Stock"). The total number of shares that may be issued under the Plan shall not exceed an aggregate of 1,104,000 shares of Common Stock. The maximum number of shares which may be subject to Options granted under the Plan to any individual in any calendar year shall not exceed 100,000 shares of Common Stock (the "Award Limit"). The total number of shares that may be issued under the Plan and Award Limit shall be subject to adjustment as provided in Section 7 hereof. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit, and if, after grant of an Option, the price of shares subject to such Option is reduced, the transaction is treated as a cancellation of the Option and a grant of a new Option and both the Option deemed to be canceled and the Option deemed to be granted are counted against the Award Limit. (b) Application of Available Shares. Whenever any outstanding Option under ------------------------------- the Plan expires, is canceled or is otherwise terminated (other than by exercise), or any shares of Restricted Stock are repurchased by the Company pursuant to Section 15.(f) or forfeited pursuant to Section 15.(e), the shares of Common Stock allocable to the unexercised portion of such Option and such shares of Restricted Stock may again be the subject of Options or Restricted Stock under the Plan. (c) Issuance of Replacement Options. The Compensation Committee also is ------------------------------- authorized to grant a new Option to an eligible person under the Plan upon the surrender for cancellation of an Option previously granted to such person under the Plan. Provided that the provisions of Section 5.(a) are satisfied, this new Option may have a lower exercise price per 2 share than the Option previously granted to such person. 4. ELIGIBILITY (a) General. Incentive Options may be granted only to officers or other ------- full-time employees of the Company or its Subsidiaries, including members of the Board of Directors who are also full-time employees of the Company or its Subsidiaries. Nonqualified Options or Restricted Stock may be granted to directors, officers or other employees of the Company or its Subsidiaries and to consultants and other key persons who provide services to the Company or its Subsidiaries (regardless of whether they are also employees). (b) Certain Shareholders. No person shall be eligible to receive any -------------------- Incentive Option under the Plan if, at the date of grant, such person beneficially owns stock representing in excess of ten percent of the voting power of all outstanding capital stock of the Company, unless notwithstanding anything in this Plan to the contrary (i) the purchase price for stock subject to such Option is at least 110% of the fair market value of such stock at the time of the grant and (ii) the Option by its terms is not exercisable more than 5 years from the date of grant thereof. (c) Annual Limit. Notwithstanding any other provision of the Plan, the ------------ aggregate fair market value (determined as of the time the Option is granted) of the stock with respect to which Incentive Options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and any parent and Subsidiaries) shall not exceed $100,000. (d) Non-Employee Director Grants. Each current Director of the Company who ---------------------------- is not also a full-time employee of the Company or any of its Subsidiaries shall automatically be granted a Nonqualified Option to purchase 20,000 shares of Common Stock upon the consummation of the initial public offering of securities of the Company that is the subject of a registration statement filed with the Securities and Exchange Commission (the "Public Offering") at a purchase price equal to the per share price for Common Stock in the Public Offering. Subject to the Award Limit, at the time that any other person who is not also a full- time employee of the Company or any of its Subsidiaries is first elected as a Director of the Company, such person shall automatically be granted a Nonqualified Option to purchase 20,000 shares of Common Stock, at a purchase price per share equal to the fair market value of the Common Stock on the date of such person's election, as determined pursuant to Section 5.(d) hereof. Each Option granted pursuant to this Section 4.(d) shall vest with respect to 6,667, 6,667, and 6,666 shares on the first, second and third anniversaries, respectively, of the grant and shall expire on the earlier of the seventh anniversary of the date of vesting or one year following the Director's ceasing to be a Director for any reason; provided that no Option shall vest more than one year following the Director's ceasing to be a Director. The additional terms and conditions of such Options shall be as set forth in the Plan and in the Option agreement with each such Director. The provisions of this Section 4.(d) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, as amended, or the rules thereunder. 3 5. TERMS OF THE OPTION AGREEMENTS AND RESTRICTED STOCK AGREEMENTS Subject to the terms and conditions of the Plan, each Option agreement shall contain such provisions as the Compensation Committee shall from time to time deem appropriate; provided, however, option agreements evidencing Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Option agreements need not be identical, but each Option agreement and, with respect to Section 5.(f), each restricted stock agreement, by appropriate language shall include the substance of all of the following provisions: (a) Expiration; Termination of Employment. Notwithstanding any other -------------------------------------- provision of the Plan or of any Option agreement, each Option shall expire on the date specified in the Option agreement, which date in the case of any Incentive Option shall not be later than the tenth anniversary of the date on which the Option was granted. The Option agreement may provide that any outstanding Option granted to such Grantee under the Plan shall be exercisable for such period following termination of employment as may be specified in the Option agreement, subject to the expiration date of such Option. (b) Minimum Shares Exercisable. The minimum number of shares with respect -------------------------- to which an Option may be exercised at any one time shall be one hundred (100) shares, or such lesser number as is subject to exercise under the Option at the time. (c) Exercise. Except as provided in Section 4.(d) hereof with respect to -------- Options granted pursuant to that Section, each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Compensation Committee. No Option shall first be exercisable, either in whole or in part, until the expiration of six months from the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. (d) Purchase Price. Except as set forth in Section 4.(d) with respect to -------------- Options granted pursuant to that Section, the purchase price per share of Common Stock subject to each Option shall be determined by the Compensation Committee; provided, however, that the purchase price per share of Common Stock subject to each Incentive Option and each Option intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, shall be not less than 100% of the fair market value of the Common Stock on the date such Option is granted. For the purposes of the Plan (including as to Options granted pursuant to Section 4.(d)), the fair market value of the Common Stock shall be determined in good faith by the Compensation Committee; provided, however, that if the Common Stock is listed on the American Stock Exchange ("AMEX") on the date the Option is granted, the fair market value shall be the closing price reported for the Common Stock on the AMEX for such date or, if no sales were reported for such date, for the last date preceding such date for which a sale was reported. 4 (e) Rights of Grantees. No Grantee shall be deemed for any purpose to be ------------------ the owner of any shares of Common Stock subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) all requirements under applicable law and regulations shall have been complied with to the satisfaction of the Company, (iii) the Company shall have issued and delivered the shares to the Grantee, and (iv) the Grantee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Grantee shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. (f) Transfer. No Option or Restricted Stock granted hereunder shall be -------- transferable by the Grantee other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder, unless and until such Option has been exercised, the shares underlying such options or Restricted Stock have been issued, and all restrictions applicable to such shares have lapsed or been removed; and such Option may be exercised during the Grantee's lifetime only by the Grantee, or his or her guardian or legal representative. 6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE (a) Notice. Any Option granted under the Plan may be exercised by the ------ Grantee in whole or part, subject to Section 5.(b) hereof, in part by delivering to the Company on any business day a written notice specifying the number of shares of Common Stock the Grantee then desires to purchase (the "Notice"). (b) Payment. Payment for the shares of the Common Stock purchased pursuant ------- to the exercise of an Option shall be made either: (i) in cash, or by certified or bank check or other payment acceptable to the Company, equal to the Option exercise price for the number of shares specified in the Notice (the "Total Option Price"); (ii) if authorized by the applicable Option agreement and if permitted by law, by delivery of shares of Common Stock that the Grantee may freely transfer having a fair market value, determined by reference to the provisions of Section 5.(d) hereof, equal to or less than the Total Option Price, plus cash in an amount equal to the excess, if any, of the Total Option Price over the fair market value of such shares of Common Stock; or (iii) by the Grantee delivering the Notice to the Company together with irrevocable instructions to a broker to promptly deliver the Total Option Price to the Company in cash or by other method of payment acceptable to the Company; provided, however, that the Grantee and the broker shall comply with such procedures and enter into such agreements of indemnity or other agreements as the Company shall prescribe as a condition of payment under this clause (iii). (c) Delivery of Certificates. The delivery of certificates representing ------------------------ shares of Common Stock to be purchased pursuant to the exercise of an Option will be contingent upon the Company's receipt of the Total Option Price and of any written representations from the Grantee required by the Compensation Committee, and the fulfillment of any other requirements contained in the Option agreement or applicable provisions of law. 5 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION (a) General. If the shares of the Company's Common stock as a whole are ------- increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, an appropriate and proportionate adjustment shall be made in the number and kind of shares subject to the Plan (including, but not limited to, adjustments of the limitations in Section 3.(a) on the maximum number and kind of shares which may be issued and adjustments of the Award Limit), and in the number, kind, and per share exercise price of shares subject to unexercised Options or portions thereof granted prior to any such change. In the event of any such adjustment in an outstanding Option, the Grantee thereafter shall have the right to purchase the number of shares under such Option at the per share price, as so adjusted, which the Grantee could purchase at the total purchase price applicable to the Option immediately prior to such adjustment. (b) Determination and Discretion of Compensation Committee. Adjustments ------------------------------------------------------ under this Section 7 shall be determined by the Compensation Committee and such determinations shall be conclusive. The Compensation Committee shall have the discretion and power in any such event to determine and to make effective provision for acceleration of the time or times at which any Option or portion thereof shall become exercisable and for acceleration of the time or times at which any restrictions on any Restricted Stock shall lapse or be removed. No fractional shares of Common Stock shall be issued under the Plan on account of any adjustment specified above. (c) Limitations. No adjustment or action described in this Section 7 or ----------- in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code, or any successor provisions thereto. With respect to Options which are intended to qualify as performance-based compensation under Section 162(m)(4)(C) of the Code, no adjustment or action described in this Section 7 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Option to fail to so qualify under Section 162(m)(4)(C) of the Code, or any successor provisions thereto except that, to the extent permitted by Section 162(m) of the Code or the regulations thereunder, Options may, as determined by the Committee (or the Board of Directors, in the case of Options granted to non-employees Directors) in its sole and absolute discretion, become exercisable upon a "change of ownership or control" (within meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto). Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short- swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Committee (or the Board of Directors, in the case of Options granted to non-employees Directors) determines that the Option is not to comply with such exemptive conditions. 8. EFFECT OF CERTAIN TRANSACTIONS In the case of (i) the dissolution or liquidation of the Company, (ii) a reorganization, 6 merger, consolidation or other business combination in which the Company is acquired by another entity or in which the Company is not the surviving entity, or (iii) the sale of all or substantially all of the assets of the Company to another entity, the Plan and the Options issued hereunder shall terminate upon the effectiveness of any such transaction or event, unless provision is made in connection with such transaction for the assumption of Options theretofore granted, or the substitution for such Options of new Options of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 7. In the event of such termination, all outstanding Options shall be exercisable in full for at least fifteen days prior to the date of such termination whether or not otherwise exercisable during such period. In the case of any event described in clause (i), (ii) or (iii) above, in its discretion, and on such terms and conditions as it deems appropriate, the Compensation Committee may provide either by the terms of a restricted stock agreement or by a resolution adopted prior to the occurrence of such event that, for a specified period of time prior to such event, the restrictions imposed under a restricted stock agreement or upon some or all shares of Restricted Stock may be terminated, and some or all shares of such Restricted Stock may cease to be subject to repurchase under Section 15.(f) or forfeiture under Section 15.(e) after such event 9. TAX WITHHOLDING (a) Payment by Grantee. Each Grantee shall, no later than the date as of ------------------ which the value of any Option or Restricted Stock granted hereunder or of any Common Stock issued upon the exercise of such Option first becomes includable in the gross income of the Grantee for federal income tax purposes (the "Tax Date"), pay to the Company, or make arrangements satisfactory to the Company regarding payment of any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. (b) Payment in Shares. An Grantee may elect to have such tax withholding ----------------- obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Common Stock to be issued pursuant to an Option exercise a number of shares with an aggregate fair market value (determined by the Compensation Committee in accordance with Section 5.(d) as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Common Stock owned by the Grantee with an aggregate fair market value (determined by the Compensation Committee in accordance with Section 5.(d) as of the date the withholding is effected) that would satisfy the withholding amount due. With respect to any Grantee who is subject to Section 16(b) of the Act, the following additional restrictions shall apply: (A) the election to satisfy tax withholding obligations in the manner permitted by this Section 9.(b) shall be made either (1) during the period beginning on the third business day following the date of release of quarterly or annual summary statements of sales and earnings of the Company and ending on the twelfth business day following such date, or (2) at least six months prior to the Tax Date; (B) such election shall be irrevocable; 7 (C) such election shall be subject to the consent or disapproval of the Compensation Committee; and (D) such election shall not be made within six months of the date of grant of the Option or Restricted Stock. 10. AMENDMENT OF THE PLAN The Board of Directors may discontinue the Plan or amend the Plan at any time, and from time to time, subject to any required regulatory approval and provided that any such amendments that require stockholder approval under applicable laws and regulations shall also be approved by shareholders of the Company at an annual or special meeting of such shareholders to the extent required by and in accordance with any such laws or regulations. Furthermore, no modifications of the Award Limit shall be effective prior to the approval of the Company's stockholders. Except as provided in Sections 5, 7, and 8 hereof, rights and obligations under any Option granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Grantee. 11. NON-EXCLUSIVITY OF THE PLAN Neither the adoption of the plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock or stock Options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. Neither the Plan nor any Option or any Restricted Stock granted hereunder shall be deemed to confer upon any employee or any other individual any right to continued employment or service with the Company or its subsidiaries. 12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW (a) Application of Laws; Approvals. The obligation of the Company to sell ------------------------------ and deliver shares of Common Stock with respect to Options and as Restricted Stock granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Compensation Committee. (b) Governing Law. The Plan shall be governed by Nevada law, except to the ------------- extent that such law is preempted by federal law. (c) Section 16(b) of the Act. Transactions under the Plan are intended to ------------------------ comply with Rule 16b-3 or any successor rule thereto promulgated under the Act. Any provision of the Plan or of any Option agreement or Restricted Stock agreement inconsistent with such compliance shall be inoperative and shall not affect the validity of the Plan or the availability of any exemption from Section 16(b) of the Act. 8 13. EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL The Plan shall become effective upon the date that it is approved by the Board of Directors of the Company; provided, however, that the Plan shall be subject to the approval of the Company's shareholders in accordance with applicable laws and regulations at an annual or special meeting held within twelve months of such effective date or by written consent of all of the shareholders of the Company. No Options granted under the Plan prior to such shareholder approval may be exercised until such approval has been obtained. No Options may be granted under the Plan after the tenth anniversary of the effective date of the Plan. 14. CONFLICTS WITH THE COMPANY'S ARTICLES OF INCORPORATION Notwithstanding any other provision of this Plan, no Grantee shall acquire or have any right to acquire any Common Stock, and shall not have other rights under this Plan, which are prohibited under the Company's Articles of Incorporation. 15. AWARD OF RESTRICTED STOCK (a) Award of Restricted Stock. The Compensation Committee shall from time ------------------------- to time, in its absolute discretion: (A) Select from among the officers, directors, employees, consultants or other key persons (including officers, directors, employees, consultants or other key persons who have previously received other awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and (B) Determine the purchase price, if any, and other terms and conditions applicable to such Restricted Stock, consistent with this Plan. The Compensation Committee shall establish the purchase price, if any, and form of payment for Restricted Stock. In all cases, legal consideration shall be required for each issuance of Restricted Stock. Upon the selection of an officer, director, employee, consultant or other key person to be awarded Restricted Stock, the Compensation Committee shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate. (b) Restricted Stock Agreement. Restricted Stock shall be issued only -------------------------- pursuant to a written restricted stock agreement, which shall be executed by the selected officer, director, employee, consultant or other key person and an authorized officer of the Company and which shall contain such terms and conditions as the Compensation Committee shall determine, consistent with this Plan. (c) Consideration. As consideration for the issuance of Restricted Stock, ------------- in addition to payment of the purchase price, if any, the Restricted Stockholder shall agree, in the written restricted stock agreement, to remain in the employ of (or to consult for or continue to serve as a key person or to serve as Director of, as applicable) the Company or any Subsidiary for 9 a period of at least one year after the Restricted Stock is issued (or such shorter period as may be fixed in the restricted stock agreement or by action of the Compensation Committee following grant of the Restricted Stock). Nothing in this Plan or in any restricted stock agreement hereunder shall confer on any Restricted Stockholder any right to continue in the employ of, or as a consultant for or as a key person or director of, the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Restricted Stockholder at any time for any reason whatsoever, with or without good cause. (d) Rights as Stockholders. Upon delivery of the shares of Restricted ---------------------- Stock to the escrow holder pursuant to Section 15.(g), the Restricted Stockholder shall have, unless otherwise provided by the Compensation Committee, all the rights of a stockholder with respect to said shares, subject to the restrictions in his restricted stock agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however that in the discretion of the Compensation Committee, - -------- ------- any extraordinary with respect to the Common Stock shall be subject to the restrictions set forth in Section 15.(e). (e) Restriction. All shares of Restricted Stock issued under this Plan ----------- (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual restricted stock agreement, be subject to such restrictions as the Compensation Committee shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment with the Company, Company performance and individual performance; provided, however, that by a resolution adopted after the Restricted Stock is - -------- ------- issued, the Compensation Committee may, on such terms and conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the restricted stock agreement. Restricted Stock may not be sold or encumbered until all restrictions are removed or lapse. Unless provided otherwise by the Compensation Committee, if no consideration was paid by the Restricted Stockholder upon issuance, a Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon termination of employment, termination of directorship or termination of service, as applicable, with the Company or a Subsidiary. (f) Repurchase of Restricted Stock. The Compensation Committee shall ------------------------------ provide in the terms of each individual restricted stock agreement that the Company shall have the right to repurchase from the Restricted Stockholder the Restricted Stock then subject to restrictions under the restricted stock agreement immediately upon the Restricted Stockholder's termination of employment, termination of directorship or termination of service, as applicable, from the Company or a Subsidiary at a cash price per share equal to the price paid by the Restricted Stockholder for such Restricted Stock; provided, however, that provision may be made that no such right of repurchase - -------- ------- shall exist in the event of a termination of employment, termination of directorship or termination of service without cause, or following a change in control of the Company or because of the Restricted Stockholder's retirement, death or disability, or otherwise. 10 (g) Escrow. The Secretary of the Company or such other escrow holder as ------ the Compensation Committee may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the restricted stock agreement with respect to the shares evidenced by such certificate lapse or shall have been removed. (h) Legend. In order to enforce the restrictions imposed upon shares of ------ Restricted Stock hereunder, the Compensation Committee shall cause a legend or legends to be placed on certificates representing all shares of Restricted Stock that are still subject to restrictions under restricted stock agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby. 11 EX-10.8 10 MERGER AGREEMENT DATED AS OF 10/4/97 EXHIBIT 10.8 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND BETWEEN ASSISTED LIVING CONCEPTS, INC., A NEVADA CORPORATION AND HOME AND COMMUNITY CARE, INC., A NEVADA CORPORATION TABLE OF CONTENTS -----------------
Page ---- ARTICLE I THE MERGER............................................... 1 Section 1.1 The Merger............................................... 1 Section 1.2 Effective Time........................................... 1 Section 1.3 Effects of the Merger.................................... 1 Section 1.4 Conversion of HCI Common Stock........................... 1 Section 1.5 ALC Common Stock......................................... 2 Section 1.6 Certificates of Incorporation............................ 2 Section 1.7 Bylaws................................................... 2 Section 1.8 Board of Directors....................................... 3 ARTICLE II PAYMENT OF CASH UPON EXCHANGE OF SHARES.................. 3 Section 2.1 ALC to Make Cash Available............................... 3 Section 2.2 Exchange of Shares....................................... 3 Section 2.3 Earnout.................................................. 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF HCI.................... 5 Section 3.1 Corporate Organization................................... 5 Section 3.2 Capitalization........................................... 6 Section 3.3 Authority; No Violation.................................. 7 Section 3.4 Consents and Approvals................................... 7 Section 3.5 Vote or Consent Required................................. 8 Section 3.6 Financial Statements; Undisclosed Liabilities............ 8 Section 3.7 Broker's Fees............................................ 8 Section 3.8 Absence of Certain Changes or Events..................... 8 Section 3.9 Legal Proceedings........................................ 9 Section 3.10 Taxes and Tax Returns.................................... 10 Section 3.11 Employees................................................ 10 Section 3.12 Compliance with Applicable Law........................... 11 Section 3.13 Certain Contracts........................................ 12 Section 3.14 Environmental Liability.................................. 12 Section 3.15 Properties............................................... 12 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALC.................... 13 Section 4.1 Corporate Organization................................... 13 Section 4.2 Newco Capitalization..................................... 13 Section 4.3 Authority; No Violation.................................. 13 Section 4.4 Consents and Approvals................................... 14
