Exhibit 2.1
FORM OF
AGREEMENT OF MERGER
among
FIVE STAR QUALITY CARE, INC.,
FSQ ACQUISITION, INC.
and
FSQ, INC. (formerly known as "Five Star Quality Care, Inc.")
________ __, 2001
TABLE OF CONTENTS
PAGE
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SECTION 1. DEFINITIONS.....................................................................................1
1.1. Definitions............................................................................1
SECTION 2. TRANSACTIONS AND TERMS OF MERGER................................................................4
2.1. Merger.................................................................................4
2.2. Charter of the Survivor................................................................4
2.3. Bylaws of the Survivor.................................................................4
2.4. Directors and Officers of the Survivor.................................................5
2.5. Conversion of Securities...............................................................5
SECTION 3. CLOSING, EFFECTIVE TIME AND DELIVERY OF CONSIDERATION...........................................5
3.1. The Closing............................................................................5
3.2. Effective Time.........................................................................5
SECTION 4. REPRESENTATIONS AND WARRANTIES OF FSQ...........................................................5
4.1. Organization, etc......................................................................6
4.2. Authorization; Execution; Binding Effect...............................................6
4.3. Capitalization.........................................................................6
4.4. Subsidiaries...........................................................................6
4.5. No Conflicting Agreements or Charter Provisions........................................7
4.6. Litigation.............................................................................7
4.7. Disclosure.............................................................................7
4.8. Financial Statements...................................................................7
4.9. No Undisclosed Liabilities.............................................................8
4.10. Compliance with Law....................................................................8
4.11. No Changes.............................................................................8
4.12. Benefit Plans..........................................................................8
4.13. Tax Matters...........................................................................10
4.14. Material Contracts....................................................................12
4.15. Insurance.............................................................................12
4.16. Employee Matters......................................................................13
4.17. Title to Property.....................................................................13
4.18. Proprietary Information...............................................................13
4.19. Environmental Matters.................................................................13
4.20. Fees..................................................................................14
SECTION 5. REPRESENTATIONS AND WARRANTIES OF FIVE STAR....................................................14
5.1. Organization, Etc.....................................................................14
5.2. Authorization: Execution: Binding Effect..............................................14
5.3. Capitalization........................................................................15
5.4. No Conflicting Agreements or Charter Provisions.......................................15
5.5. Fees..................................................................................15
SECTION 6. CERTAIN COVENANTS AND AGREEMENTS...............................................................15
6.1. Conduct of Business by FSQ............................................................15
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TABLE OF CONTENTS
(continued)
PAGE
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6.2. Employee Benefits; Severance Policy...................................................16
6.3. Inspection of the Properties and Access to Information................................16
6.4. No Solicitation.......................................................................17
6.5. Reasonable Efforts; Further Assurances; Cooperation...................................17
6.6. Public Announcements..................................................................17
6.7. Supplements to Schedules..............................................................17
6.8. Tax Returns...........................................................................17
6.9. Termination of Management Agreement...................................................18
SECTION 7. CONDITIONS.....................................................................................18
7.1. Conditions to Each Party's Obligations................................................18
7.2. Conditions to Obligations of FSQ......................................................18
7.3. Conditions to Obligations of Five Star and Merger Sub.................................19
SECTION 8. TERMINATION....................................................................................19
8.1. Termination...........................................................................19
8.2. Effect of Termination.................................................................20
SECTION 9. MISCELLANEOUS PROVISIONS.......................................................................21
9.1. Notices...............................................................................21
9.2. Schedules and Exhibits................................................................21
9.3. Computation of Time...................................................................21
9.4. Assignment: Successors in Interest....................................................21
9.5. No Third-Party Beneficiaries..........................................................22
9.6. Investigation; Survival of Representations and Warranties.............................22
9.7. Number; Gender........................................................................22
9.8. Captions..............................................................................22
9.9. Amendments............................................................................22
9.10. Controlling Law: Integration: Waiver................................................22
9.11. Severability..........................................................................23
9.12. Counterparts..........................................................................23
SIGNATURE PAGE............................................................................................24
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AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "AGREEMENT") is made and entered into as
of ________ __, 2001, among Five Star Quality Care, Inc., a Maryland corporation
("FIVE STAR"), with its principal office located in Newton, Massachusetts, FSQ
Acquisition, Inc., a
Delaware corporation ("MERGER SUB"), with its principal
office located in Newton, Massachusetts, and FSQ, Inc., a
Delaware corporation
("FSQ") (formerly known as "Five Star Quality Care, Inc."), with its principal
office located in Newton, Massachusetts.
RECITALS:
The parties hereto have agreed to merge Merger Sub with and into FSQ,
with FSQ to be the surviving entity, upon the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
SECTION 1.
DEFINITIONS
1.1. DEFINITIONS.
Except as otherwise provided in this Agreement, the capitalized terms
set forth below (in their singular and plural forms as applicable) shall have
the following meanings:
(1) "Advertising": Five Star Advertising, Inc., a
Delaware corporation.
(2) "Affiliate": any Person that is or has been in last five year
period ending with the Closing Date treated as a single employer with FSQ under
Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.
(3) "Agreement": this Agreement of Merger, as amended or otherwise
modified from time to time in accordance with its terms, together with the
schedules hereto.
(4) "Benefit Arrangement" any material benefit arrangement that is not
a Plan, including (i) any employment or consulting agreement, (ii) any
arrangement providing for insurance coverage or workers' compensation benefits,
(iii) any incentive bonus or deferred bonus arrangement, (iv) any arrangement
providing termination allowance, severance pay, salary continuation for
disability, or other leave of absence, supplemental unemployment benefits,
lay-off, reduction in force or similar benefits, (v) any stock option or equity
compensation plan, (vi) any deferred compensation plan, (vii) any compensation
policy or practice, (viii) any educational assistance arrangements or policies,
(ix) any plan governed by Section 125 of the Code and (x) any change of control
arrangements or policies.
(5) "Business Day": a day, other than a Saturday or a Sunday, on which
banking institutions in Boston, Massachusetts are required to be open.
(6) "Certificate of Merger": the Certificate of Merger to be executed
by Merger Sub and FSQ and delivered to the Secretary of State of
Delaware
relating to the merger of Merger Sub with and into FSQ, as contemplated by
SECTION 2.1.
(7) "Charter": a Person's certificate or articles of incorporation.
(8) "Closing": the closing of the Merger which will take place as
described in SECTION 3.1.
(9) "Closing Date": the date on which the Closing occurs.
(10) "Code": the Internal Revenue Code of 1986, as amended.
(11) "Contract": any contract, agreement, indenture, note, bond, loan
agreement, instrument, lien, conditional sales contract, lease, mortgage,
license, franchise, insurance policy, commitment or other arrangement or
agreement.
(12) "
Delaware Law": Sections 17-101 et seq. of Title 6 of the
Delaware
Code Annotated.
(13) "Effective Time": the date and time at which the Merger becomes
effective pursuant to
Delaware Law and as provided in SECTION 3.2 of this
Agreement.
(14) "Environmental Laws": any and all applicable federal, state and
local environmental health and safety statutes, laws and ordinances and all
regulations and rules of all governmental agencies, bureaus or departments and
all applicable judicial, administrative and regulatory decrees, judgments and
orders, including common law rulings, relating to injury to, or the protection
of, the environment or human health, including, without limitation, all
requirements pertaining to reporting, licensing, permitting, investigation,
remediation and removal of emissions, discharges, releases or threatened
releases of Hazardous Materials into the environment or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
(15) "ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
(16) "Five Star Common Stock": shares of Five Star Common Stock, $0.01
par value.
(17) "Five Star Registration Statement": the registration statement on
Form S-1 filed by Five Star under the Securities Act of 1933, as amended, in
connection with the distribution contemplated by the Transaction Agreement.
(18) "Five Star Subsidiaries": the Subsidiaries of Five Star, each of
which is a "Five Star Subsidiary".
(19) "FSQ Financial Statements": defined in SECTION 4.8.
(20) "GAAP": generally accepted accounting principles as in effect on
the date of the financial statements, taxes or other item being referenced.
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(21) "Hazardous Materials": any substance (i) the presence of which
requires or may hereafter require notification, investigation or remediation
under any Environmental Law; (ii) which is or becomes defined as a "hazardous
substance", "hazardous material", "hazardous" or "dangerous waste" or similar
term under the Comprehensive Environmental Response Compensation and Liability
Act, as amended (42 USC Section 9601 et. seq.), or any other federal, state or
local Environmental Law; (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous; or (iv)
without limitation, which contains or consists of gasoline, diesel fuel, or
other petroleum products or natural gas, natural gas liquids, liquefied natural
gas or synthetic gas usable for fuels.
(22) "IRS": the United States Internal Revenue Service.
(23) "Knowledge": the terms "FSQ's knowledge" and "to the knowledge of
FSQ", "Five Star's knowledge" and "to the knowledge of Five Star," and "Merger
Sub's knowledge" and "to the knowledge of Merger Sub" mean the actual knowledge
of any of their respective officers and directors.
(24) "Lien": any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute, court decision or contract and
including, without limitation, any mortgage, pledge, security interest, lease,
encumbrance, lien, purchase option, call or right, or charge of any kind
(including any agreement to give or permit any of the foregoing), any
conditional sale or other title retention agreement, any lease of property
(whether real, personal or mixed) which is required, in accordance with GAAP, to
be recorded by the lessee as the acquisition of an asset and the incurrence of a
liability, and the filing of any financing statement under the Uniform
Commercial Code or personal property security legislation of any jurisdiction.
(25) "Management Agreement": the Master Management Agreement dated as
of October 1, 2000 among certain Subsidiaries of Five Star and FSQ, as Manager.
(26) "Material Adverse Effect": any material adverse effect on the
business, assets, liabilities, financial condition or results of operations of a
Person and its Subsidiaries, taken as whole.
(27) "Merger": the merger of Merger Sub with and into FSQ as provided
in SECTION 2.1 of this Agreement.
(28) "Merger Consideration": with respect to each issued and
outstanding share of FSQ's common stock, 250 shares of fully paid and
nonassessable Five Star Common Stock.
(29) "Party": Each of Five Star, Merger Sub and FSQ.