i TABLE OF CONTENTS (cont'd) -------------------------
Page ---- Section 4.5 Vote or Consent Required.................................... 15 Section 4.6 Opinion of Financial Advisor................................ 15 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS................... 15 Section 5.1 Conduct of Businesses Prior to the Effective Time........... 15 Section 5.2 Forbearances................................................ 15 ARTICLE VI ADDITIONAL AGREEMENTS....................................... 17 Section 6.1 Cooperation as to Regulatory Matters........................ 17 Section 6.2 Access to Information....................................... 18 Section 6.3 Stockholders' Approvals..................................... 18 Section 6.4 Legal Conditions to Merger.................................. 18 Section 6.5 Indemnification; Directors' and Officers' Insurance......... 19 Section 6.6 Additional Agreements....................................... 19 Section 6.7 Advise of Changes........................................... 19 Section 6.8 Qualified Sites and Identified Sites........................ 20 Section 6.9 Formation of Newco.......................................... 20 Section 6.10 No Solicitation of Alternate Transaction.................... 20 Section 6.11 Bring-Down of Representation and Warranties................. 20 Section 6.12 Guarantee of HCI Obligations................................ 21 ARTICLE VII CONDITIONS PRECEDENT........................................ 21 Section 7.1 Conditions to Each Party's Obligation To Effect the Merger....................................... 21 Section 7.2 Conditions to Obligations of ALC............................ 22 Section 7.3 Conditions to Obligations of HCI............................ 22 ARTICLE VIII TERMINATION AND AMENDMENT................................... 23 Section 8.1 Termination................................................. 23 Section 8.2 Effect of Termination....................................... 24 Section 8.3 Amendment................................................... 24 Section 8.4 Extension; Waiver........................................... 24 ARTICLE IX GENERAL PROVISIONS.......................................... 25 Section 9.1 Closing..................................................... 25 Section 9.2 Nonsurvival of Representations, Warranties and Agreements.................................. 25
ii TABLE OF CONTENTS (cont'd) -------------------------
Page ---- Section 9.3 Expenses................................................ 25 Section 9.4 Notices................................................. 25 Section 9.5 Interpretation.......................................... 26 Section 9.6 Counterparts............................................ 26 Section 9.7 Entire Agreement........................................ 26 Section 9.8 Governing Law........................................... 26 Section 9.9 Severability............................................ 26 Section 9.10 Publicity............................................... 26 Section 9.11 Assignment; Third Party Beneficiaries................... 27 Section 9.12 Enforcement of the Agreement............................ 27
EXHIBITS A Form of Articles of Merger B Form of Exchange Certificate C Disclosure Schedule of Home and Community Care, Inc. iii AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October 4, 1997 (this "Agreement"), is by and between Assisted Living Concepts, --------- Inc., a Nevada corporation ("ALC"), and Home and Community Care, Inc., a Nevada --- corporation ("HCI"). --- WHEREAS, the Boards of Directors of ALC and HCI have determined that it is in the best interests of their respective companies and their stockholders to effect the acquisition of HCI, subject to the terms and conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, the Boards of Directors of ALC and HCI have approved the merger of a newly formed, wholly owned subsidiary of ALC incorporated in the State of Nevada ("Newco") with and into ----- HCI (the "Merger"), in accordance with the Nevada Revised Statutes (the "NRS"), ------ --- pursuant to which HCI will be the surviving corporation in the Merger; WHEREAS, ALC and HCI desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, ALC and HCI agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement, in accordance with the NRS at the Effective Time (as defined in Section 1.2 hereof), Newco shall merge with and into HCI. HCI shall be the surviving corporation (hereinafter sometimes called the "Surviving Corporation") --------------------- in the Merger, and shall continue its corporate existence under the laws of the State of Nevada. The name of the Surviving Corporation shall be Home and Community Care, Inc. Upon consummation of the Merger, the separate corporate existence of Newco shall terminate. Section 1.2 Effective Time. The Merger shall become effective as set forth in the Articles of Merger, substantially in the form of Exhibit A hereto (the "Articles of Merger"), which shall be filed with the Secretary of State of ------------------ the State of Nevada (the "Nevada Secretary") on the Closing Date (as defined in ---------------- Section 9.1 hereof). The term "Effective Time" shall be the date when the -------------- Merger becomes effective, as set forth in the Articles of Merger. Section 1.3 Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in the NRS and this Agreement. Section 1.4 Conversion of HCI Common Stock. At the Effective Time, subject to Section 2.2(d) hereof, by virtue of the Merger and without any action on the part of ALC, Newco, HCI or the holder of any of the following securities: (a) Each share of Common Stock, $.001 par value, of HCI ("HCI Common ---------- Stock") issued and outstanding immediately prior to the Effective Time (other - ----- than shares of HCI Common Stock held (x) in HCI's treasury, (y) directly or indirectly by ALC or any Subsidiaries (as defined in Section 3.1(a) hereof) of HCI or ALC or (z) by any holder who becomes entitled to the payment of the fair value for his shares of HCI Common Stock under NRS 92A.300 through 92A.500, inclusive (the "Dissenters' Rights Statues") if the NRS provides for such payment in connection -------------------------- with the Merger ("Dissenting Shares")), shall be converted into the right to ----------------- receive $1.00 in cash, such cash to be paid from the Cash Fund (as defined in Section 2.1(a) hereof) at or prior to the later of (i) the Effective Time or (ii) the closing date of a public offering of securities by ALC resulting in gross proceeds of at least $25 million, but in no event later than December 31, 1997 (payable in certified or ALC company check) (the "Merger Consideration"). -------------------- (b) All of the shares of HCI Common Stock converted into cash pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each a "Certificate") previously representing any such shares of ----------- HCI Common Stock (other than Certificates representing shares of HCI Common Stock held (x) in HCI's treasury, (y) directly or indirectly by ALC or any Subsidiaries of HCI or ALC or (z) by holders of Dissenting Shares) shall thereafter represent the right to receive the Merger Consideration with respect to the number of shares of HCI Common Stock represented by such Certificate. (c) At the Effective Time, all shares of HCI Common Stock that are owned by HCI as treasury stock and all shares of HCI Common Stock that are owned directly or indirectly by ALC, Newco or HCI or any of their respective Subsidiaries shall be cancelled and shall cease to exist and no stock of ALC or other consideration shall be delivered in exchange therefor. (d) Each share of common stock, $.01 par value, of Newco ("Newco ----- Common Stock") issued and outstanding immediately prior to the Effective Time - ------------ shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. (e) At the Effective Time, the holders of Dissenting Shares, if any, shall be entitled to payment for such Dissenting Shares only to the extent permitted by and in accordance with the provisions of the Dissenters' Rights Statutes; provided, however, that if, in accordance with such Dissenters' Rights Statutes, any holder of Dissenting Shares shall forfeit such right to payment of the fair value of such Dissenting Shares, such Dissenting Shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration in accordance with Section 1.4(a) hereof. Section 1.5 ALC Common Stock. At and after the Effective Time, each share of Common Stock, $.01 par value, of ALC (the "ALC Common Stock") issued ---------------- and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of ALC Common Stock and shall not be affected by the Merger. Section 1.6 Certificates of Incorporation. At the Effective Time, the Articles of Incorporation of HCI, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law. Section 1.7 Bylaws. At the Effective Time, the Bylaws of HCI, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law. 2 Section 1.8 Board of Directors. At the Effective Time, the Board of Directors of Newco, as in effect immediately prior to the Effective Time, shall be the Board of Directors of the Surviving Corporation until their resignation or removal or until their successors have been duly elected. ARTICLE II PAYMENT OF CASH UPON EXCHANGE OF SHARES Section 2.1 ALC to Make Cash Available. At or prior to the later of (a) the Effective Time or (b) the closing date of a public offering of securities by ALC resulting in gross proceeds of at least $25 million, but in no event later than December 31, 1997, ALC shall deposit, or shall cause to be deposited, with a third party mutually agreed upon by HCI and ALC (the "Exchange -------- Agent"), for the benefit of the holders of Certificates, for exchange in - ----- accordance with this Article II, cash representing the aggregate Merger Consideration to be paid to holders of HCI Common Stock pursuant to Section 1.4 hereof and paid pursuant to Section 2.2(a) hereof (the "Cash Fund"). --------- Section 2.2 Exchange of Shares. (a) As soon as practicable after the Effective Time, and in no event later than ten business days thereafter, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent), an Exchange Certificate (as defined below) and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration with respect to the number of shares of HCI Common Stock represented by such Certificates. The Exchange Agent shall obtain an express representation (the "Exchange Certificate") from each holder of a Certificate or Certificates that the respective Certificates are delivered to the Exchange Agent free and clear of all liens and that no liens or security interests exist which continue to encumber the Certificates upon surrender of the Certificates to the Exchange Agent. A form of the Exchange Certificate is attached as Exhibit B. Upon proper surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, and a completed and signed Exchange Certificate, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration with respect to the number of shares of HCI Common Stock represented by such Certificates. No interest will be paid or accrued on the Merger Consideration. (b) If any cash is to be paid to a person or entity having a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the payment of such cash that the Certificate so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such cash shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the payment of cash to a person or entity having a name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. (c) All Merger Consideration paid upon the surrender of Certificates in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of HCI Common Stock theretofore represented by such Certificates 3 (subject, however, to the obligation to pay a $2.50 per share distribution that has been or will be effected by HCI and payable in the form of cash, cancellation of indebtedness (including interest thereon) or issuance of indebtedness). At or after the Effective Time, there shall be no transfers on the stock transfer books of HCI of the shares of HCI Common Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for Merger Consideration as provided in this Article II. (d) Any portion of the Cash Fund that remains unclaimed by the stockholders of HCI for twelve months after the Effective Time shall be paid to ALC. Any stockholders of HCI who have not theretofore complied with this Article II shall thereafter look only to ALC for payment of the Merger Consideration with respect to such stockholders' shares of HCI Common Stock pursuant to this Agreement, without any interest thereon. Notwithstanding anything to the contrary contained herein, none of ALC, Newco, HCI, the Exchange Agent or any other person shall be liable to any former holder of shares of HCI Common Stock for any amount properly delivered to any public official pursuant to applicable abandoned property, escheat or similar laws. (e) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by ALC, the posting by such person of a bond in such amount as ALC may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement. (f) ALC or the Exchange Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of shares of HCI Common Stock such amounts as ALC or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by ALC or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares in respect of which such deduction and withholding was made. Section 2.3 Earnout. (a) In addition to the Merger Consideration provided to holders of HCI Common Stock, following the Effective Time, each former stockholder of HCI that had shares of HCI Common Stock exchanged for Merger Consideration (other than holders of Dissenting Shares) pursuant to Section 2.2 hereof (the "Former HCI ---------- Stockholders") shall also be entitled to certain Earnout Payments (as defined - ------------ below), if any, in accordance with the provisions of this Section 2.3. (b) Subject to paragraph (c) below, within 10 business days following the earlier of (i) the last day of ALC's fiscal quarter during which either (x) a permanent certificate of occupancy has been obtained, (y) a temporary certificate of occupancy and a license to operate a facility have been obtained or (z) a sale/leaseback transaction has been closed with respect to an Identified Site (as defined in Section 6.8 hereof), and (ii) two years following the Effective Time with respect to any Identified Sites for which none of (x), (y) or (z) of the foregoing clause of this sentence have occurred, ALC shall provide an Earnout Payment, together with a notice setting forth the calculation of such Earnout Payment certified by the Chief Financial Officer or Controller of ALC (the "Earnout Payment Notice"), to each Former HCI Stockholder for each ---------------------- "unit" at an assisted living facility that (I) is located on (or within 15 4 miles of) such Identified Site referred to in clause (i) of this sentence or (II) ALC intends to develop on (or within 15 miles of) such Identified Site referred to in clause (ii) of this sentence; it being understood that if more than one assisted living facility is located on (or within 15 miles of) an Identified Site, then Earnout Payments shall be provided by ALC with respect to all such assisted living facilities on (or within 15 miles of) such Identified Site. For purposes of this Agreement, an "Earnout Payment" shall be payable in --------------- certified or ALC company check and shall equal (A) $7,500 multiplied by (B) the number of "units" located on or to be developed on (or within 15 miles of) such Identified Site divided by (B) 4,857,500, for each share of HCI Common Stock held by such Former HCI Stockholder immediately prior to the Effective Time. ALC shall mail the Earnout Payment, together with the Earnout Payment Notice, to the address indicated by the respective Former HCI Stockholder on the Exchange Certificate submitted to the Exchange Agent in compliance with Section 2.2(a) hereof. (c) ALC shall be obligated to provide Earnout Payments with respect to each and every assisted living facility that meets the criteria of paragraph (b) of this Section 2.3, not to exceed 39 of such facilities in the aggregate. (d) Any portion of the Earnout Payment that remains unclaimed by a Former HCI Stockholder for twelve months after the date of the mailing of the Earnout Payment Notice shall be deemed abandoned and shall revert to ALC. Thereafter, such Former HCI Stockholder shall have no claim or interest in the abandoned Earnout Payment. Notwithstanding anything to the contrary contained herein, none of ALC, Newco, HCI, the Exchange Agent or any other person shall be liable to any Former HCI Stockholder for any property delivered to any public official pursuant to applicable abandoned property, escheat or similar laws. ARTICLE III REPRESENTATIONS AND WARRANTIES OF HCI HCI hereby represents and warrants to ALC as follows: Section 3.1 Corporate Organization. (a) HCI is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. HCI has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except for such failures to be so qualified which, individually or in the aggregate, would not have or reasonably be expected to have a Material Adverse Effect (as defined below) on HCI. As used in this Agreement, the term "Material Adverse Effect" means, with respect ----------------------- to ALC, HCI or the Surviving Corporation, as the case may be, a material adverse effect on the business, results of operations or financial condition of such party and its Subsidiaries (but only to the extent of such party's interest therein) taken as a whole or a material adverse effect on such party's ability to consummate the Merger and the transactions contemplated thereby; provided, however, that in determining whether a Material Adverse Effect has occurred there shall be excluded any effect on the referenced party of any action or omission of HCI or ALC or any Subsidiary of either of them taken with the prior written consent of ALC or HCI, as applicable, in contemplation of the Merger. As used in this Agreement, the word 5 "Subsidiary" when used with respect to any party means any corporation, ---------- partnership, limited liability company or other organization, whether incorporated or unincorporated, any equity interests of which are owned by such party or by a Subsidiary of such party, or which is consolidated with such party for financial reporting purposes. The copies of the Articles of Incorporation and Bylaws of HCI which have previously been made available to ALC, are true, complete and correct copies of such documents as in effect as of the date of this Agreement. (b) Each Subsidiary of HCI is a corporation, duly incorporated and validly existing under the laws of the State of Nevada and has the requisite corporate power and authority to carry on its business as now being conducted. Each Subsidiary of HCI is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except for such failures to be so qualified which, individually or in the aggregate, would not have or reasonably be expected to have a Material Adverse Effect on HCI. Section 3.2 Capitalization. (a) The authorized capital stock of HCI consists of 40,000,000 shares of HCI Common Stock. As of the date of this Agreement, there were 4,857,500 shares of HCI Common Stock outstanding (2,857,500 shares of which are shares of voting common stock (the "HCI Voting Common Stock") and 2,000,000 shares of ----------------------- which are shares of non-voting common stock (the "HCI Non-Voting Common --------------------- Stock")), and no shares of HCI Common Stock held in HCI's treasury and, except - ----- for such shares, there were no other shares of HCI capital stock outstanding. All of the issued and outstanding shares of HCI Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, HCI does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of HCI Common Stock or any other equity securities of HCI or any securities representing the right to purchase or otherwise receive any shares of HCI Common Stock or any other equity securities of HCI, or requiring HCI to repurchase, redeem or otherwise acquire any shares of its capital stock or any capital stock, voting securities or ownership interests in any Subsidiary of HCI. There are no bonds, debentures, notes or other indebtedness of HCI having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of HCI may vote. (b) Pacesetter Home Care Group, Inc., a Nevada corporation ("Pacesetter"), Pacesetter Hospice, Inc., a Nevada corporation, Pacesetter Prime ---------- Home Care, Inc., a Nevada corporation, and Pacesetter Home Health, Inc., a Nevada corporation ("Home Health"), are all of HCI's Subsidiaries, and HCI owns, ----------- directly or indirectly, 100% of the issued and outstanding shares of capital stock, voting securities or other ownership interests of each of HCI's Subsidiaries, free and clear of any liens, charges, encumbrances, adverse rights or claims and security interests whatsoever ("Liens"), and all of such shares ----- are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. None of HCI's Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase, issuance, repurchase, redemption or other acquisition of any shares of capital stock, voting securities or other ownership interests of such Subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock, voting securities or other ownership interests of such Subsidiary. At the Effective Time, there will not be any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character by which 6 HCI or any of its Subsidiaries will be bound calling for the purchase or issuance of any shares of the capital stock, voting securities or other ownership interests of HCI or any of its Subsidiaries. Section 3.3 Authority; No Violation. (a) HCI has full corporate power and authority to execute and deliver this Agreement and the other documents contemplated to be executed and delivered by HCI in connection with the transactions contemplated hereby (this Agreement, together with such other documents, collectively, the "HCI Documents"), and to ------------- consummate the transactions contemplated hereby and thereby. The execution and delivery of each of the HCI Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Board of Directors of HCI. The Board of Directors of HCI has directed that the Articles of Merger and the transactions contemplated hereby be submitted to HCI's stockholders for approval at a meeting or by written consent of such stockholders and, except for the adoption of this Agreement by the affirmative vote of the holders of a majority of the outstanding shares of HCI Voting Common Stock, no other corporate proceedings on the part of HCI are necessary to approve the HCI Documents and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and prior to the Effective Time, each other HCI Document will have been, duly and validly executed and delivered by HCI and (assuming due authorization, execution and delivery by ALC) this Agreement constitutes, and each other HCI Document will constitute, a valid and binding obligation of HCI, enforceable against HCI in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. (b) Neither the execution and delivery of the HCI Documents by HCI nor the consummation by HCI of the transactions contemplated hereby and thereby, nor compliance by HCI with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Articles of Incorporation or Bylaws of HCI or any of the similar governing documents of any of its Subsidiaries or (ii) assuming that the consents and approvals referred to in Section 3.4 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to HCI or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of HCI or any of its Subsidiaries under, any of the terms, conditions or provisions of any HCI Contract (as defined in Section 3.13(a) hereof) or any loan or credit agreement, note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which HCI or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of clause (ii) above) for such violations, conflicts, breaches or defaults which, individually or in the aggregate, will not have and would not reasonably be expected to have a Material Adverse Effect on HCI. Section 3.4 Consents and Approvals. Except for (i) the filing of the Articles of Merger with the Nevada Secretary pursuant to NRS 92A.200, (ii) the adoption of the Articles of Merger by the requisite vote of the holders of HCI Voting Common Stock and the stockholder of Newco, (iii) the filing of the Articles of Incorporation of Newco with the Nevada Secretary, and (iv) consents and approvals, the failure of which to obtain will not have and would not be reasonably expected to have a Material Adverse Effect on HCI, no consents or approvals of, or filings or registrations with, any court, administrative agency or commission or other governmental authority or instrumentality (each a 7 "Governmental Entity") or with any third party are necessary in connection with ------------------- (A) the execution and delivery by HCI of the HCI Documents and (B) the consummation by HCI of the Merger and the other transactions contemplated hereby and thereby. Section 3.5 Vote or Consent Required. The affirmative vote or consent of at least a majority of the outstanding shares of HCI Voting Common Stock is the only vote or consent of the holders of any class or series of HCI's capital stock necessary (under applicable law or otherwise) to approve this Agreement, the Merger and the transactions contemplated hereby and thereby. Section 3.6 Financial Statements; Undisclosed Liabilities. The financial statements of Pacesetter Home Care Group, Inc., HCI's predecessor, for the year ended December 31, 1996 and the consolidated financial statements of HCI for the period ended June 30, 1997, each of which have previously been provided to ALC, have been prepared in accordance with generally accepted accounting principles ("GAAP") (except that the unaudited statements exclude ---- footnotes) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented, in accordance with the applicable requirements of GAAP, the consolidated financial position of HCI (or its predecessor) as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except (i) as disclosed in Section 3.6 of the disclosure schedule of HCI delivered to ALC concurrently herewith (the "HCI Disclosure Schedule"), (ii) for those ----------------------- liabilities that are fully reflected or reserved against on the consolidated balance sheet of HCI included in its financial statements for the period ended June 30, 1997, and (iii) for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 1997, neither HCI nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due) that, either alone or when combined with all other liabilities incurred since June 30, 1997, has had, or would reasonably be expected to have, a Material Adverse Effect on HCI. On September 30, 1997, the outstanding indebtedness of HCI and its Subsidiaries did not exceed $5.7 million. The books and records of HCI and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. Section 3.7 Broker's Fees. None of HCI, any of its Subsidiaries nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees, commissions or finder's fees in connection with any of the transactions contemplated by the HCI Documents. Section 3.8 Absence of Certain Changes or Events. (a) Except as disclosed in Section 3.8 of the HCI Disclosure Schedule and except as set forth in Section 3.9(d) hereof, since June 30, 1997, no event (including, without limitation, any earthquake or other act of God) has occurred which, either alone or combined with all other events occurring since June 30, 1997, would reasonably be expected to have a Material Adverse Effect on HCI. (b) Since June 30, 1997, HCI and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course of business, and neither HCI nor any of its Subsidiaries has (i) except for normal increases in the ordinary course of business consistent with past practice and except as required by applicable law, increased the wages, salaries, compensation, pension or other fringe benefits or perquisites payable to any executive officer or director, or granted any severance or termination pay, entered into any contract to make or grant any severance or termination 8 pay, or paid any bonus, in each case to any such executive officer or director, other than pursuant to preexisting agreements or arrangements, (ii) made any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of HCI's capital stock (except for a $2.50 per share distribution that has been or will be effected by HCI and payable in the form of cash, cancellation of indebtedness (including interest thereon) or issuance of indebtedness), (iii) effected any split, combination or reclassification of any of HCI's capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for, or giving the right to acquire by exchange or exercise, shares of its capital stock or any issuance of an ownership interest in any Subsidiary of HCI, (iv) made any change in accounting methods, principles or practices by HCI or any Subsidiary of HCI, except as may be required by a change in GAAP or (v) suffered any strike, work stoppage, slow-down or other labor disturbance. Section 3.9 Legal Proceedings. (a) Except as provided in Section 3.9(d) hereof, none of HCI nor any of its Subsidiaries is a party to any, and there are no pending or, to the best of HCI's knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against HCI or any of its Subsidiaries or challenging the validity or propriety of the transactions contemplated by the HCI Documents. (b) There is no injunction or governmental order, judgment or similar decree applicable to HCI or any of its Subsidiaries which imposes any restrictions on HCI or any of its Subsidiaries. (c) Except as provided in Section 3.9(d) hereof, HCI and its Subsidiaries and the home health agencies and hospice services that they operate have, and are in compliance (without any defaults) with all permits, authorizations, licenses, certifications and approvals they need to conduct the businesses in which they are engaged and to be paid for the services they provide, including Medicare and Medicaid provider certification, except where the failure to be in such compliance would not have or reasonably be expected to have a Material Adverse Effect on HCI. Except as provided in Section 3.9(d) hereof, there are no pending or, to the knowledge of HCI, threatened proceedings, actions or governmental or regulatory investigations of any nature (including without limitation regulatory actions by the Health Care Financing Administration ("HCFA")) that restrict, limit or terminate the permits, ---- authorizations, licenses, certifications and approvals referred to in the foregoing sentence, except for such proceedings, actions or investigations that would not have or reasonably be expected to have a Material Adverse Effect on HCI. (d) On September 17, 1997, Home Health received a 23-day notice of termination, pursuant to HCFA State Operations Manual (S) 3010(B), (the "September Notice") to the effect that HCFA would terminate the status of Home ---------------- Health's main office in Forth Worth, Texas (the "Fort Worth Office") on October ----------------- 6, 1997 if by September 26, 1997 Home Health did not submit to HCFA a satisfactory "Plan of Correction" addressing certain noted deficiencies. Home Health delivered to HCFA a plan of correction on September 26, 1997, and at that time, Home Health was verbally informed by HCFA staff that such plan of correction appropriately responded to HCFA's concerns and that HCFA no longer considered Home Health's license to operate its Forth Worth Office to be scheduled for termination on October 6, 1997. As of the date of this Agreement, neither HCI nor Home Health have received any written confirmation from HCFA which indicates that the Fort Worth Office's license is no longer subject to termination as a consequence of the September Notice. 