(30) "Permitted Liens": any Liens for Taxes not yet due or delinquent
and any statutory encumbrance arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due or delinquent.
(31) "Person": an individual, real estate investment trust,
partnership, joint venture, corporation, limited liability company, trust and
any other form of business organization.
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(32) "Plan": an employee benefit plan as defined in Section 3(3) of
ERISA.
(33) "Proprietary Data": defined in SECTION 4.18.
(34) "Purchase Proposal": any proposal or offer to acquire all or
substantially all of the assets of FSQ or all or substantially all of FSQ's
equity securities, whether by merger, purchase of assets, tender offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof.
(35) "Qualified Plan": a Plan maintained by FSQ or an Affiliate that
complies or is intended to comply with Section 401 of the Code.
(36) "Subsidiaries": all corporations, associations or other entities
of which a person owns, directly or indirectly, more than 50% of the voting
stock or other voting equity interests of such corporation, association or other
entity.
(37) "Survivor": defined in SECTION 2.1.
(38) "Taxes": defined in SECTION 4.13(1).
(39) "Tax Returns": defined in SECTION 4.13(1).
(40) "Transaction Agreement": the Transaction Agreement dated as of
December __, 2001 among Senior Housing Properties Trust, Five Star, FSQ,
Hospitality Properties Trust, HRPT Properties Trust, REIT Management & Research
LLC and the other Persons party thereto.
SECTION 2.
TRANSACTIONS AND TERMS OF MERGER
2.1. MERGER.
Subject to the terms and conditions of this Agreement, at the Effective
Time, Merger Sub shall be merged with and into FSQ in accordance with the
provisions of and with the effect provided under
Delaware Law. The separate
existence of Merger Sub shall thereupon cease, and FSQ shall be the surviving
corporation of the Merger (sometimes referred to as the "SURVIVOR") and shall
continue to be governed by
Delaware Law. The Merger shall be consummated
pursuant to the terms of this Agreement.
2.2. CHARTER OF THE SURVIVOR.
The Charter of Merger Sub in effect immediately prior to the Effective
Time shall be the Charter of the Survivor, until amended in accordance with
Delaware Law.
2.3. BYLAWS OF THE SURVIVOR.
The Bylaws of Merger Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the Survivor, until amended in accordance with
Delaware Law.
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2.4. DIRECTORS AND OFFICERS OF THE SURVIVOR.
The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and officers of the Survivor as of the
Effective Time.
2.5. CONVERSION OF SECURITIES.
(1) MERGER SUB SHARES. Each share of common stock of Merger Sub issued
and outstanding immediately prior to the Effective Time shall, at the Effective
Time, automatically become a share of common stock of the Survivor.
(2) FSQ SHARES. Each share of common stock of FSQ issued and
outstanding immediately prior to the Effective Time shall, as of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive the Merger Consideration. As a
result of the Merger and without any action on the part of the holder thereof,
at the Effective Time all shares of common stock of FSQ issued and outstanding
immediately prior to the Effective Time shall be cancelled and retired and shall
cease to exist and each holder of common stock of FSQ shall thereafter cease to
have any rights with respect thereto except the right to receive, without
interest, the Merger Consideration, upon the surrender of a certificate
representing such common stock of FSQ.
SECTION 3.
CLOSING, EFFECTIVE TIME AND DELIVERY OF CONSIDERATION
3.1. THE CLOSING.
Following the day on which the last of the conditions set forth in this
Agreement shall be fulfilled or waived in accordance herewith, subject to the
terms and conditions of this Agreement, the closing of the Merger shall take
place at the offices of ▇▇▇▇▇▇▇▇ & Worcester LLP, at Boston, Massachusetts at
9:00 a.m. (local time), on January 2, 2002, or at such other time, date or place
as the Parties may agree.
3.2. EFFECTIVE TIME.
If all of the conditions to the Merger set forth in this Agreement
shall have been fulfilled or waived and this Agreement shall not have been
terminated, on the Closing Date the Parties shall execute and deliver to the
Delaware Secretary of State a Certificate of Merger in accordance with Delaware
Law. The Merger shall become effective upon the acceptance for filing of the
Certificate of Merger by the Secretary of State of the State of Delaware.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF FSQ
FSQ represents and warrants to Five Star and acknowledges that Five
Star is relying upon such representations and warranties in connection with the
transactions provided for in this Agreement:
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4.1. ORGANIZATION, ETC.
FSQ is duly organized, validly existing and in good standing as a
corporation under the laws of the state of Delaware and has all requisite power
and authority (i) to conduct its business as it is now conducted, (ii) to own or
lease all of the properties owned or leased by it, (iii) to enter into and
perform this Agreement and (iv) to otherwise consummate the transactions
contemplated by this Agreement. The records and minute books of FSQ contain
complete and accurate, in all material respects, minutes of all meetings of the
directors and the shareholders of FSQ since the date of its formation, all such
meetings were duly called and held, and the stock record books and register of
holders of common stock of FSQ are complete and accurate. FSQ is duly qualified
to do business and is in good standing in all jurisdictions in which the
ownership or lease of property by it or the conduct of its business makes such
qualification necessary, except where the failure to be qualified does not have
and would not be reasonably expected to have a Material Adverse Effect on FSQ.