9 Section 3.10 Taxes and Tax Returns. (a) HCI and each of its Subsidiaries has timely filed or caused to be filed, and has heretofore furnished to ALC true and complete copies of, any returns, declarations, reports, estimates, information returns and statements required to be filed under federal, state, local or any foreign tax laws ("Tax --- Returns") with respect to HCI or any of its Subsidiaries, except where the - ------- failure to file timely such Tax Returns would not, individually or in the aggregate, have and would not reasonably be expected to have a Material Adverse Effect on HCI. All Taxes due, whether or not shown to be due on such Tax Returns, have been paid or adequate reserves have been established for the payment of such Taxes, except where the failure to pay or establish adequate reserves would not, individually or in the aggregate, have and would not reasonably be expected to have a Material Adverse Effect on HCI. No material (i) audit or examination of any Tax Return with respect to HCI or any of its Subsidiaries is currently in progress or has been conducted and neither HCI nor any of its Subsidiaries has received notice of any proposed audit or examination, (ii) deficiencies for any taxes have been proposed, asserted or assessed or (iii) refund litigation with respect to any Tax Return is pending. All material Tax Returns filed by HCI and each of its Subsidiaries are complete and accurate in all material respects. (b) For purposes of this Agreement, "Taxes" shall mean all taxes, ----- charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, goods and services, capital, transfer, franchise, profits, license, withholding, payroll, employment, employer health, excise, estimated, severance, stamp, occupation, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority. Section 3.11 Employees. (a) Section 3.11(a) of the HCI Disclosure Schedule lists each Employee Benefit Plan and Benefit Arrangement covering employees or former employees of HCI or its Subsidiaries. HCI has delivered to ALC copies of written documents comprising such Employee Benefit Plans and Benefit Arrangements. (b) Except as set forth in Section 3.11(b) of the HCI Disclosure Schedule: (i) Neither HCI nor any of its ERISA Affiliates sponsors or has previously sponsored, maintained, contributed to or incurred an obligation to contribute to any Employee Benefit Plan regulated under Title IV of ERISA, including any Multiemployer Plan. (ii) Neither HCI nor any of its ERISA Affiliates sponsors or has previously sponsored, maintained, contributed to or incurred an obligation to contribute to any Employee Benefit Plan that provides or will provide benefits described in Section 3(1) of ERISA to any former employee or retiree of HCI or any ERISA Affiliate of any of them, except as required under Part 6 of Title I or ERISA and Section 4980B of the Code. (iii) In all material respects, all Employee Benefit Plans and Benefit Arrangements covering employees or former employees of HCI or its Subsidiaries comply with ERISA and the Code. 10 (iv) To the best knowledge of HCI, none of the Employee Benefit Plans covering employees or former employees of HCI or its Subsidiaries has engaged in or been a party to a transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA, respectively. (v) No employee or former employee of HCI or its Subsidiaries shall accrue or receive additional benefits, service or accelerated rights to payment of benefits under any Employee Benefit Plan or Benefit Arrangement covering employees or former employees of HCI or its Subsidiaries or become entitled to severance, termination allowance or similar payments as a result of the transactions contemplated by this Agreement. (vi) Each Employee Benefit Plan that covers or has covered employees or former employees of HCI or its Subsidiaries and is intended to qualify under Section 401(a) of the Code is the subject of a favorable determination letter from the Internal Revenue Service, a copy of which has been delivered to ALC. (vii) The following definitions apply to this Section 3.11: "Benefit Arrangement" means any material benefit arrangement that is ------------------- not an Employee Benefit Plan, including (i) each employment or consulting agreement, (ii) each arrangement providing insurance benefits, (iii) each incentive bonus or deferred bonus arrangement, (iv) each arrangement providing termination allowance, severance or similar benefits, (v) each equity compensation plan, and (vi) each deferred compensation plan. "Employee Benefit Plan" means any employee benefit plan, as defined in --------------------- Section 3(3) of ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Affiliate" of HCI means any other person that, together with --------------- HCI as of the relevant measuring date under ERISA, was or is required to be treated as a single employer under Section 414 of the Code. "Multiemployer Plan" means a multiemployer plan, as defined in ------------------ Sections 3(37) and 4001(a)(3) of ERISA. Section 3.12 Compliance with Applicable Law. HCI and each of its Subsidiaries have complied with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to HCI or any of its Subsidiaries, except where such noncompliance or default would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect on HCI, and neither HCI nor any of its Subsidiaries knows of, or has received notice of, any noncompliance or default of any of the above which, individually or in the aggregate, would have or would reasonably be expected to have a Material Adverse Effect on HCI. 11 Section 3.13 Certain Contracts. (a) Except as set forth in Section 3.13(a) of the HCI Disclosure Schedule, neither HCI nor any of its Subsidiaries is a party to or is bound by any contract, arrangement, commitment or understanding (whether written or oral) (i) which is a material to the conduct of HCI's business, (ii) which materially restricts the conduct of any line of business by HCI, (iii) evidencing or concerning any loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments pursuant to which any indebtedness of HCI or any of its Subsidiaries is evidenced or (iv) with or to a labor union or guild (including any collective bargaining agreement). Each contract, arrangement, commitment or understanding of the type described in this Section 3.13(a), other than the HCI Documents, whether or not set forth in Section 3.13(a) of the HCI Disclosure Schedule, is referred to herein as a "HCI --- Contract," and neither HCI nor any of its Subsidiaries knows of, or has received - -------- notice of, any violation of the above by any of the other parties thereto which, individually or in the aggregate, would have or would reasonably be expected to have a Material Adverse Effect on HCI. (b) (i) Each HCI Contract is valid and binding and in full force and effect, (ii) HCI and each of its Subsidiaries has in all material respects performed all obligations required to be performed by it to date under each HCI Contract, and (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute a material default on the part of HCI or any of its Subsidiaries under any such HCI Contract, except, in each case, where such invalidity, failure to be binding, failure to so perform or default, individually or in the aggregate, would not have or reasonably be expected to have a Material Adverse Effect on HCI. Section 3.14 Environmental Liability. Except as disclosed in "phase one" environmental reports listed in Section 3.14 of the HCI Disclosure Schedule, there are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that reasonably could be expected to result in the imposition, on HCI or any of its Subsidiaries of any liabilities or obligations arising under common law standards relating to environmental protection, human health or safety, or under any local, state or federal environmental statute, regulation or ordinance, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (collectively, the "Environmental Laws"), pending or, to the knowledge of HCI, threatened, against ------------------ HCI or any of its Subsidiaries, which liabilities or obligations, individually or in the aggregate, would have or would reasonably be expected to have a Material Adverse Effect on HCI. To the knowledge of HCI or any of its Subsidiaries, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that, individually or in the aggregate, would impose any liabilities or obligations that would have or would reasonably be expected to have a Material Adverse Effect on HCI. Section 3.15 Properties. Section 3.15 of the HCI Disclosure Schedule contains a complete and accurate list of all real property owned by HCI (the "Owned Real Property"). HCI has provided to ALC accurate and complete copies of ------------------- title reports covering all Owned Real Property (the "Title Reports"). Section ------------- 3.15 of the HCI Disclosure Schedule also contains a complete and accurate list of all options to purchase ("Options to Purchase") or purchase and sale ------------------- agreements ("Purchase Agreements") to which HCI is a party. All such Purchase ------------------- Agreements are valid, binding and enforceable against HCI in accordance with their terms and are in full force and effect; no event of default has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default thereunder on the part of HCI. The zoning ordinances applicable to each Owned Real Property and, to the knowledge of HCI, each real property subject to a 12 Purchase Agreement are not inconsistent with the development, construction, use and operation of an assisted living facility. HCI has good and marketable fee simple title to all Owned Real Property, subject only to the following liens, claims and encumbrances: (i) materialmen's, mechanics', carriers', workmen's, repairmen's or other like liens arising in the ordinary course of HCI's business for amounts not yet due or which are being contested in good faith by appropriate proceedings; (ii) liens for current taxes not yet due or any taxes being contested in good faith by appropriate proceedings; and (iii) any other liens, claims or encumbrances affecting title to the Owned Real Property which are set forth on the Title Reports. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALC ALC hereby represents and warrants to HCI as follows: Section 4.1 Corporate Organization. (a) ALC is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. ALC has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted. (b) On the Closing Date, Newco will be a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. On the Closing Date, Newco will have the corporate power and authority to effect the Merger and will be duly qualified in Nevada as may be necessary to effect the Merger. The copies of the Articles of Incorporation and Bylaws of Newco, which will be made available to HCI prior to the Closing Date, will be true, complete and correct copies of such documents as in effect on the Closing Date. Section 4.2 Newco Capitalization, Etc. As of the Closing Date, ALC will own directly 100% of the issued and outstanding shares of capital stock, voting securities or other ownership interests of Newco. Section 4.3 Authority; No Violation. (a) ALC has full corporate power and authority to execute and deliver this Agreement and the other documents contemplated to be executed and delivered by ALC in connection with the transactions contemplated hereby (this Agreement, together with such other documents, collectively, the "ALC --- Documents") and to consummate the transactions contemplated hereby and thereby. - --------- The execution and delivery of each of the ALC Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by the Board of Directors of ALC. No other corporate proceedings on the part of ALC are necessary to approve ALC Documents and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and prior to the Effective Time, each other ALC Document will have been, duly and validly executed and delivered by ALC and (assuming due authorization, execution and delivery by HCI) this Agreement constitutes, and each other ALC Document will constitute, a valid and binding obligation of ALC, enforceable against ALC in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. 13 (b) Neither the execution and delivery of ALC Documents by ALC nor the consummation by ALC of the transactions contemplated hereby and thereby, nor compliance by ALC with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Articles of Incorporation or Bylaws of ALC or any of the similar governing documents of any of its Subsidiaries or (ii) assuming that the consents and approvals referred to in Section 4.4 hereof are duly obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to ALC or any of its Subsidiaries or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of ALC or any of its Subsidiaries under, any of the terms, conditions or provisions of any material contract (as defined in Item 601(b)(10) of Regulation S-K of the Securities and Exchange Commission to which ALC or any of its Subsidiaries is a party, any contract which materially restricts the conduct of the business of ALC or any loan or credit agreement, note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which ALC or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except (in the case of clause (ii) above) for such violations, conflicts, breaches or defaults which either individually or in the aggregate will not have and would not reasonably be expected to have a Material Adverse Effect on ALC. (c) On the Closing Date, Newco will have full corporate power and authority to execute and deliver all documents to be executed and delivered by Newco on the Closing Date in connection with the Merger and the transactions contemplated thereby (the "Newco Documents"). The execution and delivery of each --------------- of the Newco Documents and the consummation of the transactions contemplated hereby and thereby will have been duly and validly approved by the Board of Directors of Newco and the stockholder of Newco. No other corporate proceedings on the part of Newco will be necessary to authorize the execution and delivery and performance of the Newco Documents and the consummation of the Merger. Prior to the Effective Time, each Newco Document will have been, duly and validly executed and delivered by Newco and (assuming due authorization, execution and delivery by the other parties to such documents) will constitute, a valid and binding obligation of Newco, enforceable against Newco in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. (d) Neither the execution and delivery of Newco Documents by Newco nor the consummation by Newco of the transactions contemplated hereby and thereby, nor compliance by Newco with any of the terms or provisions hereof or thereof, will (i) violate any provision of the Articles of Incorporation or Bylaws of Newco or (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Newco. Section 4.4 Consents and Approvals. Except for (i) the filing of the Articles of Merger with the Nevada Secretary pursuant to the NRS, (ii) the adoption of the Articles of Merger by the requisite vote of the stockholder of Newco, (iii) the filing of the Articles of Incorporation of Newco with the Nevada Secretary, and (iv) consents and approvals, the failure of which to obtain would not, individually or in the aggregate, have and would not be reasonably expected to have a Material Adverse Effect on ALC, no consents or approvals of, or filings or registrations with, any Governmental Entity or any third party are necessary in connection with (A) the execution and delivery by ALC of the ALC Documents, (B) the execution and delivery by Newco of the Newco Documents, and (C) the 14 consummation by ALC and Newco of the Merger and the other transactions contemplated hereby and thereby. Section 4.5 Vote or Consent Required. No holders of outstanding shares of ALC Common Stock are required to vote or consent to the approval this Agreement, the Merger or the transactions contemplated hereby (under applicable law or otherwise). ALC, as the sole stockholder of Newco, will be required to consent to the approval of Merger and the transactions contemplated thereby (under applicable law or otherwise). Section 4.6 Opinion of Financial Advisor. ALC has received the opinion of McDonald & Company Securities, Inc., dated September 8, 1997, satisfactory to ALC, a signed version of which has been provided to HCI, to the effect that the consideration to be received by the holders of the HCI Common Stock under this Agreement is fair to ALC from a financial point of view. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.1 Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time, except as expressly contemplated or permitted by this Agreement or as required by applicable law, HCI shall, and shall cause its Subsidiaries to, (i) conduct its business in the usual, regular and ordinary course consistent with past practice, (ii) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its officers and key employees and (iii) take no action which would reasonably be expected to adversely affect or delay the ability of either HCI to obtain any approvals of any Governmental Entity required to consummate the transactions contemplated hereby or to perform its covenants and agreements under the HCI Documents. HCI agrees that HCI and its Subsidiaries will not incur indebtedness in excess of $6.0 million in the aggregate without the prior written consent of ALC, which consent shall not be unreasonably withheld, conditioned or delayed. Section 5.2 Forbearances. Except (i) for the acquisition of parcels of land where assisted living facilities can be developed that are subject to Options to Purchase as of the date of this Agreement (which acquisition(s) shall have been consented to in writing by ALC (which consent shall not be unreasonably withheld, conditioned or delayed)) or that are subject to Purchase Agreements as of the date of this Agreement, (ii) for the execution and delivery by HCI of Purchase Agreements with respect to additional parcels of land on which assisted living facilities can be developed (the execution and delivery of which shall have been consented to in writing by ALC (which consent shall not be unreasonably withheld, conditioned or delayed)), (iii) for the execution and delivery by HCI of Options to Purchase with respect to additional parcels of land on which assisted living facilities can be developed, and (iv) for the execution and delivery of the LTC Commitment (as defined in Section 7.1(e) hereof), during the period from the date of this Agreement to the Effective Time and, except as expressly contemplated or permitted by this Agreement or as required by applicable law, rule or regulation, HCI shall not and shall not permit any of its Subsidiaries to: (a) adjust, split, combine or reclassify any capital stock; make, declare or pay any dividend or make any other distribution on (other than a $2.50 per share distribution by HCI payable in the form of cash, cancellation of indebtedness (including interest thereon) or issuance of indebtedness), or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital 15 stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, voting securities or other ownership interests, or grant any stock appreciation rights or grant any individual, corporation or other entity any right to acquire any shares of its capital stock, voting securities or other ownership interests (except for the issuance of employee stock options and restricted stock consistent with past practices); or repurchase, redeem or otherwise acquire any shares of its capital stock or any capital stock, voting securities or ownership interests in any Subsidiary; or issue any additional shares of capital stock, voting securities or other ownership interests; (b) sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets to any individual, corporation or other entity other than a direct or indirect wholly owned Subsidiary, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, in each case that is material to such party, except (i) in the ordinary course of business consistent with past practice, (ii) pursuant to contracts or agreements in force at the date of this Agreement in accordance with the terms of such contract or agreement as in effect on the date of this Agreement, (iii) pursuant to plans disclosed in writing prior to the execution of this Agreement to the other party or (iv) for the cancellation of approximately $5.0 million of indebtedness (plus interest thereon) owing under certain outstanding promissory notes issued by stockholders of HCI; (c) except for transactions in the ordinary course of business consistent with past practice, make any material acquisition or investment either by purchase of stock or securities, merger or consolidation, contributions to capital, property transfers, or purchases of any property or assets of any other individual, corporation or other entity other than a wholly owned Subsidiary thereof; (d) except for transactions in the ordinary course of business consistent with past practice, enter into or terminate any contract or agreement, or make any change in any of its leases or contracts, in each case that is material to such party, other than renewals of contracts and leases without materially adverse changes of terms thereof; (e) incur any liability for indebtedness, guarantee the obligations of others, indemnify others or, except in the ordinary course of business, incur any other liability; (f) increase in any material respect the compensation or fringe benefits of any of its employees or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees other than in the ordinary course of business consistent with past practice, or become a party to, amend or commit it itself to any material pension, retirement, profit- sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee or accelerate the vesting of any stock options or other stock-based compensation; (g) settle any claim, action or proceeding involving money damages which is material to HCI, except in the ordinary course of business consistent with past practice; (h) take any action that would prevent or impede the Merger from qualifying for the purchase method of accounting; (i) amend its Articles of Incorporation, Bylaws or similar governing documents in any case in a manner that would materially and adversely effect any party's ability to consummate the Merger or the economic benefits of the Merger to either party; 16 (j) take any action that is intended or may reasonably be expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VII not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law; (k) except for capital expenditures approved by LTC Development, Inc. (which approval shall not be unreasonably withheld), incur any capital expenditures in excess of $5,000 individually or $25,000 in the aggregate; (l) make any change in accounting methods, principles or practices, except as required by a change in GAAP; or (m) agree to, or make any commitment to, take any of the actions prohibited by this Section 5.2. For purposes of the provisions of this Section 5.2, the execution and delivery of Purchase Agreements with respect to assisted living facilities and the purchase of such facilities are not considered transactions in the ordinary course of business. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Cooperation as to Regulatory Matters. (a) The parties hereto shall cooperate with each other and use reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement (including without limitation the Merger), to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such Governmental Entities, and to defend any lawsuits or other legal proceedings challenging this Agreement and the transactions contemplated by this Agreement. (b) ALC and HCI shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, Newco, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any statement, filing, notice or application made by or on behalf of ALC, HCI, Newco or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (c) ALC and HCI shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval (as defined below) will not be obtained or that the receipt of any such approval will be materially delayed. 17 Section 6.2 Access to Information. (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, HCI shall, and shall cause each of its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of the other property access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records, and to its officers, employees, accountants, counsel and other representatives and, during such period, HCI shall, and shall cause its Subsidiaries to, make available to the other party (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws (other than reports or documents which HCI, as the case may be, is not permitted to disclose under applicable law) and (ii) all other information concerning its business, properties and personnel as such other party may reasonable request. None of HCI nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of its customers, jeopardize the attorney-client privilege of the institution in possession or control of such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. (b) Neither HCI nor ALC shall disclose to any third party, other than its directors, officers, employees, accountants, attorneys, advisors or other representatives, information furnished by the other party or any of such party's Subsidiaries or representatives pursuant to Section 6.2(a) hereof, unless such information is otherwise publicly available. Section 6.3 Stockholders' Approvals. HCI shall either: (i) obtain written consent from holders of the requisite shares of HCI Voting Stock to effect the Merger or (ii) duly call, give notice of, convene and hold a meeting of its stockholders to be held, in each case, as soon as practicable following the date hereof for the purpose of obtaining the requisite stockholder approvals required in connection with this Agreement and the Merger. Subject to the provisions of the next sentence, HCI shall, through its Board of Directors, recommend to its stockholders approval of such matters. The Board of Directors of HCI may fail to make such recommendation, or withdraw, modify or change any such recommendation in a manner adverse to the other party hereto, if such Board of Directors, after having consulted with and considered the advice of outside counsel, has reasonably determined in good faith that the making of such recommendation, or the failure to withdraw, modify or change its recommendation, would constitute a breach of the fiduciary duties of the members of such Board of Directors under applicable law. Section 6.4 Legal Conditions to Merger. Subject to the terms and conditions of this Agreement, each of ALC and HCI shall, and shall cause their respective Subsidiaries to use their reasonable best efforts (i) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such party or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in Article VII hereof, to consummate the transactions contemplated by this Agreement and (ii) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party which is required to be obtained by HCI or ALC or any of their respective Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement. 18 Section 6.5 Indemnification; Directors' and Officers' Insurance. (a) ALC agrees that from and after the Effective Time, ALC shall, and shall cause the Surviving Corporation to, indemnify and hold harmless each present and former director and officer of HCI and its Subsidiaries, determined as of the Effective Time (the "Indemnified Parties"), against any ------------------- costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively "Costs") incurred in ----- connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that HCI or such Subsidiary would have been required to indemnify under the Articles of Incorporation or Bylaws of HCI or such Subsidiary in effect on the date hereof to indemnify such person (and such party shall also advance expenses as incurred to the fullest extent permitted under applicable law; provided, that the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (b) An Indemnified Party wishing to claim indemnification under Section 6.5(a) or (b) hereof upon learning of any such claim, action, suit, proceeding or investigations shall promptly notify the indemnifying party thereof, but the failure to so notify shall not relieve the indemnifying party of any liability it may have to such Indemnified Party except to the extent such failure materially prejudices the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), the indemnifying party shall have the right to assume the defense thereof and it shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that, if the indemnifying party elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between the indemnifying party and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and the indemnifying party shall pay all reasonable fees and expense of such counsel for the Indemnified Parties promptly as statements therefor are received. If such indemnity is not available with respect to any Indemnified Party, then the indemnifying party and the Indemnified Party shall contribute to the amount payable in such proportion as is appropriate to reflect relative faults and benefits. (c) The provisions of this Section 6.5 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives. Section 6.6 Additional Agreements. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the merger, the proper officers and directors of each party of this Agreement and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by, and at the sole expense of, ALC; provided, further, that the vote or written consent of the Former HCI Stockholders that, immediately prior to the Effective Time, were holders of a majority of the outstanding shares of HCI Common Stock (including HCI Voting Common Stock and HCI Non-Voting Common Stock) shall be effective for any such further action required on the part of the Former HCI Stockholders and shall be effective and binding upon all Former HCI Stockholders. Section 6.7 Advise of Changes. HCI shall promptly advise ALC of any change or event which, individually or in the aggregate with other such changes or events, has a Material Adverse 19 Effect on HCI or which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein. Section 6.8 Qualified Sites and Identified Sites. On or prior to Closing, HCI shall notify ALC of: (i) all parcels of land that HCI owns where assisted living facilities can be developed, and (ii) all Options to Purchase or Purchase Agreements to which HCI is a party with respect to such parcels of land where assisted living facilities can be developed. Such notice shall list all such parcels and shall identify up to 39 of such parcels as "Qualified Sites" --------------- for the purposes of this Agreement. Within 90 calendar days following the Effective Time (the "First 90-Day Period"), ALC shall notify the Former HCI ------------------- Stockholders in writing of the Qualified Sites on which (or within 15 miles of which) ALC intends to develop an assisted living facility and may identify up to 10 Qualified Sites on which (or within 15 miles of which) it may have an intention to develop an assisted living facility (the "Possible Sites"). Within -------------- 90 calendar days following the First 90-Day Period (the "Second 90-Day Period"), -------------------- ALC shall notify the Former HCI Stockholders in writing of the Possible Sites on which (or within 15 miles of which) ALC intends to develop an assisted living facility. Each Qualified Site on which (or within 15 miles of which) ALC indicates during the First 90-Day Period that an assisted living facility will be developed shall be considered an "Identified Site" for purposes of this --------------- Agreement. In addition, each Possible Site on which (or within 15 miles of which) ALC indicates during the Second 90-Day Period that an assisted living facility will be developed shall be considered an "Identified Site" for purposes --------------- of this Agreement. For the two-year period following the Effective Time, ALC shall not develop, construct, obtain a certificate of occupancy with respect to, purchase and/or operate an assisted living facility that is at (or within 15 miles of) a Qualified Site, unless such Qualified Site is an Identified Site. Section 6.9 Formation of Newco. As soon as reasonably practicable following the execution of this Agreement, ALC shall cause Newco to be formed as a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with the corporate power and authority to effect the Merger. Section 6.10 No Solicitation of Alternate Transaction. HCI and its Subsidiaries will not, directly or indirectly, and will use its reasonable best efforts to cause its officers, directors and agents not to solicit, initiate or deliberately encourage submission of proposals or offers from any person relating to any acquisition or purchase of all or a material amount of the assets of, or any equity interest in, HCI or any merger, consolidation or business combination with HCI; provided, however, that consistent with its fiduciary obligations under applicable law as advised by counsel, HCI may participate in any discussions or negotiations regarding, and may furnish to any other person information with respect to, any of the foregoing. HCI shall promptly notify ALC if any such proposal or offer, or any inquiry or contact with any person with respect thereto, is made. Section 6.11 Bring-Down of Representation and Warranties. At the Effective Time, by the filing of the Articles of Merger with the Nevada Secretary, each of HCI and ALC shall be deemed to have affirmed in all material respects the representations and warranties that are not qualified as to materiality in Articles III and IV, respectively, as if made on such Closing Date (except to the extent such representations and warranties speak as of an earlier date) and shall be deemed to have affirmed the representations and warranties that are qualified as to materiality in Articles III and IV, respectively, as if made on such Closing Date (except to the extent such representations and warranties speak as of an earlier date); provided, however, HCI shall have the right to amend the HCI Disclosure Schedule, so long as such amended HCI Disclosure Schedule is not materially different from the HCI Disclosure Schedule provided to ALC on the date of this Agreement; it being understood that HCI shall, nonetheless, be permitted to amend Sections 3.15 of the HCI Disclosure Schedule, whether or not material, to provide 20 for the addition of any Owned Real Property and/or Purchase Agreements (so long as such Owned Real Property is acquired and/or such Purchase Agreements are entered into, as the case may be, in accordance with the provisions of Section 5.2(a) hereof) and/or to provide for the addition of any Options to Purchase, in each case, with respect to parcels of land on which assisted living facilities can be developed (as contemplated by Section 6.8 hereof). Section 6.12 Guarantee of HCI Obligations. At the Effective Time, ALC shall guarantee the performance of all obligations of HCI owing to LTC Properties, Inc. ("LTC"), including without limitation, the obligations of HCI --- pursuant to the LTC Commitment (as defined in Section 7.1(e) hereof) and pursuant to the note to be issued to LTC in connection with the $2.50 per share distribution to HCI stockholders. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation To Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement, the Merger and the transactions contemplated hereby and thereby shall have been approved and adopted by the requisite affirmative votes or written consent of the holders of HCI Common Stock entitled to vote thereon. (b) Other Approvals. All material regulatory approvals required to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated (all such approvals and the expiration of all such waiting periods being referred to herein as the "Requisite Regulatory Approvals") and no such approval shall ------------------------------ contain any conditions or restrictions which the Board of Directors of either ALC or HCI reasonably determines in good faith will have or reasonably be expected to have a Material Adverse Effect on ALC and its Subsidiaries (including the Surviving Corporation and its Subsidiaries) taken as a whole. (c) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "Injunction") preventing the ---------- consummation of the Merger or any of the other transactions contemplated by this Agreement shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal the consummation of the Merger. (d) Consents. All consents and waivers from third parties necessary in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained, other than such consents and waivers from third parties which, if not obtained, would not result in a Material Adverse Effect on ALC and its Subsidiaries (including the Surviving Corporation and its Subsidiaries) taken as a whole. (e) Commitment Between HCI and LTC. HCI and LTC shall have entered into a commitment (the "LTC Commitment"), subject to the approval of ALC -------------- (which approval shall not 21 be unreasonably withheld), with respect to the financing by LTC of up to $50,000,000 in connection with HCI's development and construction of assisted living facilities. Section 7.2 Conditions to Obligations of ALC. The obligation of ALC to effect the Merger is also subject to the satisfaction or waiver by ALC at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. The representations and warranties of HCI set forth in Article III hereof that are not qualified as to materiality shall be true and correct in all material respects as of the date of this Agreement (except to the extent such representations and warranties speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date; the representations and warranties of HCI set forth in Article III hereof that are qualified as to materiality shall be true and correct in all respects as if made on such date as of the date of this Agreement (except to the extent such representations and warranties speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date. (b) Performance of Obligations of HCI. HCI shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. (c) Licensing and Certification. The licenses and certifications of HCI and its Subsidiaries that are necessary for HCI and its Subsidiaries, as the case may be, to be Medicare and Medicaid providers or to provide home health or hospice services, shall not be subject to a notice of termination or suspension or be suspended or terminated and there shall be no notice of termination, issued pursuant to HCFA State Operations Manual (S) 3010(B), pending as against any assisted living facility operated by HCI. (d) Estoppel Certificate. LTC shall have executed and delivered a certificate to ALC confirming that: (i) LTC is aware of no defects by HCI on any of its obligations to LTC; (ii) all commitments made by LTC to HCI pursuant to the LTC Commitment shall remain in full force and effect after the consummation of the transactions contemplated by this Agreement; and (iii) the terms in the construction loans between HCI and LTC requiring a 30-day notice of prepayment shall be modified to a 10-day notice of prepayment; provided, however, that at the time of any such prepayment HCI shall confirm its obligation to effect sale and leaseback transactions of the properties subject to such construction loans in accordance with the terms of the LTC Commitment. (e) ALC/HCI License Agreement. HCI shall have paid ALC all license fees owed to ALC pursuant to the Agreement Regarding License to Use Proprietary Information and Materials entered into as of the 15th day of June, 1997 by and between HCI and ALC. (f) Closing Certificates. HCI shall provide any closing certificates, in a form reasonably acceptable to ALC, as ALC shall reasonably request to evidence satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof. Section 7.3 Conditions to Obligations of HCI. The obligation of HCI to effect the Merger is also subject to the satisfaction or waiver by HCI at or prior to the Effective Time of the following conditions: 22 (a) Representations and Warranties. The representations and warranties of ALC set forth in Article III hereof that are not qualified as to materiality shall be true and correct in all material respects as of the date of this Agreement (except to the extent such representations and warranties speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date; the representations and warranties of set forth in Article III hereof that are qualified as to materiality shall be true and correct in all respects as if made on such date as of the date of this Agreement (except to the extent such representations and warranties speak as of an earlier date) and as of the Closing Date as though made on and as of the Closing Date. (b) Performance of Obligations of ALC. ALC shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. (c) Closing Certificates. ALC shall provide any closing certificates, in a form reasonably acceptable to HCI, as HCI shall reasonably request to evidence satisfaction of the conditions set forth in Sections 7.1 and 7.3 hereof. ARTICLE VIII TERMINATION AND AMENDMENT Section 8.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) by mutual consent of ALC and HCI in a written instrument, if the Board of Directors of each so determines; (b) by either the Board of Directors of ALC or the Board of Directors of HCI if a Governmental Entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) by either the Board of Directors of ALC or the Board of Directors of HCI if the Merger shall not have been consummated on or before December 31, 1997 (or, if at such date the Merger shall not have been consummated as a result of the failure of the condition set forth in Section 7.1(d) hereof to be satisfied, and such condition shall not have failed to have been satisfied by reason of the enactment or promulgation of any statute, rule or regulation which prohibits, restricts or makes illegal consummation of the Merger, the earlier of (i) the date on which such condition is satisfied and (ii) December 31, 1997) unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein; (d) by either the Board of Directors of ALC or the Board of Directors of HCI (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if the other party shall have breached (i) any of the covenants or agreements made by such other party herein or (ii) any of the representations or warranties made by such other party herein, and in either case, such breach (x) is not cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be 23 cured prior to the Closing and (y) would entitle the non-breaching party not to consummate the transactions contemplated hereby under Article VII hereof; and (e) by either the Board of Directors of ALC or the Board of Directors of HCI if any approval of the stockholders of HCI contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of stockholders or at any adjournment or postponement thereof. Section 8.2 Effect of Termination. In the event of termination of this Agreement by either ALC or HCI as provided in Section 8.1 hereof, this Agreement shall forthwith become void and have no effect, and none of ALC, HCI, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby, except (i) Sections 6.2(b), 8.2, and 9.3 hereof shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, neither ALC nor HCI shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement. Section 8.3 Amendment. Subject to compliance with applicable law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before approval of the matters presented in connection with the Merger by the stockholders of HCI. Subject to compliance with applicable law, this Agreement may be amended or compliance with the provisions hereof may be waived by the parties hereto at any time after approval of the matters presented in connection with the Merger by the stockholders of HCI, by action taken or authorized by their respective Board of Directors, and by vote or written consent of holders of a majority of the then outstanding shares of HCI Voting Common Stock (if such action is taken prior to the Effective Time) or by vote or written consent of Former HCI Stockholders that, immediately prior to the Effective Time, were holders of a majority of the outstanding shares of HCI Common Stock (including HCI Voting Common Stock and HCI Non-Voting Common Stock) (if such action is taken after the Effective Time). This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.4 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 24 ARTICLE IX GENERAL PROVISIONS Section 9.1 Closing. Upon the terms and subject to the conditions of this Agreement, the closing of the Merger (the "Closing") shall take place at ------- 10:00 a.m. on a date to be specified by the parties, which unless otherwise agreed by the parties shall be no later than two business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Article VII hereof (the "Closing Date"). ------------ Section 9.2 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for those covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time. Section 9.3 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. Section 9.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed driven if delivered personally, telecopied (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to ALC, Newco or the Surviving Corporation to: Assisted Living Concepts, Inc. 9955 Southeast Washington Suite 201 Portland, Oregon 97216 Telecopy: (503) 252-6597 Attention: Chief Financial Officer with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman 300 Pioneer Tower 888 Southwest 5th Avenue Portland, Oregon 97204 Telecopy: (503) 295-0915 Attention: Sandra Campbell, Esq. (b) if to HCI, to: Home and Community Care, Inc. 300 Esplanade Dive Suite 1860 Oxnard, California 93030 25 Telecopy: (805) 981-8655 Attention: Andre Dimitriadis with a copy to: Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Telecopy: (213) 891-8763 Attention: Gary Olson, Esq. Section 9.5 Interpretation. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Whenever the word "material" is used in this Agreement and the context in which it is used refers to any of the parties to this Agreement or any of their respective Subsidiaries, it shall be deemed to be followed by "to [HCI] [ALC] and its Subsidiaries, taken together as a whole," as applicable. No provision of this Agreement shall be construed to require HCI, ALC or any of their respective Subsidiaries or Affiliates to take any action which would violate or conflict with any applicable law (whether statutory or common), rule or regulation. Section 9.6 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 9.7 Entire Agreement. This Agreement (together with the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written an oral, among the parties with respect to the subject matter hereof, the HCI Documents and ALC Documents. Section 9.8 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Nevada, without regard to any applicable conflicts of law. Section 9.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Section 9.10 Publicity. Except as otherwise required by applicable law or the rules of the ASE, neither ALC nor HCI shall, or shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the written consent of the other party, which consent shall not be unreasonably withheld. 26 Section 9.11 Assignment; Third Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations of any party hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party provided that ALC shall not be required to obtain any consent, after the Effective Time, in the event this Agreement or the rights, interests or obligations hereunder are assigned to, and the related obligations are assumed by, a wholly-owned subsidiary of ALC, as long as ALC shall, contemporaneous with such assignment and assumption, guarantee the payment of any obligations owed hereunder, including the Earnout Payments. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.5 hereof, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. After the Effective Time, a vote or the written consent of the holders of a majority of the then outstanding shares of HCI Common Stock (including HCI Voting Common Stock and HCI Non-Voting Common Stock) shall be required to permit the assignment of this Agreement and any of the rights, interests or obligations of the Former HCI Stockholders hereunder and such vote or written consent shall be effective and binding upon all Former HCI Stockholders. Section 9.12 Enforcement of the Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 27 IN WITNESS WHEREOF, ALC and HCI have caused this Agreement to be executed by their respective authorized signatories as of the date first above written. ASSISTED LIVING CONCEPTS, INC. By: /s/ Stephen Gordon --------------------------- Stephen Gordon Chief Financial Officer HOME AND COMMUNITY CARE, INC. By: /s/ Andre Dimitriadis --------------------------- Andre Dimitriadis Chairman of the Board S-1 EXHIBIT A ARTICLES OF MERGER OF HCI MERGER, INC. A NEVADA CORPORATION INTO HOME AND COMMUNITY CARE, INC., A NEVADA CORPORATION The undersigned, as the President and Secretary of Home and Community Care, Inc., a Nevada corporation (the "Surviving Constituent Entity"), and of HCI Merger, Inc., a Nevada corporation (the "Merged Constituent Entity" and, together with the "Surviving Constituent Entity", the "Constituent Entities"), as and for the purpose of complying with the provisions of Nevada Revised Statutes ("NRS") 92A.005 et seq., and in order to effectuate the merger of the Merged Constituent Entity into the Surviving Constituent Entity (the "Merger"), hereby certify as follows: 1. The jurisdiction of organization of each Constituent Entity is the State of Nevada. 2. A plan of merger (the "Plan of Merger") has been adopted by the Board of Directors of each Constituent Entity. The Plan of Merger has been approved by the sole stockholder of the Merged Constituent Entity. Pursuant to NRS Chapter 92A and the Surviving Constituent Entity's Articles of Incorporation and Bylaws, the Plan of Merger was submitted to the holders of the Surviving Constituent Entity's issued and outstanding common stock entitled to vote ("Voting Stock"), a majority thereof (___ of ____ shares of Voting Stock) were required to approve and did approve the Plan of Merger, and such majority vote of the voting Stock was sufficient for approval of the Plan of Merger by the stockholders of the Surviving Constituent Entity. 3. The Articles of Incorporation of the Surviving Constituent Entity have not been and will not be amended in connection with the Merger. 4. A complete executed Plan of Merger is on file at the registered office of the Surviving Constituent Entity, currently: 300 Esplanade Drive, Suite 1880, Oxnard, California 93030. 5. A copy of the Plan of Merger will be furnished by the Surviving Constituent Entity on request and without any cost to any stockholder of either Constituent Entity. 6. The effective date of the Merger is the date upon which these Articles of Merger are filed in the office of the Secretary of State of Nevada. IN WITNESS WHEREOF, we have set forth our hands as of the ___ day of _____________, 1997. Surviving Constituent Entity HOME AND COMMUNITY CARE, INC., a Nevada corporation _____________________________________ William McBride III, President _____________________________________ James J. Pieczynski, Secretary Merged Constituent Entity HCI MERGER, INC., a Nevada corporation _____________________________________ Keren Brown Wilson, President _____________________________________ Stephen Gordon, Secretary State of ___________________) ) County of __________________) This instrument was acknowledged before me on ____________, 1997 by William McBride III, as President of Home and Community Care, Inc., a Nevada corporation. _____________________________________ Notary Public State of ____________________) ) ss. County of ___________________) This instrument was acknowledged before me on _______________, 1997 by Keren Brown Wilson, as President of HCI Merger, Inc., a Nevada corporation. _____________________________________ Notary Public EXHIBIT "B" EXCHANGE CERTIFICATE FOR COMMON STOCK OF HOME AND COMMUNITY CARE, INC. I, (name of shareholder) , in accordance with that -------------------------------------- Agreement and Plan of Merger and Reorganization By and Between Assisted Living Concepts, Inc., a Nevada corporation, and Home and Community Care, Inc., a Nevada corporation, dated October 4, 1997, ("the Merger Agreement"), hereby certify that: 1. I am in receipt of a copy of the Merger Agreement. 