4.2. AUTHORIZATION; EXECUTION; BINDING EFFECT.
The execution and delivery of this Agreement, and the consummation of
the transactions provided for in this Agreement, have been duly authorized by
all necessary corporate and stockholder action on the part of FSQ and this
Agreement constitutes the legal, valid and binding obligation of FSQ,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, or other laws
affecting creditors' rights and remedies generally and by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4.3. CAPITALIZATION.
The authorized capital stock of FSQ consists of 3,000 shares of common
stock $0.01 par value, of which 1,000 shares are issued and outstanding. FSQ has
not issued any options or any securities convertible into common stock of FSQ.
All of such outstanding common stock of FSQ has been duly authorized and validly
issued, is fully paid and nonassessable and is not subject to any preemptive or
similar rights. FSQ is not a party to or bound by any agreement, put or
commitment pursuant to which it is obligated to purchase, redeem or otherwise
acquire any of its common stock or any options or securities convertible into
its common stock.
4.4. SUBSIDIARIES.
FSQ does not have any Subsidiaries or own, directly or indirectly, or
control any equity or voting interest in any Person, except for Advertising.
Advertising is duly organized, validly existing and in good standing as
a corporation under the laws of the state of Delaware. Advertising has not
engaged in any business, and has not incurred any liabilities of any nature
whatsoever, except for franchise taxes and like expenses required to be incurred
by it to maintain its existence or qualification. The authorized capital stock
of Advertising consists of 3,000 shares of common stock $0.01 par value, of
which 1,000 shares are issued and outstanding. All of such outstanding common
stock of Advertising has been duly authorized and validly issued, is fully paid
and nonassessable and is not subject to any preemptive or similar rights. All of
the issued and outstanding common stock of Advertising is
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owned beneficially and of record by FSQ, free and clear of all Liens. There are
no outstanding options, rights or agreements of any kind relating to the
issuance, sale or transfer of any capital stock of Advertising.
4.5. NO CONFLICTING AGREEMENTS OR CHARTER PROVISIONS.
The execution, delivery and compliance with and performance of the
terms and provisions of this Agreement will not conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
or result in any violation of, (i) the Charter or Bylaws of FSQ or Advertising
or any resolutions adopted by their respective directors or stockholders, (ii)
any provision of any material Contract to which FSQ or Advertising is a party or
by which they or any part of their respective assets may be bound, or (iii) any
order, judgment, decree, license, permit, statute, law, rule or regulation to
which FSQ or Advertising is subject. The execution, delivery and performance of
this Agreement will not result in the creation of any Lien upon or any
preferential arrangement with respect to the business or any part of the assets
or properties of FSQ or Advertising.
4.6. LITIGATION.
There is (whether insured or uninsured) no action, suit, proceeding or
investigation pending or, to the knowledge of FSQ, threatened, at law or in
equity, in any court or before or by any federal, state, municipal or other
governmental authority, department, commission, board, agency or other
instrumentality (i) against FSQ or Advertising or, to the knowledge of FSQ,
affecting FSQ or Advertising, except for private civil litigation involving
claims which will not have a Material Adverse Effect on FSQ, (ii) to the
knowledge of FSQ, against or adversely affecting any officer or director of FSQ
or Advertising, or (iii) adversely affecting this Agreement or any action taken
or to be taken or documents executed or to be executed pursuant to or in
connection with the provisions of this Agreement.
4.7. DISCLOSURE.
None of the information concerning FSQ or its business, condition
(financial or otherwise), assets, liabilities, personnel, and policies contained
herein, in any Schedule (as the same are superseded or supplemented prior to the
Closing Date) or in the FSQ Financial Statements contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
4.8. FINANCIAL STATEMENTS.
FSQ has heretofore furnished to Five Star copies of the unaudited
financial statements of FSQ for the fiscal year ended December 31, 2000 and the
unaudited financial statements of FSQ for the nine month period ended September
30, 2001 (collectively, the "FSQ FINANCIAL STATEMENTS"). The FSQ Financial
Statements, including in each case the notes thereto, have been prepared from
the books and records of FSQ and in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, except as otherwise noted therein,
are true, accurate and complete in all material respects, and fairly present the
financial condition and results of operations of FSQ on the bases therein
stated, as of the respective dates thereof, and for
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the respective periods covered thereby subject, in the case of unaudited
financial statements, to normal year-end audit adjustments and accruals and
absence of footnotes.
4.9. NO UNDISCLOSED LIABILITIES.
Except as set forth in FSQ Financial Statements, as of September 30,
2001, FSQ did not have any obligations, indebtedness or liabilities of any
nature which would have been required by GAAP to be reflected on the balance
sheet of FSQ as of September 30, 2001 or the notes thereto, that are not shown
on such balance sheet or the notes to such balance sheet. Except as set forth in
such balance sheet, FSQ, on the date of this Agreement, does not have
outstanding any material obligation, indebtedness or liability, and FSQ does not
know of any basis for the assertion against FSQ of any such material obligation,
indebtedness or liability, other than those incurred since September 30, 2001 in
the ordinary course of business or disclosed in SCHEDULE 4.9.
4.10. COMPLIANCE WITH LAW.
FSQ (i) has complied with all laws, regulations and orders which are
applicable to its business as presently conducted, (ii) possesses all permits,
licenses and other governmental approvals, accreditations, consents,
authorizations and orders specifically applicable to, or necessary for the
conduct of, its business as currently conducted, and (iii) has obtained all
governmental approvals and all other approvals, consents, certifications and
waivers and has made all filings, given all notices and otherwise complied with
all governmental laws, rules and regulations which are required on the part of
FSQ to enter into and perform this Agreement, and to otherwise consummate the
transactions contemplated by this Agreement, except in each case, where the
failure to have acted in accordance with clauses (i), (ii) and (iii) has not and
would not reasonably be expected to have a Material Adverse Effect on FSQ.
4.11. NO CHANGES.
Since September 30, 2001, there has not been, occurred or arisen (i)
any change in, or agreement to change the character or nature of the business of
FSQ, (ii) any change in the financial condition, results of operations,
business, properties, assets or liabilities of FSQ, which has had or would
reasonably be expected to have a Material Adverse Effect on FSQ or (iii) any
obligation incurred by FSQ, other than any incurred in the ordinary course of
business or which, individually or in the aggregate, with all other obligations
so incurred, is or are not material in amount to FSQ.
4.12. BENEFIT PLANS.
(1) Except as described in SCHEDULE 4.12, neither FSQ nor any Affiliate
contributes to any Plan or Benefit Arrangement nor has contributed to or
sponsored any Plan or Benefit Arrangement in the five year period ending with
the Closing Date. As to all Plans and Benefit Arrangements listed in SCHEDULE
4.12:
(a) all such Plans and Benefit Arrangements comply and have
been administered in all material respects in form and in
operation with all applicable laws, and all required returns
(including without limitation information returns)
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have been prepared in accordance with all applicable laws and
have been timely filed in accordance with applicable laws with
respect to any such Plan or Benefit Arrangement, except where
the failure to so comply or to prepare and file such returns
could not reasonably be expected to have a Material Adverse
Effect, and neither FSQ nor any Affiliate has received any
outstanding written notice from any governmental or
quasi-governmental authority questioning or challenging such
compliance (where such noncompliance could reasonably be
expected to have a Material Adverse Effect);
(b) all Qualified Plans maintained or previously maintained
by FSQ or any Affiliate comply and complied in all material
respects in form and in operation with all applicable
requirements of the Code and ERISA, a favorable determination
letter has been received from the Internal Revenue Service with
respect to each such Plan (or the sponsor of the Plan is entitled
to rely on a favorable opinion letter issued to the Plan's
prototype sponsor by the Internal Revenue Service) and no event
has occurred that will or could reasonably be expected to give
rise to disqualification of any such Plan or to a tax under
Section 511 of the Code;
(c) there are no non-exempt "prohibited transactions" (as
described in Section 406 of ERISA or Section 4975 of the Code)
with respect to any Plans and neither FSQ nor any of its
Affiliates has otherwise engaged in any prohibited transaction;
(d) there have been no acts or omissions by FSQ or any
Affiliate that have given rise to or could reasonably be expected
to give rise to material fines, penalties, taxes or related
charges under Sections 502(c), 502(i) or 4071 of ERISA or Chapter
43 of the Code for which FSQ or any Affiliate may be liable;
(e) there are no claims (other than routine claims for
benefits) pending or, to FSQ's Knowledge, threatened involving
any Plan or the assets of any Plan, except as set forth on
SCHEDULE 4.12(1)(e);
(f) no Qualified Plan is subject to Title IV of ERISA;
(g) neither FSQ nor any Affiliate nor, to the best of the
knowledge of FSQ, any of their respective directors, officers,
employees or any other fiduciary has committed any breach of
fiduciary responsibility imposed by ERISA that would subject FSQ
or any Affiliate or any of their respective directors, officers
or employees to liability under ERISA;
(h) no Qualified Plan that is subject to Part 3 of Subtitle
B of Title I of ERISA or Section 412 of the Code had an
accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recently completed fiscal year of such
Plan;
(i) except as set forth in SCHEDULE 4.12(1)(i), and other
than pursuant to the provisions of the Consolidated Omnibus
Budget Reconciliation Act
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of 1985, as amended, or any equivalent state statute, neither FSQ
nor any Affiliate maintains any Plan that provides benefits
described in Section 3(1) of ERISA to any former employees or
retirees of FSQ or any of its Affiliates;
(j) except as set forth in SCHEDULE 4.12(1)(j), the
provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, or any equivalent state statute, and the
Health Insurance Portability and Accountability Act of 1996, or
any equivalent state statute, have been complied with in all
material respects;
(k) FSQ has made available to Five Star copies of the
Federal Form 5500 series and accountant's opinion, if applicable,
for each Plan or Benefit Arrangement (and the most recent
actuarial valuation reports for each Plan, if any, that is
subject to Title IV of ERISA), for three plan years preceding the
Closing Date and all information provided by FSQ or any Affiliate
to any actuary in connection with the preparation of any such
actuarial valuation report was true, correct and complete in all
material respects; and
(l) FSQ has delivered to Five Star correct and complete
copies of all Plans and Benefit Arrangements and, where
applicable, each of the following documents with respect to such
Plans or Benefit Arrangements: (i) any amendments; (ii) any
related trust documents; (iii) any documents governing the
investment and management of the Plan or the Benefit Arrangement,
or the assets thereof, including, without limitation, any
documents relating to fees incurred by the sponsor or
participants and beneficiaries; (iv) the most recent summary plan
descriptions and summaries of material modifications; and (v)
written communications to employees to the extent the substance
of the Plans and Benefit Arrangements described therein differ
materially from the other documentation furnished under this
clause.