2. I am the sole and absolute owner of (no. of shares) shares of ------------------- common stock of Home and Community Care, Inc., ("HCI"), a Nevada corporation. 3. These shares of stock are represented by certificate no(s). ____ issued by HCI and such certificate(s) is/are attached hereto and hereby surrendered in exchange for the Merger Consideration (as such term is defined at section 1.4(a) of the Merger Agreement) as contemplated by Article II of the Merger Agreement. 4. I have the sole and exclusive right to sell and transfer these shares of stock. 5. The shares of stock are fully paid and nonassessable and are not subject to any liens, mortgages or other encumbrances or claims of any kind or nature and are surrendered free and clear of any liens, mortgages, or encumbrances. 6. My current mailing address is : ------------------------------------- ------------------------------------- ------------------------------------- 7. All payments, notices, and correspondence from Assisted Living Concepts, Inc. ("ALC"), in connection with the Merger Agreement, should be delivered at the address noted above, unless I notify ALC in writing of a new mailing address. 8. I acknowledge and agree that, in accordance with the terms of the Merger Agreement, the vote or written consent of a majority of the Former HCI Shareholders (as such term is defined at section 2.3(a) of the Merger Agreement) shall be required before the terms of the Merger Agreement may be amended or before the Merger Agreement or any of the rights, interests or obligations of ALC under the Merger Agreement may be assigned, and, if such a majority of the Former HCI Shareholders so vote or consent, such vote or consent shall be binding on me or my assignee. 9. I further acknowledge and agree that all notices and other communication to ALC shall be delivered to ALC at the following address, unless ALC notifies me in writing of a new mailing address, and that all such notices or communications must specifically identify the Merger Agreement: Chief Financial Officer Assisted Living Concepts, Inc. 9955 S.E. Washington Suite 201 Portland, Oregon 97216 Attn: Former HCI Shareholder Obligations with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman 300 Pioneer Tower 888 S.W. 5th Avenue Portland, Oregon 97204 Attn: Sandra Campbell, Esq. 10. This certificate shall be binding upon any successor-in-interest, including my heirs, personal representatives, agents and assignees. DATED this _________ day of ____________________, 19___. By: ________________________________ Name: (Print) ------------------------------ 2 EX-10.9 11 $20,440,000 AGREEMENT TO PURCHASE AND LEASE EXHIBIT 10.9 October 3, 1997 Assisted Living Concepts, Inc. 9955 S. E. Washington, Suite 201 Portland, OR 97216 Attention: Ms. Keren Brown Wilson, Chief Executive Officer RE: AGREEMENT TO PURCHASE AND LEASE ASSISTED LIVING RESIDENCES Dear Ms. Wilson: LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees, either itself or through its subsidiary or affiliate, and subject to the parameters outlined in this letter, to enter into sale/leaseback transactions with Assisted Living Concepts, Inc. ("ALC") with respect to certain properties (each individually a "Property" and collectively, the "Properties") improved with assisted living facilities (each a "Facility" and collectively, the "Facilities"), which Properties and Facilities are located in those cities and states more particularly set forth in Exhibit "A" attached hereto and made a part hereof. As we have previously discussed, ALC will sell and assign all of its right, title and interest in and to all real and personal property and fixtures comprising the Properties to LTC, and LTC or its designee will purchase the Properties from ALC and will lease the Properties back to ALC, all upon the following terms and conditions: 1. PURCHASE PRICE. With respect to the purchase of each individual -------------- Property, LTC shall pay ALC a purchase price (the "Specific Property Purchase Price") equal to the lesser of (i) ALC's total hard and soft construction costs in connection with the construction of the Facility on the Property, but in no event exceeding Seventy Thousand Dollars ($70,000.00) (except for any Property located in the State of New Jersey, in which case the figure shall be Seventy- Five Thousand Dollars ($75,000.00)) per assisted living unit in the Facility constructed on the Property, or (ii) the amount set forth as the purchase price on Exhibit "A" attached hereto corresponding to the applicable Property which amount in each case is EXCLUSIVE of the Specific Property Purchase Price (defined above); provided, however, that in no event shall the total, cumulative purchase price for all of the Properties be greater than Twenty Million Four Hundred Forty Thousand Dollars ($20,440,000.00) EXCLUSIVE of the Specific Property Purchase Price (definedabove) (the "Total Purchase Price"). The Specific Property Purchase Price shall be paid in all cash at Closing with respect to each Property. Ms. Keren Brown Wilson Assited Living Concepts, Inc. October 3, 1997 Page 2 In addition to the Specific Property Purchase Price with respect to a Property, at ALC's option, LTC shall be obligated to pay to ALC, or its designee, for each Facility on a Property, up to One Hundred Fifty Thousand Dollars ($150,000.00) of losses incurred by ALC in the stabilization period of the Facility incurred either (i) by ALC, or (ii) by a third party pursuant to a participation or other agreement with ALC (the "Stabilization Period Losses"). LTC shall be obligated to pay to ALC, or its designee, the Stabilization Period Losses at Closing with respect to each Property if the amount of the Stabilization Period Losses is ascertainable at such time. To the extent that the amount of the Stabilization Period Losses is not ascertainable at the time of LTC's purchase of a Property, LTC shall remain obligated to pay to ALC, or its designee, the Stabilization Period Losses at such time as the amount of the Stabilization Period Losses becomes ascertainable; provided, further, that as a pre-condition to LTC's obligation to disburse any such amount to ALC, or its designee, LTC shall cause to be prepared at ALC's expense, and ALC shall execute, an amendment to its lease (a) increasing the initial annual minimum rental amount thereunder by an amount equal to of the sum of the Stabilization Period Losses multiplied by the then applicable lease rate, and (b) to the extent payment of the Stabilization Period Losses is made to ALC's designee, acknowledging the benefit ALC has received in consideration of such rental increase. 2. CONTINGENCIES. ------------- (a) LTC's obligation to purchase the Properties and to consummate the transactions contemplated in this commitment letter shall be expressly contingent upon each of the following: (i) LTC shall have approved the marketing study and feasibility report prepared by Concepts in Community Living, Inc. ("CCL"), or another consultant entirely acceptable to LTC, on behalf of ALC with respect to each of the Properties; (ii) the state of title to each of the Properties must be acceptable to LTC in LTC's reasonable discretion, and LTC shall have received an ALTA Owner's Policy of Title Insurance - Extended Coverage - for each Property issued by Chicago Title Insurance Company showing the fee interest in each Property vested in LTC subject only to those exceptions specifically agreed to in writing by LTC, and containing those endorsements reasonably required by LTC; (iii) LTC shall have received an ALTA/ACSM Land Title Survey of the applicable Property and the improvements located thereon prepared by a registered professional land surveyor satisfactory to LTC in the reasonable exercise of LTC's discretion and certified, as of date not earlier Ms. Keren Brown Wilson Assited Living Concepts, Inc. October 3, 1997 Page 3 than 120 days prior to the closing date, to LTC, Chicago Title Insurance Company and any other party reasonable designated by LTC with the signature and seal of the surveyor and the following language: "This is to certify that this map or plat and the survey on which it is based were made (i) in accordance with "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys," jointly established and adopted by ALTA and ACSM in 1992, and includes Item Nos. 1-3, 6 (setback only) and 8-11 in Table A thereof; and (ii) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of this certification) of an Urban Survey." The survey shall show all easements, encroachments, building restriction lines, set backs and other similar matters affecting and/or apparent on the Property and the relation of the Property to public thoroughfares for access purposes. The survey shall also certify that the Property is or is not in a flood hazard area for purposes of the national Flood Insurance Program, and if so, shall specify the flood zone designation assigned to the Property; provided, however, that if ALC's surveyor for any reason cannot or will not provide such flood zone information, ALC shall be entitled to, and shall, provide such information to LTC from another source acceptable to LTC in the reasonable exercise of LTC's discretion . The survey shall be dated on or after substantial completion of the construction of the Facility on each Property. In addition, the record legal description of each Property must appear on the survey of that Property, and any record easements or servitudes and covenants affecting each Property which are capable of being plotted must be plotted thereon; (iv) LTC shall have received a Phase I environmental assessment of each of the Properties in form and content, and performed by an environmental consultant, entirely acceptable to LTC in LTC's reasonable discretion; (v) LTC shall have received UCC lien, tax lien and judgment lien searches dated after the date of substantial completion of the Facility on each Property evidencing that no liens exist as to the personal property located on each Property other than those liens previously approved in writing by LTC; Ms. Keren Brown Wilson Assited Living Concepts, Inc. October 3, 1997 Page 4 (vi) LTC shall be satisfied with the physical condition of the Facilities located on the Properties based on a physical inspection of each Property by LTC; (vii) LTC shall have received evidence acceptable to LTC that each of the Properties is properly zoned for use as an assisted living facility; (viii) LTC shall have received a corporate resolution of ALC's board of directors authorizing ALC to enter into, deliver and perform all of the documents and instruments necessary to effect the sale/leaseback transactions contemplated in this commitment letter; (ix) LTC shall have received a copy of the certificate of occupancy with respect to each Property and a copy of ALC's license to operate the Facility located on each Property as a fully-licensed assisted living facility in the state in which the Facility is located, and having not less than the number of units in each Facility specified for each Property on Exhibit "A" hereof; (x) ALC shall have obtained all approvals and consents required to enable ALC to consummate the sale/leaseback transaction with respect to each Property without breaching or defaulting under any contracts, agreements or other documents or instruments by which ALC is bound; and (xi) LTC, at its option, shall have conducted with respect to each Property, and be satisfied with the results of, such other standard due diligence as is customarily performed by LTC in connection with the acquisition of a fee interest in a property improved with an assisted living facility. 3. TERM; CROSS-DEFAULTING. Each lease shall have an initial ----- ----------------- term of twelve (12) years. ALC and LTC contemplate that LTC will acquire the Properties, and lease them back to ALC, its subsidiary or affiliate, at such time as the construction of the Facility on each Property is completed, the certificate of occupancy and operator's license with respect thereto issued and all other pre-conditions to Closing have been met with respect to each Property. As a result, the parties anticipate that the Properties will not all be acquired by LTC at one time, and ALC's obligation to pay Minimum Rent and other charges under each lease will commence concurrently with LTC's acquisition of the Property to which the lease relates. The lease with respect to each Property shall group the Property with three (3) other properties owned (or to be owned) by LTC Ms. Keren Brown Wilson Assited Living Concepts, Inc. October 3, 1997 Page 5 and leased (or to be leased) to ALC, its subsidiary or affiliate, each such group of four (4) or more Properties hereinafter being referred to as a "Package," and all of the Properties to be included in a Package shall be identified to LTC by not later than the date of the closing of the first Property in the Package to be acquired by LTC; provided, however, that if ALC has not identified the Properties in each Package to LTC by such time, LTC shall have the right, but not the obligation, then or at any time thereafter, to determine which Properties shall be included within the Package selecting only from Properties set forth on Exhibit "A" hereof. ALC shall have two consecutive five-year options to extend the term of all of the leases within each Package; that is, ALC shall only have the option - --- to extend the term of any of the leases in a Package so long as ALC exercises its option to extend the term of all of the leases in a Package. In addition, the leases for all of the Properties in each Package shall be co-terminus with all of the other leases in that Package, but will not be co-terminus with the leases in the other Packages. Notwithstanding the foregoing, the leases for each of the Properties shall be cross-defaulted with (i) each lease for each of the other Properties (irrespective of which Package the Properties are in), and (ii) every other lease between LTC and ALC (including without limitation any leases between LTC, on the one hand, and Home and Community Care, Inc. and/or Carriage House Assisted Living, Inc., on the other hand, if and when either of said entities (or the assets thereof) is acquired by ALC) with respect to any Facility, except for those five (5) leases relating to those certain five (5) assisted living properties in the State of Washington commonly known as: Chenoweth House, Kennewick, WA; Pioneer House, Walla Walla, WA; Orchard House, Grandview, WA; Lexington House, Vancouver, WA: and Mountain View House, Camas, WA. In addition to the foregoing, if a default is declared and not cured within thirty (30) days on any of ALC's major (that is, $5,000,000 or more) loans or lines of credit, or if such loan or line of credit is accelerated or the lender thereunder takes any action to enforce the same, then LTC shall have the right, but not the obligation, also to declare a default under each of the leases entered into hereunder. 4. MINIMUM RENT. The initial annual Minimum Rent for the first ------------ year of each lease shall be an amount equal to the sum of the Specific Property Purchase Price and the Stabilization Period Losses (to the extent then ascertainable) paid by LTC (or its designee) for each Property multiplied by nine and ninety-five hundredths percent (9.95%). ALC shall pay an amount equal to one-twelfth (1/12) of the annual Minimum Rent applicable to each Property on the first day of each and every month during the term of the leases without demand, abatement (except as specifically set forth in the leases with respect to a partial condemnation of a Property), set-off or notice. Commencing on the first anniversary of the rent commencement date for each lease (the "Anniversary Date"), and continuing thereafter on each subsequent Anniversary Date during the initial term and each option term of each lease, the Minimum Rent applicable to each lease shall be increased in accordance with the terms and provisions attached hereto as Exhibit "B." Ms. Keren Brown Wilson Assited Living Concepts, Inc. October 3, 1997 Page 6 5. RENT DURING OPTION PERIODS. The initial Minimum Rent for the first -------------------------- of the option terms for each lease shall be the higher of: (i) the previous year's Minimum Rent amount increased in accordance with the terms and provisions attached hereto as Exhibit "B"; or (ii) an amount equal to the initial Minimum Rent payable in the first twelve (12) months of the initial term of the lease adjusted by the cumulative increase in the Consumer Price Index, U.S. Cities Average, All Items (1982-84=100) published by the United States Department of Labor, Bureau of Labor Statistics in accordance with the manner presently calculated (the "CPI") from the commencement date of the applicable lease to the date on which the new Minimum Rent is being determined. The initial Minimum Rent for the second of the option terms for each lease shall be the higher of: (i) the previous year's Minimum Rent amount increased in accordance with the terms and provisions attached hereto as Exhibit "B"; (ii) an amount equal to the initial Minimum Rent payable in the first twelve (12) months of the first option term of the lease adjusted by the cumulative increase in the CPI from the commencement date of the applicable lease to the date on which the new Minimum Rent is being determined; or (iii) the fair market value rent as determined by an independent appraisal process. 6. TRIPLE NET LEASE. ALC shall be responsible for all costs ---------------- associated with the operation of the Facilities located on the Properties, including, but not limited to, property and other taxes, utilities, insurance premiums and costs to maintain the Facilities in good condition and repair, reasonable wear and tear excepted (collectively "Additional Charges"). Taxes shall include any and all taxes of any kind associated with the real or personal property constituting the Facilities, including, but not limited to, taxes attributable to any period prior to acquisition of the Properties by LTC (or its designee) with the exception of any transfer taxes owing in connection with any subsequent transfer of any of the Properties by LTC to a third party. 7. REPAIR AND MAINTENANCE. ALC shall be responsible for completing ---------------------- any and all work necessary to maintain each Facility located on the Properties as an assisted living residence in good condition and repair, reasonable wear and tear excepted. In addition, at ALC's sole cost and expense, ALC shall complete all applications, give all notices and obtain and maintain all licenses, permits and approvals necessary or desirable to allow ALC to operate the Facilities located on the Properties in accordance with all legal and regulatory requirements. 8. CLOSING. Closing with respect to both Packages of the Properties ------- shall occur not later than December 31, 1997. The Closing with respect to each Property shall be deemed to have occurred upon recordation of the Warranty Deed conveying the Property to LTC, payment of the Specific Property Purchase Price and the Stabilization Period Losses (to the extent then ascertainable) with respect thereto, and full execution and delivery of the lease between LTC and ALC with respect thereto. 9. INDEMNITY. The lease with respect to each Property shall provide --------- that ALC shall fully indemnify, defend, protect and hold LTC harmless from and against any and all costs, Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 7 losses, expenses, judgments, claims, fees (including reasonable attorneys' fees and costs) or damages of any kind or nature whatsoever arising from or relating to the Facilities located on the Properties and the operation thereof, including, but not limited to, all matters relating to (i) the presence of hazardous substances located on the Properties, (ii) compliance with or failure to comply with the provisions of the federal Americans with Disabilities Act, (iii) compliance with or failure to comply with the provisions of the Fair Housing Amendments Act of 1988; (iv) compliance with or failure to comply with the provisions of Section 8 of the United States Housing Act of 1937, as amended, and any and all other matters whatsoever relating to the Properties, the Facilities located thereon and the operation thereof. 10. ASSIGNMENT AND SUBLETTING. ALC shall not be entitled to sublet any ------------------------- portion of any of the Properties, or assign any one or more of the leases, without the prior written consent of LTC, which consent shall not be given by LTC unless in connection with the subletting and/or assignment, ALC will remain primarily liable for all obligations under the applicable lease or leases. Notwithstanding the foregoing provisions of this Paragraph 10, ALC shall be entitled, at any time without first obtaining the consent of LTC, to (i) assign any one or more of the leases to a wholly-owned subsidiary of ALC so long as ALC, concurrently with such assignment, delivers to LTC a first-loss full guaranty of such subsidiary's obligations under the assigned lease(s) in form and substance acceptable to LTC in LTC's reasonable discretion, and (ii) sublease up to the greater of (A) 2,000 square feet, or (B) ten percent (10%) of the total square footage of the applicable Facility in any one or more of the Facilities located on the Properties to, any person or entity providing any services related or ancillary to the operation of the Facilities, or in connection with the provision of home health services both within and outside the Facilities. 11. CLOSING COSTS. Concurrently with the Closing of LTC's purchase of ------------- each of the Properties, ALC shall pay out of the proceeds of the Closing any and all Closing costs in connection with the Closing, including but not limited to all of LTC's attorneys' fees (which shall be Four Thousand Seven Hundred Fifty Dollars ($4,750.00) for each of the Properties) plus attorneys' expenses, recording fees, title fees, state and local transfer, mortgage or excise taxes in connection with the transfer of title, LTC's out-of-pocket costs in connection with the transaction and any and all other fees and costs in any way associated with LTC's purchase of the fee interest in each Property and the leases between LTC and ALC with respect to the Properties. Upon ALC's request, LTC shall instruct its attorneys to prepare closing binders for ALC and its counsel with respect to each sale/leaseback transaction, and ALC shall be responsible for paying the actual cost of producing and shipping said closing binders. 12. PHYSICAL INSPECTION. As a precondition to LTC's obligations under ------------------- this commitment letter to acquire the Properties, LTC shall have the right to conduct a physical inspection of each Facility on each Property, and LTC must be satisfied with the physical condition of each of the Properties after completion of the construction of the Facilities thereon, in LTC's reasonable discretion. Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 8 13. GOVERNING LAW. This commitment letter shall be governed by and ------------- interpreted under the internal laws of the State of California without resort to choice of law principles. 14. COMMITMENT FEE. Upon acceptance of this commitment, ALC shall pay to -------------- LTC a commitment fee relating to the transactions contemplated herein in an amount equal to one percent (1.0%) of the Total Purchase Price, that is, the sum of Two Hundred Four Thousand Four Hundred Dollars ($204,400.00) (the "Commitment Fee"). The Commitment Fee shall be paid to LTC as follows: concurrently with the full execution of this commitment letter, ALC shall deliver to LTC a promissory note in the original principal amount of Two Hundred Four Thousand Four Hundred Dollars ($204,400.00) made by, and with full recourse to, ALC and payable to LTC (the "Commitment Fee Note"). The Commitment Fee Note shall bear no interest (except in the event of a default thereunder beyond applicable cure periods) and shall have a maturity date of January 1,, 1998. A portion of the Commitment Fee equal to one percent (1%) of the Specific Property Purchase Price for each Property approved by LTC shall be refundable to ALC on the date on which the applicable sale/leaseback transaction closes. Accordingly, on the date of each such closing, the amount owing by ALC under the Commitment Fee Note shall be reduced by an amount equal to one percent (1%) of the applicable Specific Property Purchase Price. So long as on or before December 31, 1997 LTC and ALC have closed sale/leaseback transactions hereunder such that the combined Specific Property Purchase Prices of all such Properties is equal or greater than Twenty Million Four Hundred Forty Thousand Dollars ($20,440,000.00), then the Commitment Fee will be fully refunded to ALC, and LTC shall return the original Commitment Fee Note to ALC marked "canceled." SINCE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY LTC IN THE EVENT ALC DEFAULTS UNDER THE TERMS OF THIS COMMITMENT LETTER AND AS A RESULT OF SAID DEFAULT FAILS TO CLOSE THE OVERALL TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER BY DECEMBER 31, 1997, AND SO LONG AS LTC IS NOT ALSO IN DEFAULT OF THIS COMMITMENT LETTER AS A RESULT OF WHICH DEFAULT LTC HAS FAILED TO CLOSE ALL OR ANY PORTION OF THE TRANSACTIONS CONTEMPLATED HEREIN, THEN IN SUCH EVENT, LTC SHALL BE ENTITLED TO ENFORCE THE COMMITMENT FEE NOTE IN SUCH AMOUNTS AS HAVE NOT PREVIOUSLY BEEN REFUNDED, AND TO RETAIN THE AMOUNT COLLECTED AS LIQUIDATED DAMAGES FOR THE TIME, EFFORT AND EXPENSES INCURRED BY LTC IN CONNECTION WITH THE OVERALL TRANSACTIONS CONTEMPLATED HEREIN, AND ALC SHALL ALSO BE OBLIGATED TO PAY LTC'S LEGAL FEES AND EXPENSES, TO THE EXTENT NOT PREVIOUSLY PAID, IN CONNECTION WITH THE TRANSACTIONS OF UP TO FOUR THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($4,750.00) FOR EACH OVERALL TRANSACTION WITH Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 9 RESPECT TO EACH PROPERTY ON WHICH LTC HAS COMMENCED ANY LEGAL WORK. ONCE LTC HAS RECEIVED PAYMENT IN FULL OF ALL AMOUNTS REQUIRED TO BE PAID PURSUANT TO THIS PARAGRAPH 14 AND UNDER THE COMMITMENT FEE NOTE, THEN THE PARTIES TO THIS COMMITMENT THEREAFTER SHALL HAVE NO FURTHER RIGHTS OR OBLIGATIONS TO ONE ANOTHER HEREUNDER OF ANY KIND OR NATURE WHATSOEVER. IN THE EVENT THAT LTC FAILS TO CLOSE THE TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER UPON TERMS CONSISTENT WITH THOSE PROVIDED HEREIN, AS A SOLE RESULT OF LTC'S BREACH OF ITS OBLIGATIONS HEREUNDER, THE SOLE OBLIGATION OF LTC SHALL BE TO RETURN THE ORIGINAL COMMITMENT FEE NOTE TO ALC, AND THE PARTIES HERETO SHALL THEREAFTER HAVE NO FURTHER OBLIGATIONS OR LIABILITIES TO ONE ANOTHER OF ANY KIND OR NATURE WHATSOEVER. Initials: LTC Properties, Inc. ______ Assisted Living Concepts, Inc. ______ 15. ALC'S ACCEPTANCE. ALC must indicate its acceptance of the terms and ---------------- conditions of this commitment by affixing its signature below. Unless LTC receives this accepted commitment in its Oxnard, California office on or prior to the fifth (5th) business day following the date of this letter, the terms hereof shall be null and void, and LTC shall not have any obligations or liabilities to ALC of any kind or nature whatsoever. This commitment shall become effective only upon acceptance by LTC evidenced by the affixation of LTC's signature hereto. 16. FACSIMILE EXECUTION BINDING. The parties hereto specifically agree --------------------------- that this commitment letter may be executed by facsimile, and that facsimile signatures hereon shall be binding on the parties hereto as though they were original signatures. 