(2) Neither FSQ nor any Affiliate is or ever has been a party to any
multiemployer plan, within the meaning of Section 4001(a)(3) of ERISA, or made
contributions to any such plan.
(3) No employee is entitled to, nor shall any employee accrue or
receive, additional benefits, services, accelerated rights to payment of
benefits or accelerated vesting, whether pursuant to any Plan, Benefit
Arrangement or otherwise, including the right to receive any parachute payment
as defined in Section 280G of the Code, or become entitled to severance,
termination allowance or other similar payments as a result of this Agreement
and the transactions contemplated hereunder.
4.13. TAX MATTERS.
(1) FSQ is, and at all times since its creation has been, a qualified
subchapter S corporation under the Code.
(2) Except where any failure to do so would not have a Material Adverse
Effect on FSQ, FSQ has filed when due (including extensions) with local, foreign
and other governmental
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agencies all tax returns, estimates, information and reports ("TAX RETURNS")
required to be filed by FSQ with respect to all federal, state, local or foreign
taxes, levies, imposts, duties, licenses and registration fees, and similar
charges, including, without limitation, income taxes, unemployment and social
security withholding taxes, sales and use taxes, real estate transfer taxes,
estimated and installment taxes, and interest, penalties, and additions to tax
with respect thereto ("TAXES"), and all such Tax Returns were correct and
complete in all material respects. Except where any failure to do so would not
have a Material Adverse Effect on FSQ, FSQ has paid when due and payable all
Taxes (whether or not shown as due and payable on its Tax Returns), including,
without limitation, all Taxes due with respect to any completed and settled
audit, examination or deficiency litigation with any taxing authority. To the
extent of Taxes not yet due and payable, FSQ has made required estimated
payments of or accrued or otherwise adequately reserved in accordance with GAAP
for the payment of such Taxes, including, without limitation, unpaid Taxes for
all taxable periods (or portions thereof) through the Closing Date. FSQ is not a
party to or bound by any agreement providing for the allocation or sharing of
Taxes.
(3) No Taxes have been assessed or asserted in writing in respect of
any Tax Returns filed by FSQ or claimed in writing to be due by any taxing
authority or otherwise that are not accrued or adequately reserved for in
accordance with GAAP, and no Liens for Taxes exist with respect to any of the
assets or properties of FSQ, except for statutory Liens for Taxes not yet due or
payable or that are being contested in good faith. No Tax Return of FSQ has been
or, to FSQ's knowledge, is currently being examined or audited by the IRS or
other taxing authority (whether foreign or domestic), there is no deficiency or
refund litigation pending with respect to any Taxes, and FSQ is not bound by any
currently effective private ruling, closing agreement or similar agreement with
any taxing authority relating to a material amount of Taxes. FSQ has not
executed or filed with the IRS or any other taxing authority (whether foreign or
domestic) any agreement, waiver, or other document extending, or having the
effect of extending, the period for assessment or collection of any Taxes, which
extension or waiver is still in effect. All final adjustments made by the IRS
with respect to any Tax Return of FSQ have been reported to the relevant state,
local, or foreign taxing authorities to the extent required by law, except where
the failure to do so would not have a Material Adverse Affect on FSQ. No
requests for ruling or determination letters filed by FSQ with respect to FSQ
are pending with any taxing authority.
(4) FSQ has not filed a consent pursuant to Section 341(f) of the Code,
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned directly or indirectly by it. No property of FSQ is property that is or
will be required to be treated as (A) being owned by another person pursuant to
the provisions of Section 168(f)(8) of the Code of 1954, as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982, (B)
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code,
or (C) subject to a lease under Section 7701(h) of the Code. FSQ does not have a
permanent establishment in any foreign country and does not operate or conduct a
business through any branch in any foreign country. FSQ has not agreed to and
FSQ is not required to make any adjustment pursuant to Section 481(a) of the
Code or any similar provision of state, local or foreign law by reason of a
change in the accounting method initiated by FSQ, and FSQ has no knowledge that
the IRS or other governmental authority has proposed any such adjustment or
change in accounting method. FSQ has not executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law. FSQ is not,
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nor has it been, a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code, and Five Star is not required to
withhold tax on the acquisition of the stock of FSQ by reason of Section 1445 of
the Code. FSQ has not at any time been (i) a member of an affiliated group of
corporations filing consolidated, combined or unitary income or franchise Tax
Returns, or (ii) a member of any partnership or joint venture for a period for
which the statue of limitations for any Tax potentially applicable as a result
of such membership has not expired. Neither FSQ nor any of its affiliates, nor
any predecessor of FSQ or of any of its Affiliates by merger, reorganization,
liquidation or consolidation, has within the three (3) years prior to the date
of this Agreement been a party to a transaction intended to qualify under
Section 355 of the Code or so much of Section 356 of the Code as relates to
Section 355 of the Code.
(5) The performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) result in FSQ being subject to additional Taxes.
(6) The performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) result in any payment that would constitute an "excess parachute payment"
within the meaning of Section 280G of the Code.
4.14. MATERIAL CONTRACTS.
Except as set forth in SCHEDULE 4.14, FSQ is not a party to or bound by
any (A) Contract involving commitments for future payments in excess of $100,000
not made in the ordinary course of business or terminable on more than ninety
(90) days notice without payment of premium or penalty; (B) Contract involving a
commitment for future payment of in excess of $100,000 for any purchase or sale
by FSQ of property, improvements, services or equipment not made in the ordinary
course of business; (C) Contract among partners or granting a right of refusal
or for a partnership or for a joint venture or for the acquisition, sale or
lease of any assets of FSQ; (D) mortgage, pledge, conditional sales contract,
security agreement, factoring agreement or other similar Contract with respect
to any real or tangible personal property of FSQ; (E) loan agreement, credit
agreement, promissory note, guarantee, indenture, subordination agreement,
letter of credit or any other similar type of Contract; (F) retainer Contract
with attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisers; or (G) noncompetition, nondisclosure or confidentiality
Contract or any other Contract that prohibits FSQ from freely engaging in any
business or competing anywhere in the world. FSQ has made available to Five Star
true, correct and complete copies of the Contracts listed in SCHEDULE 4.14,
together with all amendments, waivers, modifications, supplements or side
letters affecting the obligations of any party thereunder. Advertising is not a
party to any Contracts.
4.15. INSURANCE.
FSQ has obtained all insurance coverage required to be obtained by it
under the Management Agreement, and such insurance is in full force and effect.
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4.16. EMPLOYEE MATTERS.
SCHEDULE 4.16 sets forth a list of: (i) the job title, current annual
base salary rates of, and required bonuses payable to, all present officers,
employees and agents of FSQ having an annual base compensation in excess of
$150,000 per year (including commissions and bonuses) and (ii) all employment or
compensation agreements with each officer and employee of FSQ (including all
deferred compensation, severance, "stay-put" and similar agreements and all
agreements which result in the creation or occurrence of any right, duty or
obligation based upon, or as a result of, any change of control of FSQ or its
assets).
4.17. TITLE TO PROPERTY.
FSQ has good and merchantable title to all its material property and
assets, tangible and intangible, owned by FSQ, in each case free and clear of
all Liens, except for Permitted Liens and Liens reflected in the FSQ Financial
Statements.
4.18. PROPRIETARY INFORMATION.
Except as set forth on SCHEDULE 4.18, FSQ owns, or has a right to use
without limitations or restrictions adversely affecting the use of the same in
the ordinary conduct of its business, subject to all applicable laws, rules and
regulations, including without limitation, directives, orders or similar actions
of any applicable state regulatory authority, all technology, know-how,
processes and other proprietary information now used in the conduct of its
business (collectively, "PROPRIETARY DATA"), and, except where the absence
thereof would not have a Material Adverse Effect on FSQ, the consummation of the
transactions contemplated by this Agreement will not alter or impair any such
rights or breach any agreements with third party vendors or require payments of
additional sums thereto. No claims have been asserted by any Person to use or
obtain access to any such Proprietary Data and no Person has challenged or
questioned (i) the validity or effectiveness of any license or agreement
relating to the same in accordance with the terms thereof or (ii) the right of
FSQ to copy, modify, use or distribute the same, nor to the best of FSQ's
knowledge, is there any basis for any such claim, challenge or question. The
manner in which FSQ has actually used or copied such Proprietary Data does not
infringe on the rights of any Persons.
4.19. ENVIRONMENTAL MATTERS.
FSQ:
(a) is in compliance in all material respects with any
applicable Environmental Laws, has not been notified that it is
potentially liable under, has not received any request for
information pursuant to and is not a "potentially responsible
party" under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource
Conservation Recovery Act, as amended, or any similar state law;
(b) has not entered into and is not a party under any
consent decree, compliance order, or administrative or judicial
order, injunction or judgment pursuant to any Environmental Law;
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(c) except where such would not reasonably be expected to
result in a Material Adverse Effect, has obtained all permits,
licenses and other authorizations and made all filings which are
required to be obtained or made by FSQ for the ownership and
operation of its property, facilities and assets and the
operation of its businesses under all Environmental Laws and is
and at all times since its organization has been in compliance in
all material respects with the terms and conditions of all such
required permits, licenses and other authorizations; and
(d) is not the subject of or, to the knowledge of FSQ,
threatened with any legal action involving a demand for damages
or other potential liability arising under or relating to any
Environmental Law.
4.20. FEES.
No person acting on behalf of FSQ is, or will be, entitled to any
commission, broker's, finder's or investment banking fees from any of the
Parties or from any Person controlling, controlled by or under a common control
with any Party, in connection with the transactions contemplated by this
Agreement.