17. FINAL AND ENTIRE AGREEMENT. This commitment letter and the exhibits -------------------------- attached hereto represent the final and entire agreement between the parties in connection with the transaction contemplated hereby and the subject matter hereof. This commitment letter and the exhibits attached hereto supersede and replace all prior and contemporaneous agreements, understandings and communications between the parties, whether oral or written, with regard to the subject matter hereof. There are no oral or written agreements, representations or inducements of any kind existing between the parties relating to the transactions contemplated in this commitment letter which are not expressly set forth herein. This commitment letter may not be modified except by a written agreement signed by LTC's Chief Executive Officer and ALC. 18. BINDING EFFECT. This commitment letter shall be binding upon and -------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 10 that ALC shall not have the right to assign this commitment letter to any other person or entity without the prior written consent of LTC, which consent may be given or withheld by LTC in its sole discretion; further provided, however, that notwithstanding the foregoing, in the event that ALC wishes to assign this commitment letter to a wholly-owned subsidiary of ALC having a tangible net worth in excess of $10,000,000 and a debt to equity ratio of no greater than 2.00 to 1.00 and so long as ALC concurrently guaranties payment of the Commitment Fee Note to LTC, then ALC shall have the right to do so without having first obtained LTC's consent thereto. 19. WAIVER. No waiver by any party at any time of any breach of any ------ provision of this commitment letter shall be deemed a waiver of a breach of any other provision herein or a consent to any subsequent breach of the same or another provision. If any action by any party shall require the consent or approval of the other party, such consent or approval of such action on any one occasion shall not be deemed a consent to or approval of such action on any subsequent occasion or a consent to or approval of any other action. 20. CAPTIONS AND HEADINGS. The captions and paragraph numbers appearing --------------------- in this commitment letter are for convenience and ease of reference only, and do not define, limit, construe or describe the scope or intent of this commitment letter. 21. COUNTERPART EXECUTION. This commitment letter may be executed in --------------------- counterparts, each of which shall be considered an original and all of which taken together shall constitute one and the same instrument. 22. ATTORNEYS' FEES. If either party to this commitment letter brings an --------------- action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action or proceeding, on trial or appeal, shall be entitled to its reasonable attorneys' fees to be paid by the losing party as fixed by the court of jurisdiction. 23. TIME OF ESSENCE. Time is of the essence with respect to all matters --------------- contained in this commitment letter. 24. DRAFTING OF AGREEMENT. The parties to this commitment letter --------------------- acknowledge that this commitment letter has been negotiated at arms length, that each party has been represented by independent counsel and that this commitment letter has been drafted by both parties and no one party shall be construed as the draftsperson. 25. SURVIVAL. This commitment letter shall survive, and the covenants, -------- conditions and terms set forth herein shall continue, until the earlier of (i) December 31, 1997, at which time this commitment letter shall immediately and automatically expire, or (ii) the date on which the sale of all of the Properties from ALC to LTC and the leases of all of the Properties from LTC to ALC have been consummated. Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 11 Please understand that, subject to the contingencies set forth above, this letter constitutes the commitment of ALC and LTC to enter into the sale/leaseback transactions described herein on the terms set forth above. Very truly yours, LTC PROPERTIES, INC., a Maryland corporation /s/Andre C. Dimitriadis ------------------------------------ ANDRE C. DIMITRIADIS, Chairman and Chief Executive Officer READ AND AGREED: ASSISTED LIVING CONCEPTS, INC., a Nevada corporation By: /s/Stephen Gordon ------------------------- Its: Chief Financial Officer ------------------------ EX-10.10 12 $50,000,000 AGREEMENT TO PURCHASE AND LEASE EXHIBIT 10.10 October 3, 1997 Assisted Living Concepts, Inc. 9955 S. E. Washington, Suite 201 Portland, OR 97216 Attention: Ms. Keren Brown Wilson, Chief Executive Officer RE: AGREEMENT TO PURCHASE AND LEASE ASSISTED LIVING RESIDENCES Dear Ms. Wilson: LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees, either itself or through its subsidiary or affiliate, and subject to the parameters outlined in this letter, to enter into sale/leaseback transactions with Assisted Living Concepts, Inc. ("ALC") with respect to certain properties the precise identity of which shall be determined as set forth herein (each individually a "Property" and collectively, the "Properties"), and each of which Properties shall be improved with an assisted living facility (each a "Facility" and collectively, the "Facilities"). The total cumulative purchase price to be paid by LTC to ALC for the Properties and the Facilities shall be not less than Fifty Million Dollars ($50,000,000.00) (the "Total Purchase Price"). As we have previously discussed, ALC will sell and assign all of its right, title and interest in and to all real and personal property and fixtures comprising the Properties to LTC, and LTC or its designee will purchase the Properties from ALC and will lease the Properties back to ALC, all upon the following terms and conditions: 1. PURCHASE PRICE. LTC shall pay ALC the Total Purchase Price in -------------- connection with the purchase of all of the Properties. Once LTC has purchased such a number of the Properties that LTC has spent an amount equal to the Total Purchase Price (or an amount such that LTC cannot purchase another one of the Properties without exceeding the Total Purchase Price), then LTC thereafter shall not be obligated to purchase any more of the Properties. With respect to the purchase of each individual Property, LTC shall pay ALC a purchase price equal to ALC's total hard and soft construction costs (that is, soft costs related directly to acquisition of the Properties and construction of the Facilities thereon, but not soft costs in connection with any other properties or facilities developed, constructed, owned and/or operated by ALC) in connection with construction of the Facility on the Property, but in no event exceeding Seventy Thousand Dollars ($70,000.00) (except for any Property located in the State of New Jersey, in which case the figure shall be Seventy-Five Thousand Dollars ($75,000.00)) per assisted living unit in the Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 2 Facility constructed on the Property (the "Specific Property Purchase Price"). The Specific Property Purchase Price shall be paid in all cash at Closing with respect to each Property. In addition to the Specific Property Purchase Price with respect to a Property, at ALC's option, LTC shall be obligated to pay to ALC, or its designee, for each Facility on a Property, up to One Hundred Fifty Thousand Dollars ($150,000.00) of losses incurred by ALC in the stabilization period of the Facility incurred either (i) by ALC, or (ii) by a third party pursuant to a participation or other agreement with ALC (the "Stabilization Period Losses"). LTC shall be obligated to pay to ALC, or its designee, the Stabilization Period Losses at Closing with respect to each Property if the amount of the Stabilization Period Losses is ascertainable at such time. To the extent that the amount of the Stabilization Period Losses is not ascertainable at the time of LTC's purchase of any Property, LTC shall remain obligated to pay to ALC, or its designee, the Stabilization Period Losses at such time as the amount of the Stabilization Period Losses becomes ascertainable; provided, further, that as a pre-condition to LTC's obligation to disburse any such amount to ALC, or its designee, LTC shall cause to be prepared at ALC's expense, and ALC shall execute, an amendment to its lease (a) increasing the initial annual minimum rental amount thereunder by a percentage of the amount of the Stabilization Period Losses, which percentage shall equal the then existing lease rate determined in accordance with the provisions of Paragraph 6 hereof, and (b) to the extent payment of the Stabilization Period Losses is made to ALC's designee, acknowledging the benefit ALC has received in consideration of such rental increase. 2. EFFECTIVE DATE. Notwithstanding the present execution and delivery of -------------- this commitment letter and the intention of the parties that this commitment letter shall be immediately binding upon the parties hereto, no transactions under the terms of this commitment letter shall be commenced until on or after January 1, 1998. 3. DETERMINATION OF PROPERTIES; PROPERTY APPLICATION MATERIALS. The ----------------------------------------------------------- determination of which assisted living properties shall become Properties subject to this commitment letter shall be made by LTC in its sole discretion based upon materials supplied by ALC. LTC shall commence its evaluation of each Property submitted by ALC for approval at such time as LTC has received all of the following (collectively, the "Property Application Materials") from ALC: (i) a copy of the market and feasibility study for the applicable Property prepared by a consultant entirely acceptable to LTC; (ii) ALC's proposed Specific Property Purchase Price and Stabilization Period Losses (to the extent then ascertainable) for the applicable property, including a detailed breakdown of the hard and soft construction costs comprising the Specific Property Purchase Price and of the Stabilization Period Losses (to the extent then ascertainable); (iii) a copy of the geotechnical report with respect to the Property; (iv) a copy of a Phase I environmental site inspection report with respect to the Property dated no more than four (4) months prior to the date of submission to LTC and prepared by an Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 3 environmental consultant entirely acceptable to LTC; (v) a budget for operation of the assisted living facility on the Property for the first twenty-four (24) full months of operation; (vi) a copy of ALC's final, unconditional certificate of occupancy (or other similar license or permit) with respect to the assisted living facility located on the Property; and (vii) a copy of ALC's unconditional license to operate the assisted living facility located on the Property. Once all Property Application Materials have been received by LTC, LTC shall determine within five (5) business days whether LTC will accept the applicable property as one of the Properties subject to this commitment letter. 4. CONTINGENCIES. ------------- (a) LTC's obligation to purchase the Properties and to consummate the transactions contemplated in this commitment letter shall be expressly contingent upon each of the following: (i) LTC shall have approved the marketing study and feasibility report prepared by Concepts In Community Living, Inc. ("CCL"), or another consultant entirely acceptable to LTC, on or on behalf of ALC with respect to each of the Properties; (ii) the state of title to each of the Properties must be acceptable to LTC in LTC's reasonable discretion, and LTC shall have received an ALTA Owner's Policy of Title Insurance - Extended Coverage - for each Property issued by Chicago Title Insurance Company showing the fee interest in each Property vested in LTC subject only to those exceptions specifically agreed to in writing by LTC, and containing those endorsements reasonably required by LTC; (iii) LTC shall have received an ALTA/ACSM Land Title Survey of the applicable Property and the improvements located thereon prepared by a registered professional land surveyor reasonably satisfactory to LTC certified as of a date not earlier than 120 days prior to the closing date to LTC, Chicago Title and any other party reasonably designated by LTC with the signature and seal of the surveyor and the following language: "This is to certify that this map or plat and the survey on which it is based were made (i) in accordance with "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, " jointly established and adopted by ALTA and ACSM in 1992, and includes Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 4 Item Nos. 1-3, 6 (setback only), and 8-11 in Table A thereof; and (ii) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of this certification) of an Urban Survey." The Survey shall show all easements, encroachments, building restriction lines, set backs and other similar matters affecting and/or apparent on the Property and the relation of the Property to public thoroughfares for access purposes. The survey shall also certify that the Property is or is not in a flood hazard area for purposes of the national Flood Insurance Program, and if so, shall specify the flood zone designation assigned to the Property; provided, however, that if ALC's surveyor for any reason cannot or will not provide such flood zone information, ALC shall be entitled to, and shall, provide such information to LTC from another source acceptable to LTC in the reasonable exercise of LTC's discretion. The survey shall be dated on or after substantial completion of the construction of the Facility on each Property. In addition, the record legal description of each Property must appear on the survey of that Property, and any record easements or servitudes and covenants affecting each Property which are capable of being plotted must be plotted thereon; (iv) LTC shall have received a Phase I environmental assessment of each of the Properties in form and content, and performed by an environmental consultant, entirely acceptable to LTC in LTC's reasonable discretion; (v) LTC shall have received UCC lien, tax lien and judgment lien searches dated after the date of substantial completion of the assisted living facility on each Property evidencing that no liens exist as to the personal property located on each Property other than those liens previously approved in writing by LTC; (vi) LTC shall be satisfied with the physical condition of the assisted living facilities located on the Properties based on a physical inspection of each Property by LTC; Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 5 (vi) LTC shall have received evidence acceptable to LTC that each of the Properties is properly zoned for use as an assisted living facility; (viii) LTC shall have received a corporate resolution of ALC's board of directors authorizing ALC to enter into, deliver and perform all of the documents and instruments necessary to effect the sale/leaseback transactions contemplated in this commitment letter; (ix) LTC shall have received a copy of the certificate of occupancy with respect to each Property and a copy of ALC's license to operate the assisted living facility located on each Property as a fully-licensed assisted living facility in the state in which the facility is located, and having not less than the numbers of units specified for each Property in the Property Application Materials (defined above) submitted to LTC in connection with the Property; (x) ALC shall have obtained all approvals and consents required to enable ALC to consummate the sale/leaseback transaction with respect to each Property without breaching or defaulting under any contracts, agreements or other documents or instruments by which ALC is bound; and (xi) LTC, at its option, shall have conducted with respect to each Property, and be satisfied with the results of, such other standard due diligence as is customarily performed by LTC in connection with the acquisition of a fee interest in a property improved with an assisted living facility. 5. TERM; CROSS-DEFAULTING. Each lease shall have an initial ----------------------- term of twelve (12) years. ALC and LTC contemplate that LTC will acquire the Properties, and lease them back to ALC, its subsidiary or affiliate, at such time as the construction of the assisted living facility on each Property is completed, the certificate of occupancy and operator's license with respect thereto issued and all other pre-conditions to Closing have been met with respect to each Property. As a result, the parties anticipate that the Properties will not all be acquired by LTC at one time, and ALC's obligation to pay Minimum Rent and other charges under each lease will commence concurrently with LTC's acquisition of the Property to which the lease relates. The lease with respect to each Property shall group the Property with three or four other properties owned (or to be owned) by LTC and leased (or to be leased) to ALC, its subsidiary or affiliate, each such group of four (4) or more Properties hereinafter being referred to as a "Package," and all of the Properties to be included in a Package shall be identified to, and approved by, LTC (on Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 6 the basis of the Property Application Materials) by not later than the date of the closing of the first Property in the Package to be acquired by LTC; provided, however, that if ALC has not identified the Properties in each Package to LTC by such time or if such Properties have not yet been approved by LTC pursuant to Paragraph 3, hereof, LTC shall have the right, but not the obligation, then or at any time thereafter, to determine which Properties shall be included within the Package selecting only from Properties approved by LTC in accordance with Paragraph 3, hereof. ALC shall have two consecutive five-year options to extend the term of all of the leases within each Package; that is, ALC shall only have the option - --- to extend the term of any of the leases in a Package so long as ALC exercises its option to extend the term of all of the leases in a Package. In addition, the leases for all of the Properties in each Package shall be co-terminus with all of the other leases in that Package, but will not be co-terminus with the leases in the other Packages. Notwithstanding the foregoing, the leases for each of the Properties shall be cross-defaulted with (i) each lease for each of the other Properties (irrespective of which Package the Properties are in), and (ii) every other lease between LTC and ALC (including without limitation any leases between LTC, on the one hand, and Home and Community Care, Inc. and/or Carriage House Assisted Living, Inc., on the other hand, if an when either of said entities (or the assets thereof) is acquired by ALC) with respect to any assisted living facility, except for those five (5) leases relating to those certain five (5) assisted living properties in the State of Washington commonly known as: Chenoweth House, Kennewick, WA; Pioneer House, Walla Walla, WA; Orchard House, Grandview, WA; Lexington House, Vancouver, WA: and Mountain View House, Camas, WA. In addition to the foregoing, if a default is declared and not cured within thirty (30) days on any of ALC's major (that is, $5,000,000 or more) loans or lines of credit, or if such loan or line of credit is accelerated or the lender thereunder takes any action to enforce the same, then LTC shall have the right, but not the obligation, also to declare a default under each of the leases entered into hereunder. 6. MINIMUM RENT. The initial annual Minimum Rent for the first ------------ year of each lease shall be an amount equal to the sum of the Specific Property Purchase Price and the Stabilization Period Losses (to the extent then ascertainable) paid by LTC (or its designee) for each Property multiplied by the average rate on the ten-year Treasury Security for the five (5) business days prior to the third (3/rd/) business day prior to the closing plus three hundred ---- fifty (350) basis points. ALC shall pay an amount equal to one-twelfth (1/12) of the annual Minimum Rent applicable to each Property on the first day of each and every month during the term of the leases without demand, abatement (except as specifically set forth in the leases with respect to a partial condemnation of a Property), set-off or notice. Commencing on the first anniversary of the rent commencement date for each lease (the "Anniversary Date"), and continuing thereafter on each subsequent Anniversary Date during the initial term and each option term of each lease, the Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 7 Minimum Rent applicable to each lease shall be increased in accordance with the terms and provisions attached hereto as Exhibit "A." 7. RENT DURING OPTION PERIODS. The initial Minimum Rent for the -------------------------- first of the option terms for each lease shall be the higher of: (i) the previous year's Minimum Rent amount increased in accordance with the terms and provisions attached hereto as Exhibit "A"; or (ii) an amount equal to the initial Minimum Rent payable in the first twelve (12) months of the initial term of the lease adjusted by the cumulative increase in the Consumer Price Index, U.S. Cities Average, All Items (1982-84=100) published by the United States Department of Labor, Bureau of Labor Statistics in accordance with the manner presently calculated (the "CPI") from the commencement date of the applicable lease to the date on which the new Minimum Rent is being determined. The initial Minimum Rent for the second of the option terms for each lease shall be the higher of: (i) the previous year's Minimum Rent amount increased in accordance with the terms and provisions attached hereto as Exhibit "A"; (ii) an amount equal to the initial Minimum Rent payable in the first twelve (12) months of the first option term of the lease adjusted by the cumulative increase in the CPI from the commencement date of the applicable lease to the date on which the new Minimum Rent is being determined; or (iii) the fair market value rent as determined by an independent appraisal process. 8. TRIPLE NET LEASE. ALC shall be responsible for all costs ---------------- associated with the operation of the Facilities located on the Properties, including, but not limited to, property and other taxes, utilities, insurance premiums and costs to maintain the Facilities in good condition and repair, reasonable wear and tear excepted (collectively "Additional Charges"). Taxes shall include any and all taxes of any kind associated with the real or personal property constituting the assisted living facilities, including, but not limited to, taxes attributable to any period prior to acquisition of the Properties by LTC (or its designee) with the exception of any transfer taxes owing in connection with any subsequent transfer of any of the Properties by LTC to a third party. 9. REPAIR AND MAINTENANCE. ALC shall be responsible for completing ---------------------- any and all work necessary to maintain each Facility located on the Properties as an assisted living residence in good condition and repair, reasonable wear and tear excepted. In addition, at ALC's sole cost and expense, ALC shall complete all applications, give all notices and obtain and maintain all licenses, permits and approvals necessary or desirable to allow ALC to operate the assisted living facilities located on the Properties in accordance with all legal and regulatory requirements. 10. CLOSING. Closing with respect to all Packages of the Properties ------- shall occur not later than December 31, 2000. The Closing with respect to each Property shall be deemed to have occurred upon recordation of the Warranty Deed conveying the Property to LTC, payment of the Specific Property Purchase Price and the Stabilization Period Losses (to the extent then Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 8 ascertainable) with respect thereto, and full execution and delivery of the lease between LTC and ALC with respect thereto. 11. INDEMNITY. The lease with respect to each Property shall provide --------- that ALC shall fully indemnify, defend, protect and hold LTC harmless from and against any and all costs, losses, expenses, judgments, claims, fees (including reasonable attorneys' fees and costs) or damages of any kind or nature whatsoever arising from or relating to the Facilities located on the Properties and the operation thereof, including, but not limited to, all matters relating to (i) the presence of hazardous substances located on the Properties, (ii) compliance with or failure to comply with the provisions of the federal Americans with Disabilities Act, (iii) compliance with or failure to comply with the provisions of the Fair Housing Amendments Act of 1988; (iv) compliance with or failure to comply with the provisions of Section 8 of the United States Housing Act of 1937, as amended, and any and all other matters whatsoever relating to the Properties, the Facilities located thereon and the operation thereof. ALC's indemnification obligations set forth in this Paragraph shall survive the expiration or termination for any reason of this commitment letter. 12. ASSIGNMENT AND SUBLETTING. ALC shall not be entitled to sublet any ------------------------- portion of any of the Properties, or assign any one or more of the leases, without the prior written consent of LTC, which consent shall not be given by LTC unless in connection with the subletting and/or assignment, ALC will remain primarily liable for all obligations under the applicable lease or leases. Notwithstanding the foregoing provisions of this Paragraph 12, ALC shall be entitled, at any time without first obtaining the consent of LTC, to (i) assign any one or more of the leases to a wholly-owned subsidiary of ALC so long as ALC, concurrently with such assignment, delivers to LTC a first-loss full guaranty of such subsidiary's obligations under the assigned lease(s) in form and substance acceptable to LTC in LTC's reasonable discretion, and (ii) sublease up to the greater of (A) 2,000 square feet, or (B) ten percent (10%) of the total square footage of the applicable Facility in any one or more of the Facilities located on the Properties to, any person or entity providing any services related or ancillary to the operation of the Facilities, or in connection with the provision of home health services both within and outside the Facilities. 13. CLOSING COSTS. Concurrently with the Closing of LTC's purchase of ------------- each of the Properties, ALC shall pay out of the proceeds of the Closing any and all Closing costs in connection with the Closing, including but not limited to all of LTC's attorneys' fees (which shall be Four Thousand Seven Hundred Fifty Dollars ($4,750.00) for each of the Properties) plus attorneys' expenses, recording fees, title fees, state and local transfer, mortgage or excise taxes in connection with the transfer of title, LTC's out-of-pocket costs in connection with the transaction and any and all other fees and costs in any way associated with LTC's purchase of the fee interest in each Property and the leases between LTC and ALC with respect to the Properties. Upon ALC's request, LTC shall instruct its attorneys to prepare closing binders for ALC and its Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 9 counsel with respect to each sale/leaseback transaction, and ALC shall be responsible for paying the actual cost of producing and shipping said closing binders. 14. PHYSICAL INSPECTION. As a precondition to LTC's obligations under ------------------- this commitment letter to acquire the Properties, LTC shall have the right to conduct a physical inspection of each assisted living facility on each Property, and LTC must be satisfied with the physical condition of each of the Properties after completion of the construction of the assisted living facilities thereon, in LTC's reasonable discretion. 15. GOVERNING LAW. This commitment letter shall be governed by and ------------- interpreted under the internal laws of the State of California without resort to choice of law principles. 16. COMMITMENT FEE. Upon acceptance of this commitment, ALC shall pay to -------------- LTC a commitment fee relating to the transactions contemplated herein in an amount equal to two percent (2.0%) of the Total Purchase Price, that is, the sum of One Million Dollars ($1,000,000.00) (the "Commitment Fee"). The Commitment Fee shall be paid to LTC as follows: concurrently with the full execution of this commitment letter, ALC shall deliver to LTC a promissory note in the original principal amount of One Million Dollars ($1,000,000.00) made by, and with full recourse to, ALC and payable to LTC (the "Commitment Fee Note"). The Commitment Fee Note shall bear no interest (except in the event of a default thereunder beyond applicable cure periods) and shall have a maturity date ofJanuary 1, 2001. A portion of the Commitment Fee equal to two percent (2%) of the Specific Property Purchase Price for each Property approved by LTC shall be refundable to ALC on the date on which the applicable sale/leaseback transaction closes. Accordingly, on the date of each such closing, the amount owing by ALC under the Commitment Fee Note shall be reduced by an amount equal to two percent (2%) of the applicable Specific Property Purchase Price. So long as on or beforeDecember 31, 2000 LTC and ALC have closed sale/leaseback transactions hereunder such that the combined Specific Property Purchase Prices of all such Properties is equal or greater than Fifty Million Dollars ($50,000,000.00), then the Commitment Fee will be fully refunded to ALC, and LTC shall return the original Commitment Fee Note to ALC marked "canceled." SINCE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY LTC IN THE EVENT ALC DEFAULTS UNDER THE TERMS OF THIS COMMITMENT LETTER AND AS A RESULT OF SAID DEFAULT FAILS TO CLOSE THE OVERALL TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER BY DECEMBER 31, 2000, AND SO LONG AS LTC IS NOT ALSO IN DEFAULT OF THIS COMMITMENT LETTER AS A RESULT OF WHICH DEFAULT LTC HAS FAILED TO CLOSE ALL OR ANY PORTION OF THE TRANSACTIONS CONTEMPLATED HEREIN, THEN IN SUCH EVENT, LTC SHALL BE ENTITLED TO ENFORCE THE Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 10 COMMITMENT FEE NOTE IN SUCH AMOUNTS AS HAVE NOT PREVIOUSLY BEEN REFUNDED, AND TO RETAIN THE AMOUNT COLLECTED AS LIQUIDATED DAMAGES FOR THE TIME, EFFORT AND EXPENSES INCURRED BY LTC IN CONNECTION WITH THE OVERALL TRANSACTIONS CONTEMPLATED HEREIN, AND ALC SHALL ALSO BE OBLIGATED TO PAY LTC'S LEGAL FEES AND EXPENSES, TO THE EXTENT NOT PREVIOUSLY PAID, IN CONNECTION WITH THE TRANSACTIONS OF UP TO FOUR THOUSAND SEVEN HUNDRED FIFTY DOLLARS ($4,750.00) FOR EACH OVERALL TRANSACTION WITH RESPECT TO EACH PROPERTY ON WHICH LTC HAS COMMENCED ANY LEGAL WORK. ONCE LTC HAS RECEIVED PAYMENT IN FULL OF ALL AMOUNTS REQUIRED TO BE PAID PURSUANT TO THIS PARAGRAPH 16 AND UNDER THE COMMITMENT FEE NOTE, THEN THE PARTIES TO THIS COMMITMENT THEREAFTER SHALL HAVE NO FURTHER RIGHTS OR OBLIGATIONS TO ONE ANOTHER HEREUNDER OF ANY KIND OR NATURE WHATSOEVER. IN THE EVENT THAT LTC FAILS TO CLOSE THE TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT LETTER UPON TERMS CONSISTENT WITH THOSE PROVIDED HEREIN, AS A SOLE RESULT OF LTC'S BREACH OF ITS OBLIGATIONS HEREUNDER, THE SOLE OBLIGATION OF LTC SHALL BE TO RETURN THE ORIGINAL COMMITMENT FEE NOTE TO ALC, AND THE PARTIES HERETO SHALL THEREAFTER HAVE NO FURTHER OBLIGATIONS OR LIABILITIES TO ONE ANOTHER OF ANY KIND OR NATURE WHATSOEVER. Initials: LTC Properties, Inc. ______ Assisted Living Concepts, Inc. ______ 17. ALC'S ACCEPTANCE. ALC must indicate its acceptance of the terms and ---------------- conditions of this commitment by affixing its signature below. Unless LTC receives this accepted commitment in its Oxnard, California office on or prior to the fifth (5th) business day following the date of this letter, the terms hereof shall be null and void, and LTC shall not have any obligations or liabilities to ALC of any kind or nature whatsoever. This commitment shall become effective only upon acceptance by LTC evidenced by the affixation of LTC's signature hereto. 18. FACSIMILE EXECUTION BINDING. The parties hereto specifically agree --------------------------- that this commitment letter may be executed by facsimile, and that facsimile signatures hereon shall be binding on the parties hereto as though they were original signatures. 19. FINAL AND ENTIRE AGREEMENT. This commitment letter and the exhibits -------------------------- attached hereto represent the final and entire agreement between the parties in connection with the transaction contemplated hereby and the subject matter hereof. This commitment letter and the Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 11 exhibits attached hereto supersede and replace all prior and contemporaneous agreements, understandings and communications between the parties, whether oral or written, with regard to the subject matter hereof. There are no oral or written agreements, representations or inducements of any kind existing between the parties relating to the transactions contemplated in this commitment letter which are not expressly set forth herein. This commitment letter may not be modified except by a written agreement signed by LTC's Chief Executive Officer and ALC. 20. BINDING EFFECT. This commitment letter shall be binding upon and -------------- shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that ALC shall not have the right to assign this commitment letter to any other person or entity without the prior written consent of LTC, which consent may be given or withheld by LTC in its sole discretion; further provided, however, that notwithstanding the foregoing, in the event that ALC wishes to assign this commitment letter, together with the Commitment Fee Note, to a wholly-owned subsidiary of ALC having a tangible net worth in excess of $10,000,000 and a debt to equity ratio of no greater than 2.00 to 1.00, and so long as ALC concurrently guaranties payment of the Commitment Fee Note to LTC and agrees to guaranty all leases thereafter entered into hereunder, then ALC shall have the right to do so without having first obtained LTC's consent thereto. 21. WAIVER. No waiver by any party at any time of any breach of any ------ provision of this commitment letter shall be deemed a waiver of a breach of any other provision herein or a consent to any subsequent breach of the same or another provision. If any action by any party shall require the consent or approval of the other party, such consent or approval of such action on any one occasion shall not be deemed a consent to or approval of such action on any subsequent occasion or a consent to or approval of any other action. 22. CAPTIONS AND HEADINGS. The captions and paragraph numbers appearing --------------------- in this commitment letter are for convenience and ease of reference only, and do not define, limit, construe or describe the scope or intent of this commitment letter. 23. COUNTERPART EXECUTION. This commitment letter may be executed in --------------------- counterparts, each of which shall be considered an original and all of which taken together shall constitute one and the same instrument. 24. ATTORNEYS' FEES. If either party to this commitment letter brings an --------------- action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action or proceeding, on trial or appeal, shall be entitled to its reasonable attorneys' fees to be paid by the losing party as fixed by the court of jurisdiction. Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 12 25. TIME OF ESSENCE. Time is of the essence with respect to all matters --------------- contained in this commitment letter. 26. DRAFTING OF AGREEMENT. The parties to this commitment letter --------------------- acknowledge that this commitment letter has been negotiated at arms length, that each party has been represented by independent counsel and that this commitment letter has been drafted by both parties and no one party shall be construed as the draftsperson. 27. SURVIVAL. This commitment letter shall survive, and the covenants, -------- conditions and terms set forth herein shall continue, until the earlier of (i) December 31, 2000, at which time this commitment letter shall immediately and automatically expire, or (ii) the date on which LTC has purchased such a number of the Properties that LTC has spent an amount equal to or greater than the Total Purchase Price (or an amount such that LTC cannot purchase another one of the Properties without exceeding the Total Purchase Price). 28. CHANGE OF CONTROL. ----------------- (a) In the event that there occurs a change in control with respect to the ownership of LTC, whether by merger, sale, transfer of substantially all of LTC's assets (other than in the ordinary course of LTC's business) or otherwise, including, without limitation, the acquisition by any one person or entity of thirty-five percent (35%) or more of the issued and outstanding common stock of LTC, then ALC shall have the option, but not the obligation, to terminate this commitment letter by providing LTC with thirty (30) days' prior written notice of its election to terminate this commitment letter, and upon any such termination, the Commitment Fee Note shall be returned to ALC marked "canceled" once ALC has paid any of LTC's incurred but unpaid reasonable legal fees and expenses in connection with any transactions hereunder. (b) In the event that there occurs a change in control with respect to the ownership of ALC, whether by merger, sale, transfer of substantially all of ALC's assets (other than in the ordinary course of ALC's business) or otherwise, including, without limitation, the acquisition by any one person or entity of thirty-five percent (35%) or more of the issued and outstanding common stock of ALC, then LTC shall have the option, but not the obligation, to terminate this commitment letter by providing ALC with thirty (30) days' prior written notice of its election to terminate this commitment letter stating with specificity the reason(s) for such termination, and upon any such termination, the Commitment Fee Note shall be returned to ALC marked "canceled" once ALC has paid any of LTC's incurred but unpaid reasonable legal fees and expenses in connection with any transactions hereunder. Ms. Keren Brown Wilson Assisted Living Concepts, Inc. October 3, 1997 Page 13 Please understand that, subject to the contingencies set forth above, this letter constitutes the commitment of ALC and LTC to enter into the sale/leaseback transactions described herein on the terms set forth above. Very truly yours, LTC PROPERTIES, INC., a Maryland corporation /s/Andre C. Dimitriadis --------------------------------------- ANDRE C. DIMITRIADIS, Chairman and Chief Executive Officer READ AND AGREED: ASSISTED LIVING CONCEPTS, INC., a Nevada corporation By: /s/Stephen Gordon ------------------------------------- Its: Chief Financial Officer ------------------------------------- EX-10.11 13 MANAGEMENT AGREEMENT DATED AS OF APRIL 1, 1997 EXHIBIT 10.11 MANAGEMENT AGREEMENT This Management Agreement ("Agreement") is dated for reference purposes as of April 1, 1997, by and between Assisted Living Concepts, Inc., a Nevada corporation ("Manager") and that certain Joint Venture, between Manager and Health Equity Investors, LLC, a California limited liability company ("HEI") (referred to herein as "Venture"). This Agreement is made in reliance on the following facts: A. On or about April 1, 1997, Manager and HEI formed a Joint Venture pursuant to a certain Joint Venture Agreement, dated as of April 1, 1997 ("Joint Venture Agreement") in connection with the five assisted living facilities, as set forth in Exhibit "A" hereto (collectively referred to herein as "Properties" and each property is individually referred to herein as "Property"). B. Venture requires a management team to take complete responsibility for the management of the Properties pursuant to the terms and conditions set forth herein, including without limitation, provisions regarding Manager's operation, management and maintenance of the Properties, including taking applications for and filling vacancies in the residential units by qualified applicants ("Tenants") pursuant to agreements ("Rental Agreements") on behalf of Venture and Manager desires to render management services to Venture pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, for valuable consideration given and received, Manager and Venture agree as follows: 1. Incorporation of Recitals. The above recitals are not mere recitals ------------------------- but are intended to be contractual in nature and, therefore, are incorporated herein by this reference. 2. Engagement of Manager. Venture engages Manager as an independent --------------------- contractor to operate, manage and maintain the Properties in accordance with the terms and conditions set forth in this Agreement, and Manager hereby agrees that it will operate, manage and maintain the Properties pursuant to the terms and conditions herein. 3. Duties of Manager. ----------------- 3.1 Personnel. ---------- 3.1.1 In conformity with the Budget, as such term is defined herein, Manager shall hire, pay and supervise, as employees of Manager, qualified personnel necessary and appropriate to perform Manager's duties under this Agreement and maintain and operate the Properties according to applicable law and the standards 1 which are customary for Manager in connection with the management of its other facilities in Ohio, if any. Such personnel shall include both persons in Manager's general employ and located in Manager's principal place of business, as well as persons employed by Manager for the purpose of operating and maintaining each of the Properties and located in any office established by Manager at each of the Properties. 3.1.2 Manager shall have such employees which Ohio law requires at each of the Properties. In any event, at least one responsible staff employee of Manager shall be physically present at each Property at all times. Manager shall hire an on-site Program Director for each Property who shall have supervisory responsibility for performance of all management duties. 3.1.3 Manager shall use due care in the selection and supervision of personnel to operate and maintain the Properties and of persons in the general employ of Manager to whom said duties are delegated. Manager shall develop a staffing plan that is sensitive and responsive to Tenants, their needs and the level of service to be provided. Such personnel shall in every instance be deemed employees of Manager and not of Venture, and Venture shall have no right to establish qualifications or criteria for such employees, to supervise or to direct such employees. 3.1.4 All salaries, wages and other compensation of personnel employed by Manager hereunder, including so-called fringe benefits, health insurance, social security, taxes, worker compensation and the like, shall be deemed to be expenses of Manager, and Venture shall not be liable for them; provided, however, Manager may draw sufficient amounts from the Operating Account, as that term in defined herein, to fund its payroll obligations for such personnel in accordance with the Budget. 3.2 Books and Records and Reports. ----------------------------- 3.2.1. Manager shall maintain separate and complete books and records in connection with its management and operation of the Properties, which Manager shall keep safe, available and separate from any other records. Manager shall prepare statements and reports as requested by Venture, including monthly operating reports for each Property. 3.2.2 Manager shall make the books of account and all other records relating to or reflecting the operation of each Property available to Venture and its representatives, including, without limitation, Venture's auditors, accountants and attorneys, at all reasonable times for copying, examination, audit, inspection and transcription at Manager's office or at such other place designated by Manager. 3.2.3 Upon expiration of the term of this Agreement or earlier termination as provided herein, Manager shall deliver all such books and records to Venture within three (3) business days after the date of such expiration or termination. 2 3.3 Tenant Relations and Collections. -------------------------------- 3.3.1 Manager shall at all times during the term of this Agreement operate and maintain the Properties in compliance with all applicable laws and according to the standards which are customary for Manager in connection with the management of its other facilities, if any in Ohio. 3.3.2 Manager shall secure full compliance by the Tenants with the terms and conditions of their respective Rental Agreements and applicable rules and regulations. Voluntary compliance shall be emphasized. 3.3.3 Manager shall not tolerate willful evasion of Tenant's obligations to pay monthly rent or other charges required under the Rental Agreement. Manager may terminate any tenancy when, in Manager's judgment, sufficient cause exists under the terms of the Tenant's Rental Agreement. 3.4 Service to Residents. Manager shall be responsible for the -------------------- effective and efficient delivery of services to Tenants. Such services shall include: the maintenance of safe and clean common areas and grounds; trash removal; weekly housekeeping and laundry service; periodic window washing, carpet cleaning; the option to purchase three meals per day, seven days per week; maintenance of twenty-four-hour-per-day emergency call system; coordination of scheduled transportation; recreational facilities and activities; centrally-located mail distribution; and other services as Ohio law requires and such services as specified in the Rental Agreements. Accordingly, Manager shall diligently provide services of consistently high quality, comparable to that which manager otherwise provides and in accordance with applicable laws. 3.5 Service Contracts. In conformity with the approved Budget, for ----------------- each of the Properties, Manager shall negotiate and enter into or renew, in Manager's name, service contracts for services which are required in the ordinary course of the economic, efficient and profitable operation of each of the Properties in a manner satisfactory to Venture, including, without limitation, contracts for electricity, gas, fuel, water, telephone, window cleaning, interior and exterior cleaning, painting, plumbing, security, pest control, landscaping, equipment maintenance, trash removal and other services. 3.6 Repairs and Maintenance. Manager shall maintain or cause to be ----------------------- maintained each of the Properties in such condition and repair as Manager's other facilities in Ohio are maintained. All repairs, maintenance, replacements, substitutions, improvements and additions to a Property shall be undertaken by Manager only after securing Venture's prior approval, except that any repair, maintenance, replacement, substitution, improvement or addition which has been provided for in the Budget or any emergency repair may be undertaken without Venture's approval. 3 3.7 Operating Procedures. Manager shall operate each of the -------------------- Properties in the same manner as is customary and usual in the operation of Manager's other facilities in Ohio, so as to maximize the earnings of each of the Properties and to provide such services at each Property as are ordinarily provided by Manager in its facilities in Ohio. 4. Payment of Expenses. From the funds collected from Tenants and -------------------- commercial lease tenants, if any, and working capital contributed by Venture, as necessary, Manager shall disburse the following as and when due and owing as part of the operating expenses of each of the Properties: (I) all real property taxes on each Property; (ii) all insurance premium payments attributable or allocable to each Property; (iii) all operating expenses, including, without limitation, payroll, fringe benefits, workers compensation, costs of utilities, maintenance and repair expenses; and (v) Manager's compensation as set forth herein. Venture shall reimburse Manager all funds advanced by Manager on Venture's behalf pursuant to the terms of this Agreement. 5. Annual Budget. Annually, at a date to be determined by Venture, ------------- Manager shall prepare an annual operating budget for each Property ("Budget"), in the form approved by Venture, and shall submit such budget to Venture for approval. If a Budget has not been approved by Venture with respect to any calendar year, the most recent Budget approved by Venture shall be effective until Venture approves another Budget. 6. Bank Accounts and Disbursement of Funds. ---------------------------------------- 6.1 Operating Account. ------------------ 6.1.1 Manager shall deposit all monies received or collected in the operation of each Property in accounts and in financial institutions as designated by Venture ("Operating Account"). From the Operating Account, Manager shall pay all expenses of each Property in accordance with the provisions of this Agreement. All funds in such account shall at all times be the exclusive property of Venture. Manager shall make draws upon the Operating Account in accordance with the terms of this Agreement and shall not commingle monies in the Operating Account with other funds of Manager if requested by Venture or applicable laws or regulations of Ohio require segregation of income accounts. Manager may establish such additional accounts on behalf of Venture according to the above requirements as may be reasonably necessary. 6.2 Security Deposit Account. Manager shall deposit all security ------------------------ deposits received by it from Tenants or commercial lease tenants in financial institutions approved by Venture in special accounts and shall not commingle such monies with other funds of Manager; provided, however, that if applicable laws or regulations require a different method for handling security deposits or income, Manager shall comply therewith. 4 6.3 Working Capital. Venture shall furnish funds sufficient in ---------------- amount to constitute normal working capital for the operation of each Property, and thereafter Venture shall maintain sufficient working capital for each Property. Manager shall not be obligated to advance any of its own funds to or for the account of Venture, nor to incur any liability unless Venture shall have furnished Manager with funds necessary for the discharge thereof. 7. Compliance. ----------- 7.1 Compliance with Environmental Laws. Manager shall use its --- ----------------------------------- best efforts to cause each Property and operation thereof to be in compliance with all federal and Ohio environmental laws. 7.2 Compliance with Other Laws and Agreements. ----------------------------------------- 7.2.1 Manager shall use its best efforts to cause each Property and operation thereof to be in compliance will all other laws as well. Manager shall use its best efforts promptly to remedy any violation of any such laws. 7.2.2 Manager shall use its best efforts to cause compliance of each Property and operation thereof with all terms and conditions contained in any Rental Agreement and in any commercial lease of any portion of a Property. 7.2.3 Manager shall use its best efforts to keep in force all licenses and permits required for operation of each Property. 7.2.4 Manager shall comply with all laws applicable to Manager's activities in managing each Property, including, without limitation, all labor, tax unemployment insurance and workers' compensation laws. 8. Casualty, Public Liability and Other Insurance. Manager shall ------------------------------------------------- provide and maintain such insurance coverage as may be reasonably required by Venture and provide evidence of such insurance, as requested by Venture. 9. Term of Agreement; Removal of Manager. This Agreement shall become -------------------------------------- effective as of the date hereof and shall expire concurrently upon the termination of the Joint Venture Agreement. Venture shall have no right to remove Manager during the Term. 10. Compensation. As full compensation for all of Manager's ------------- services hereunder, Venture shall pay Manager for each Property, the greater of (I) Eight percent (8%) of the monthly gross receipts generated by the Property or (ii) $2,000. The monthly compensation shall be payable to Manager on or before the 15/th/ day of the subsequent month. As used herein, "gross receipts" are all of the following amount 5 received from the operation of a Property: rentals or other charges for use and occupancy of any space within the Property, or for services or equipment provided in connection with such occupancy, including without limitation, any proceeds arising from: (I) rental interruption insurance, (ii) furniture rental, (iii) parking, (iv) forfeited security deposits applied by Venture to cure the non-payment of rent (but not applied by Venture to other damages suffered by Venture), (v) income from coin-operated machines, and (vi) other miscellaneous income collected at the Property. Excluded from gross receipts are all other receipts, including, but not limited to, security deposits, income derived from interest on investments, proceeds of claims on account of insurance policies (other than rental interruption insurance), abatement of taxes and awards arising out of takings by eminent domain, and discounts and dividends on insurance policies. 11. Indemnification by Manager of Venture. Manager agrees to indemnify ------------------------------------- Venture and hold Venture harmless from any and all claims, demands, liabilities, damages, lawsuits, judgments and costs and expenses, including, without limitation, costs of defense and reasonable attorney's fees incurred by Venture arising directly or indirectly, in whole or in part, out of any intentional act, gross negligence, willful misconduct or wrongful act or omission by Manager, their employees or agents, with respect to the management of any of the Properties. 12. Miscellaneous Provisions. ------------------------- 12.1 Notices. All notices to be given pursuant to this Agreement ------- shall be either (i) personally delivered; (ii) sent via certified or registered mail, postage prepaid; (iii) overnight courier (such as Federal Express, DHL, etc.); or (iv) by telecopy transmittal. If sent via certified or registered mail, receipt shall be deemed effective forty-eight (48) hours after being deposited in the United States mail. If sent via overnight courier, receipt shall be deemed effective twenty-four (24) hours after the sending thereof. If sent via telecopy transmission, a confirming copy shall be sent to the sender, and receipt of the telecopy transmitted shall be deemed made twenty-four (24) hours after the sending thereof. All notices to be given pursuant to this Agreement shall be given to the parties at the following respective address. to Manager: Assisted Living Concepts, Inc.. 9955 S.E. Washington, Suite 201 Portland, Oregon 97216 Attention: Chief Financial Officer Telecopier No.: (503) 257-0828 with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman 300 Pioneer Tower 888 S.W. Fifth Avenue Portland, Oregon 97204-2089 Attention: Sandra Campbell, Esq. Telecopier No.: (503) 295-0915 6 to Venture: C/O Health Equity Investors, LLC. 3401 West 87/th/ Street Leawood, Kansas 66206 Attention: Zachary H. Shafran Telecopier No.: (913) 236-1890 with copy to: C. Michelle Marlo, Esq. 2049 Century Park East, Suite 2200 Los Angeles, California 90067 Telecopier No.: (310) 785-0254 12.2 Entire Agreement. This Agreement, and the Exhibits attached ---------------- hereto, represent the final and entire agreement between the parties in connection with the terms and conditions of this Agreement and supersedes and replaces any and all prior and contemporaneous agreements, understandings and communications between the parties, whether oral or written, with regard to the subject matter hereof. There are no oral or written agreements, representations or inducements of any kind existing between the parties relating to this transaction which are not expressly set forth herein. This Agreement may not be modified except by a written agreement signed by all signatories to this Agreement . 12.3 Binding Effect. This Agreement shall be binding upon and -------------- inure to the benefit of the parties hereto, their respective heirs, legal representatives, administrators, successors in interest and permitted assigns. 12.4 Waiver. No waiver by any party at any time of any breach of any ------- provision of this Agreement shall be deemed a waiver or a breach of any other provision herein or a consent to any subsequent breach of the same or another provision. If any action by any party shall require the consent or approval of another party, such consent or approval of such action on any one occasion shall not be deemed a consent to or approval of such action on any subsequent occasion or a consent to or approval of any other action. 12.5 Captions and Headings. The captions and paragraphs numbers --------------------- appearing in this Agreement are inserted only as a matter of convenience and do not define, limit, construe, or describe the scope or intent of this Agreement. 12.6 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be considered an original and all of which taken together shall constitute one and the same instrument. 7 12.7 Governing Law. This Agreement has been prepared, negotiated ------------- and executed in, and shall be construed in accordance with, the laws of the State of California. 12.8 Attorneys Fees and Costs. If either party named herein brings ------------------------ an action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action (or proceeding), on trial or appeal or otherwise, shall be entitled to its reasonable attorneys' fees to be paid by the losing party as fixed by the Court (or if applicable, the arbitrator). 12.9 Time Of Essence. Time is of the essence with respect to all --------------- matters contained in this Agreement. 12.10 Invalidity of Any Provision. If any provision (or any --------------------------- portion of any provision) of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, the legality, validity, and enforceability of the remaining provisions (or the balance of such provision) shall not be affected thereby. 12.11 No Third Party Beneficiary Rights. This Agreement is entered --------------------------------- into for the sole benefit of Manager and Venture and no other parties are intended to be direct or incidental beneficiaries of this Agreement and no third party shall have any right in, under or to this Agreement. 12.12 Incorporation of Exhibits. Each and all of the exhibits ------------------------- attached to this Agreement are incorporated herein as if set forth in full in this Agreement. 12.13 Assignment. Neither Manager nor Venture may assign this ----------- Agreement without the prior written consent of the other party hereto. 12.14 Manager's Authority. Manager has no authority to act for or ------------------- represent Venture except as herein specified. 12.15 Relationship. Nothing contained in this Agreement shall be ------------- construed to create a relationship of employer and employee between Manager and Venture, it being the intent of the parties hereto that the relationship created hereby is, in fact and intent, that of an independent contractor. Nothing contained in this Agreement shall be deemed to constitute Venture and Manager as partners or joint venturers. 12.16 Status Reports. Recognizing that each party might find it -------------- necessary, from time to time, to establish to third parties, such as accountants, banks, mortgagees, or the like, the then current status of performance under this Agreement, 8 each party agrees, upon the written request of the other party from time to time, promptly to furnish a written statement from its officer most knowledgeable concerning this Agreement on the status of any matter pertaining to this Agreement. IN WITNESS WHEREOF, MANAGER AND VENTURE have executed this Agreement as of the date first written above. "MANAGER" ASSISTED LIVING CONCEPTS, INC., A NEVADA CORPORATION By: /s/ ---------------------------------- Its:__________________________________ "VENTURE" HEALTH EQUITY INVESTORS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY By: /s/ ----------------------------- Its:_____________________________ AND ASSISTED LIVING CONCEPTS, INC., A NEVADA CORPORATION By: /s/ ---------------------------------- Its:_______________________________ 9 EXHIBIT "A" PROPERTIES Taylor House Findlay, Ohio Campbell House Bel Fontaine, Ohio Oakley House Greenville, Ohio Kingsbury House Defiance, Ohio Blanchard House Kenton, Ohio 10 EX-10.12 14 JOINT VENTURE AGREEMENT DATED AS OF APRIL 1, 1997 EXHIBIT 10.12 JOINT VENTURE AGREEMENT This Joint Venture Agreement ("Agreement") is deemed entered into as of the Agreement Date, by and between ALC and the Joint Venture which is comprised of ALC and HEI. ARTICLE 1 CERTAIN DEFINITIONS 1.1 AFFILIATE. "Affiliate" means, when used with reference to ALC, any Person directly or indirectly controlling, controlled by or under common control with ALC. 1.2 AGREEMENT. "Agreement" means this Joint Venture Agreement, as originally executed and as amended from time to time. Words such as "herein", "hereinafter", "hereto", "hereby" and "hereunder", when used with reference to this Agreement, refer to this Agreement as a whole, unless the context otherwise requires. 1.3 AGREEMENT DATE. "Agreement Date" shall be defined as of April 1, 1997. 1.4 ALC. "ALC" means, Assisted Living Concepts, Inc., a Nevada corporation. 1.5 ALC INTEREST. "ALC Interest" shall refer to the ten percent (10%) equity interest of ALC in the Joint Venture. 1.6 CESSATION OF OPERATIONS. "Cessation of Operations" means voluntary or involuntary cessation of the operation of the Property. 1.7 DISPOSITION. "Disposition" or "Dispose" means a sale, assignment, transfer, or exchange. 1.8 GAAP. "GAAP" means Generally Accepted Accounting Principles consistently applied on an accrual basis. 1.9 HEI. "HEI" refers to Health Equity Investors, LLC, a California limited liability company 1.10 HEI INTEREST. "HEI Interest" shall refer to the ninety percent (90%) equity interest of HEI in the Joint Venture. 1.11 JOINT VENTURE. "Joint Venture" is the entity comprised of the ALC and HEI, subject to the terms and conditions of the Agreement. 1.12 MANAGEMENT AGREEMENT. "Management Agreement" shall refer to that certain Management Agreement, dated as of the Agreement Date, by and between ALC and HEI wherein ALC shall be the exclusive Operator of the Properties. 1 1.13 NET LOSS. "Net Loss" shall be defined as the GAAP monthly net loss generated by a Property. 1.14 NET LOSS PAYMENTS. "Net Loss Payments" shall refer to the reimbursement of Net Loss for the Properties by the Joint Venture to ALC and the obligation of HEI and ALC to the Joint Venture in accordance with their respective equity interests in the Joint Venture 1.15 NET INCOME. "Net Income" shall be defined as the GAAP monthly net income generated by a Property. 1.16 NET INCOME PAYMENTS. "Net Income Payments" refers to the payments by ALC of Net Income for the Properties to the Joint Venture and the distribution to HEI and ALC in accordance with their respective equity interests in the Joint Venture. 1.17 NET SALES PROCEEDS. "Net Sales Proceeds" shall mean the gross Disposition proceeds, whether cash, non-cash, or other property, received by ALC from the Disposition of a Property, less Disposition expenses and the amount of obligations secured by the Disposition Property. 1.18 OPERATOR. "Operator" shall be defined as the Person legally responsible for the management of the operations of the assisted living facility. The Operator of the Properties, if other than ALC, shall be a party to this Agreement and the Management Agreement. 1.19 PROPERTY OPERATING STATMENT. "Property Operating Statement" refers to the GAAP monthly and quarterly statement of net income and loss for a Property prepared by ALC. 1.20 PROPERTIES. "Properties" refers to the list of five (5) properties set forth on Exhibit "A" hereto and "Property" refers to each individual property listed on Exhibit "A" hereto. 1.21 PERSON. "Person" means an individual, partnership, limited partnership, corporation, trust, estate, association, limited liability company, or other entity, whether domestic or foreign. 1.22 TERM. "Term" shall have the meaning set forth in Section 2.4. ARTICLE 2 BASIS OF AGREEMENT; PROPERTIES; TERM 2.1 BASIS OF AGREEMENT WITH ALC. The Joint Venture agrees to reimburse ALC for the monthly Net Loss generated from each Property during the Term and ALC agrees to remit to the Joint Venture the Net Income generated from each Property during the Term, all subject to the terms and conditions set forth herein. 2.2 BASIS OF AGREEMENT BETWEEN ALC AND HEI. ALC has an equity interest in the Joint Venture of ten percent (10%) and HEI has an equity interest in the Joint Venture of ninety percent (90%). HEI and ALC are obligated to reimburse the Joint Venture for the Net Loss Payments to ALC and receive distributions from the Joint Venture of Net Income Payments from ALC on a pro rata basis in accordance with their respective equity interests in the Joint Venture. 2 2.3 PROPERTIES. The Properties subject to the terms of this Agreement are set forth on Exhibit "A" hereto. 2.4 TERM. The Term of this Agreement shall commence as of the Agreement Date and terminate the earlier of (I) a Disposition of all of the Properties, or (ii) the expiration of the useful life of all of the Properties. ARTICLE 3 COVENANTS OF ALC 3.1 COVENANTS AND REPRESENTATIONS OF ALC. As an integral part of this Agreement and as an inducement to HEI, ALC and any Affiliate Operator, agree to the following during the Term: 3.1.1 to remain the Operator of the Properties; 3.1.2 not cause nor permit a Cessation of Operations of any of the Properties; 3.1.3 to operate each Property in compliance with local, state, and federal laws, regulations, and ordinances required to operate an assisted living facility in the jurisdiction in which the Property is located; 3.1.4 to operate each Property consistent with the standards for assisted living facilities in the jurisdiction in which the Property is located; and 3.1.5 to Dispose of a Property at not less than fair market value. 3.2 REPRESENTATIONS AND WARRANTIES OF ALC. ALC represents and warrants as of the Agreement Date that: 3.2.1 ALC or an Affiliate owns fee simple or a leasehold interest to the Properties; 3.2.2 ALC or an Affiliate is the Operator of the Properties; 3.2.3 ALC and any Affiliate signator has full authority to execute this Agreement and, this Agreement is a legally binding agreement enforceable in accordance with its terms; and 3.2.4 the execution and delivery of this Agreement by ALC and any Affiliate signator does not violate, conflict with or constitute a default under any terms of any agreements or contracts to which ALC, any Affiliate signator, and the Properties are subject to or bound. ARTICLE 4 NET LOSS PAYMENTS; NET INCOME PAYMENTS 4.1 PROCEDURES FOR NET LOSS PAYMENTS AND NET INCOME PAYMENTS. ALC shall deliver to the Joint Venture a monthly invoice no later than fifteen (15) days after the end of each calendar month during the Term ("Invoice") providing the Net Loss or Net Income, as the case may be, for each Property. The Invoice shall be accompanied by and based upon a Property Operating Statement 3 for each Property. ALC agrees to provide to the Joint Venture other documents, as reasonably requested by the Joint Venture, to substantiate the Net Loss or Net Income for the Properties as stated in the Invoice. 4.2 NET LOSS PAYMENTS TO JOINT VENTURE BY HEI AND ALC. HEI and ALC shall each pay to the Joint Venture on a pro rata basis in accordance with their equity interests in the Joint Venture, the Net Loss Payments, if any, for each Property within fifteen (15) business days after submission to the Joint Venture by ALC of the Invoice. 4.3 NET LOSS PAYMENTS FROM JOINT VENTURE TO ALC. Within twenty (20) business days after receipt by the Joint Venture of the Invoice for each Property indicating a Net Loss, the Joint Venture shall remit to ALC the aggregate Net Loss Payments for the Properties. 4.4 NET INCOME PAYMENTS TO JOINT VENTURE BY ALC. Concurrent with the submission by ALC of the Invoice for each Property to the Joint Venture pursuant to Section 4.1 hereof, ALC shall remit to the Joint Venture the Net Income Payments, if any, for each Property. 4.5 DISTRIBUTIONS OF NET INCOME PAYMENTS TO HEI AND ALC. Within five (5) business days after the receipt by the Joint Venture of the Net Income Payments for the Properties from ALC pursuant to Section 4.4 hereof, the Joint Venture shall distribute such Net Income Payments to HEI and ALC, on a pro rata basis in accordance with their equity interests in the Joint Venture. 4.6 JOINT VENTURE RIGHT OF AUDIT. The Joint Venture shall have the right to review and audit the books and records of the Properties, at any time, but no more often than quarterly, at the expense of the Joint Venture, which expense shall be borne by HEI and ALC pro rata in accordance with their respective equity interests in the Joint Venture. ALC agrees to make its books and records available to the Joint Venture in the event of such audit. ARTICLE 5 DEFAULT 5.1 DEFAULT BY ALC. The occurrence of any one of the following beyond applicable grace periods, if any, shall constitute a default by ALC under this Agreement as either or both a party to this Agreement or as an equity participant of the Joint Venture ("Event of Default"): (i) Failure to pay when due all monetary obligations under this Agreement, including but not limited to the Net Income Payments and such failure continues for a period of thirty (30) calendar days after written notification by HEI to ALC; (ii) Breach of any representations and warranties of ALC under this Agreement; (III) ALC commences any proceedings relating to any substantial portion of any Property under any reorganization arrangement, readjustment of debt, dissolution, winding up, adjustment, composition or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or ALC 4 files a petition under any provision of the bankruptcy laws of the United States or under any similar or successor Federal statute relating to bankruptcy, insolvency arrangements or reorganizations, or under any state bankruptcy or insolvency act ("Proceeding"); there is commenced against ALC any Proceeding and such Proceeding remains undismissed for a period of forty-five (45) days (or such longer period as HEI may agree); or ALC files an answer in an involuntary Proceeding admitting insolvency or inability to pay debts, or ALC fails to obtain a vacation or stay or dismissal of involuntary Proceedings brought for the reorganization, dissolution or liquidation of ALC within sixty (60) days after the institution of such Proceedings, or ALC is adjudged a bankrupt or any receiver, trustee, liquidator or sequestor of, or for, ALC, or any Property, is appointed and is not discharged within a period of forty-five (45) days; or ALC consents to any Proceeding or the appointment of any receiver, trustee, liquidator or sequestrator of, or for, ALC or any substantial portion of any Property; or any Property becomes subject to the jurisdiction of a Federal bankruptcy court or similar state court, or ALC makes an assignment for the benefit of creditors, or there is an attachment, execution or other judicial seizure of any Property or any portion thereof or of any material portion of the assets of ALC and such seizure is not discharged within ten (10) calendar days. (iv) ALC fails to provide the financial information to HEI as required by and within the time periods set forth in the Agreement, and such failure shall continue for more than ten (10) days after HEI has give written notice of said failure to ALC. (v) ALC commits a non-monetary default under this Agreement in the performance or compliance with any of the terms, covenants or conditions of this Agreement and said non-monetary default is not cured within thirty (30) calendar days after HEI has give written notice thereof to ALC, or, if said monetary default is of type which is not capable of being cured within the thirty (30) calendar day period, if ALC has not commenced with due diligence and dispatch the cure of said non-monetary default within said thirty (30) calendar day period after HEI's notice to ALC, and thereafter promptly prosecuted the same to completion within ten (10) calendar days after said initial thirty (30) day period. 5.2 REMEDIES OF JOINT VENTURE. Upon the occurrence of an Event of Default under the Agreement with respect to ALC in its role as a party to this Agreement, the Joint Venture, shall at its option, have the right to terminate the Agreement in addition to all of its legal and equitable remedies. 5.3 REMEDIES OF HEI. Upon the occurrence of an Event of Default under the Agreement with respect to ALC's obligations as a equity participant of the Joint Venture, HEI, shall at its option, have the right to terminate the Agreement in addition to all of its legal and equitable remedies. ARTICLE 6 DISPOSITION PROCEEDS 6.1 DISPOSITION PROCEEDS. In the event of a Disposition of a Property ("Disposition Property") during the Term of this Agreement, ALC and HEI agree to the following distribution priority of Net Sales Proceeds: 6.1.1 First, to HEI, in the amount that the HEI contributions of Net Loss Payments exceed distributions of Net Income Payments to HEI for the Disposition Property; and 5 6.1.2 Second, the balance, if any, ten percent (10%) to ALC and ninety percent (90%) to HEI. 6.2 NON-CASH DISPOSITION PROCEEDS. To the extent the Net Sales Proceeds include non-cash proceeds or other property, HEI will receive an assignment of the non-cash proceeds and other property to the extent of the HEI Interest and consistent with the distribution priority set forth in Section 6.1 hereof. ARTICLE 7 MISCELLANEOUS PROVISIONS 7.1 NOTICES. All notices to be given pursuant to this Agreement shall be either (i) personally delivered; (ii) sent via certified or registered mail, postage prepaid; (iii) overnight courier (such as Federal Express, DHL, etc.); or (iv) by telecopy transmittal. If sent via certified or registered mail, receipt shall be deemed effective forty-eight (48) hours after being deposited in the United States mail. If sent via overnight courier, receipt shall be deemed effective twenty-four (24) hours after the sending thereof. If sent via telecopy transmission, a confirming copy shall be sent to the sender, and receipt of the telecopy transmitted shall be deemed made twenty-four (24) hours after the sending thereof. All notices to be given pursuant to this Agreement shall be given to the parties at the following respective address. to ALC: Assisted Living Concepts, Inc.. 9955 S.E. Washington, Suite 201 Portland, Oregon 97216 Attention: Chief Financial Officer Telecopier No.: (503) 257-0828 with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman 300 Pioneer Tower 888 S.W. Fifth Avenue Portland, Oregon 97204-2089 Attention: Sandra Campbell, Esq. Telecopier No.: (503) 295-0915 to HEI: Health Equity Investors, LLC. 3401 West 87th Street Leawood, Kansas 66206 Attention: Zachary H. Shafran Telecopier No.: (913) 236-1890 with copy to: C. Michelle Marlo, Esq. 2049 Century Park East, Suite 2200 Los Angeles, California 90067 Telecopier No.: (310) 785-0254 6 7.2 ENTIRE AGREEMENT. This Agreement, and the Exhibits attached hereto, represent the final and entire agreement between the parties in connection with the terms and conditions of this Agreement and supersedes and replaces any and all prior and contemporaneous agreements, understandings and communications between the parties, whether oral or written, with regard to the subject matter hereof. There are no oral or written agreements, representations or inducements of any kind existing between the parties relating to this transaction which are not expressly set forth herein. This Agreement may not be modified except by a written agreement signed by all signatories to this Agreement. 7.3 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, administrators, successors in interest and assigns. 7.4 WAIVER. No waiver by any party at any time of any breach of any provision of this Agreement shall be deemed a waiver or a breach of any other provision herein or a consent to any subsequent breach of the same or another provision. If any action by any party shall require the consent or approval of another party, such consent or approval of such action on any one occasion shall not be deemed a consent to or approval of such action on any subsequent occasion or a consent to or approval of any other action. 7.5 CAPTIONS AND HEADINGS. The captions and paragraphs numbers appearing in this Agreement are inserted only as a matter of convenience and do not define, limit, construe, or describe the scope or intent of this Agreement. 7.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be considered an original and all of which taken together shall constitute one and the same instrument. 7.7 GOVERNING LAW. This Agreement has been prepared, negotiated and executed in, and shall be construed in accordance with, the laws of the State of California. 7.8 ATTORNEYS FEES If either party named herein brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action (or proceeding), on trial or appeal or otherwise, shall be entitled to its reasonable attorneys' fees to be paid by the losing party as fixed by the Court (or if applicable, the arbitrator). 7.9 TIME OF ESSENCE. Time is of the essence with respect to all matters contained in this Agreement. 7.10 INVALIDITY OF ANY PROVISION. If any provision (or any portion of any provision) of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, the legality, validity, and enforceability of the remaining provisions (or the balance of such provision) shall not be affected thereby. 7.11 DRAFTING OF AGREEMENT. ALC and HEI acknowledge that this Agreement has been negotiated at arm's length, that each party has been represented by independent counsel and that this Agreement has been drafted by both parties and no one party shall be construed as the draftsperson. 7 7.12 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is entered into for the sole benefit of ALC and HEI and no other parties are intended to be direct or incidental beneficiaries of this Agreement and no third party shall have any right in, under or to this Agreement. 7.13 INCORPORATION OF EXHIBITS. Each and all of the exhibits attached to this Agreement are incorporated herein as if set forth in full in this Agreement. 7.14 INDEMNIFICATION OF HEI BY ALC. ALC and Affiliate Operators agree to defend and indemnify HEI from any and all liabilities, obligations, expenses, losses, and costs (including reasonable attorneys' fees) resulting to HEI in connection with the ownership and/or operation of the Properties by ALC or any Affiliate Operator; but expressly excluding from such indemnification, any and all losses, liabilities, obligations, expenses, and costs arising from the normal operations of the Properties and/or relating to or from the obligations of HEI under this Agreement. This indemnification by ALC and Affiliate Operators shall survive the Term of this Agreement. 7.15 ARBITRATION OF DISPUTES. Any controversy or claim arising out of or relating to this Agreement, or the actual or alleged breach of this Agreement, or arising out of or relating to the rights or duties or obligations of the parties inter se in any capacity respecting any matter that could be asserted in -------- a dispute by way of complaint, cross-complaint or counterclaim, other than an unlawful detainer proceeding to determine possession of the property, shall be settled by binding arbitration conducted in the City of Santa Monica, California at the offices of Judicial Arbitration & Mediation Services, Inc. ("JAMS") in accordance with the following rules and procedures: (I) the parties may agree on a retired judge from the JAMS panel; if they are unable to agree within five (5) days of the initiation of arbitration, JAMS shall provide each party a list of three available judges and each party may strike one, the remaining judge or if more than one judge is remaining, then the judge selected by JAMS of the remaining judges will serve as the arbitrator; (ii) arbitration may be initiated by sending written notice of an intention to arbitrate to all parties and to JAMS, the notice must contain a description of the dispute, the amount involved, and the remedy sought; (iii) the arbitrator will schedule a prehearing conference within ten (10) days to reach agreement on procedural matters, arrange for exchange of information, permissible discovery as the arbitrator shall order, obtain stipulations, and attempt to narrow the issues and set a hearing date within twenty (20) days after the prehearing conference; (iv) it is the parties' objective to expedite the arbitration proceedings by reducing and expediting discovery as provided by the Discovery Act pursuant to Sections 1985, et seq. of the Code of Civil Procedure. Either party, prior to the prehearing conference, can make written demand for lists of the witnesses to be called and the documents to be introduced at the hearing, such lists to be served by both parties within fifteen (15) days of the demand. Depositions or other discovery procedures may be taken for discovery only as ordered by the arbitrator at the prehearing conference or thereafter; (v) judicial rules of evidence and procedure relating to the conduct at the hearing, examination of witnesses, and presentation of evidence do not apply, any relevant evidence shall be admitted by the arbitrator if it is the sort of evidence on which responsible persons are accustomed to rely on in the conduct of serious affairs regardless of the admissibility of such evidence in a court of law; (vi) the arbitrator may grant any remedy or relief which is just and equitable, the award must be in writing and signed by the arbitrator and contain a concise statement of the reasons in support of the decision and be mailed promptly to the parties within ten (10) days from the closing of the hearing; (vii) the award can be judicially enforced pursuant to Section 1285 et seq. of the Code of Civil Procedure, is final and binding and there is no direct appeal from the award on the grounds of error in the application of law; (viii) all rights or remedies of the parties, or any of them, to the contrary are hereby expressly waived except the right to 8 obtain preliminary relief, pending the commencement of arbitration of the disputed matters; (ix) except for such preliminary relief, prior arbitration pursuant to the provisions hereof shall be a condition precedent to the bringing of any action, suit, or proceeding by any party subject to this Agreement, for any form of relief against a party subject to this Agreement; (x) notwithstanding any provision of the aforesaid rules or Statutes to the contrary, the refusal or failure of any party to appear at or participate in any hearing or other portion of any arbitration proceeding pursuant to this paragraph shall not prevent any such hearing or proceeding _from going forward, and the arbitrator is empowered to make a decision or render an award, or both, ex parte, which shall be binding on such party as fully as though such party had fully participated in such hearing or proceeding; and (xi) the prevailing party in any arbitration proceeding pursuant to this paragraph shall be entitled to an award for such party's expenses and attorneys' fees in connection therewith, and the cost of conducting the arbitration proceeding shall be borne by the losing party. It is agreed that the rights granted to the parties hereunder are of a special and unique kind and character and that, if there is a breach by any party of any material provision of these instructions, the other party or parties would not have any adequate remedy at law. It is, therefore, expressly agreed that the rights of the parties hereunder may be specifically enforced by the arbitrator making an order for specific performance and such other equitable relief as is provided under the laws of the State of California. Arbitration shall be the exclusive dispute resolution process in the State of California. IN WITNESS WHEREOF, ALC AND JOINT VENTURE have executed this Agreement as of the Agreement Date. "ALC" ASSISTED LIVING CONCEPTS, INC., A NEVADA CORPORATION By: /s/ ----------------------------- Its:_____________________________ "JOINT VENTURE" "HEI" HEALTH EQUITY INVESTORS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY By: /s/ ----------------------------- Its:_____________________________ AND "ALC" 9 ASSISTED LIVING CONCEPTS, INC., A NEVADA CORPORATION By: /s/ ----------------------------- Its:_____________________________ 10 EXHIBIT "A" PROPERTIES
PROPERTY FIRST REVENUE MONTH - ------------------------------------------- Taylor House Findlay, Ohio May, 1997 Campbell House Bel Fontaine, Ohio May, 1997 Oakley House Greenville, Ohio April, 1997 Kingsbury House Defiance, Ohio April, 1997 Blanchard House Kenton, Ohio April, 1997
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