SECTION 5.
REPRESENTATIONS AND WARRANTIES OF FIVE STAR
Five Star represents and warrants to FSQ and acknowledges that FSQ is
relying on such representations and warranties in connection with the
transactions provided for in this Agreement:
5.1. ORGANIZATION, ETC.
Five Star is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Maryland, Merger Sub is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of Delaware, and each has all requisite power and authority
(i) to conduct its business as it is now conducted, (ii) to own or lease all of
the properties owned or leased by it, (iii) to enter into and perform this
Agreement and (iv) to otherwise consummate the transactions contemplated by this
Agreement. Each of Five Star and Merger Sub is duly qualified to do business and
is in good standing in all jurisdictions in which the ownership or lease of
property by it or the conduct of its business makes such qualification
necessary, except where the failure to be qualified does not have and would not
be reasonably expected to have a Material Adverse Effect on Five Star.
5.2. AUTHORIZATION: EXECUTION: BINDING EFFECT.
The execution, delivery and performance of this Agreement and the
consummation of the transactions provided for in this Agreement have been duly
authorized by all necessary action on the part of each Five Star and Merger Sub
(including the approval of the Merger by Five Star as the sole shareholder of
Merger Sub). This Agreement constitutes the legal, valid and binding obligation
of each of Five Star and Merger Sub, enforceable against each in accordance with
its
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terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights and remedies generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
5.3. CAPITALIZATION.
As of the date of this Agreement, the authorized capital stock of
Five Star consists of 10,000,000 shares of Five Star Common Stock, of which
4,367,170 shares are issued and outstanding. Except as set forth on SCHEDULE
5.3, as of the date of this Agreement, Five Star has not issued any options
or any securities convertible into common stock of Five Star. All such
outstanding Five Star Common Stock has been duly authorized and validly
issued, is fully paid and nonassessable and is not subject to any preemptive
or similar rights. Five Star is not a party to or bound by any agreement, put
or commitment pursuant to which it is obligated to purchase, redeem or
otherwise acquire any of its common stock or any options or securities
convertible into Five Star Common Stock.
5.4. NO CONFLICTING AGREEMENTS OR CHARTER PROVISIONS.
The execution, delivery and compliance with and performance of the
terms and provisions of this Agreement will not conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default (or an
event which, with notice, lapse of time, or both, would constitute a default)
under, or result in any violation of, (A) the Charter or Bylaws of either Five
Star or Merger Sub or any resolutions adopted by the shareholders or directors
of Five Star or the shareholder or directors of Merger Sub, (B) any provision of
any material Contract to which Five Star or any of the Five Star Subsidiaries is
a party or by which it or any of the Five Star Subsidiaries or any part of it or
any of the Five Star Subsidiaries' assets may be bound or (C) any order,
judgment, decree, license, permit, statute, law, rule or regulation to which
Five Star or any of the Five Star Subsidiaries is subject.
5.5. FEES.
No person acting on behalf of Five Star is, or will be, entitled to any
commission, broker's, finder's or investment banking fees from any of the
Parties or from any Person controlling, controlled by or under a common control
with any Party, in connection with the transactions contemplated by this
Agreement.
SECTION 6.
CERTAIN COVENANTS AND AGREEMENTS
6.1. CONDUCT OF BUSINESS BY FSQ.
From the date of this Agreement to the Effective Time, except as
required in connection with the Merger and the other transactions contemplated
by this Agreement or as set forth on SCHEDULE 6.1 and unless FSQ obtains Five
Star's prior written consent in each instance, FSQ will:
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(a) Carry on its business as currently conducted and only in
the usual and ordinary course and make no amendment to its
Charter or Bylaws;
(b) Use all commercially reasonable efforts to preserve its
business organization intact and continue to conduct its business
in a good and businesslike fashion consistent with past
practices;
(c) Not issue any equity or voting securities or options or
rights to purchase equity or voting securities, not purchase any
of its equity or voting securities and not make any distributions
on its common stock;
(d) Not enter into, modify, amend or terminate any material
Contract.
In connection with the continued operation of the business of FSQ
between the date of this Agreement and the Effective Time, FSQ shall confer in
good faith with one or more representatives of Five Star as often as Five Star
shall reasonably request to report operational matters of materiality and the
general status of ongoing operations. FSQ acknowledges that Five Star does not
and will not waive any rights it may have under this Agreement as a result of
such consultations nor shall Five Star be responsible for any decisions made by
FSQ's officers and directors with respect to matters which are the subject of
such consultation unless Five Star so consents in writing.
6.2. EMPLOYEE BENEFITS; SEVERANCE POLICY.
(1) Provided that it complies in all material respects with applicable
law and the terms of any employment arrangements identified in SECTION 4.16,
Five Star may, in its sole discretion, substitute employee compensation, benefit
and severance programs for those of FSQ and any Affiliate as are comparable with
the programs provided from time to time to Five Star's employees and the
employees of Five Star's Affiliates. Subject to the preceding sentence, Five
Star shall have no obligation to continue the existence of any Plan or Benefit
Arrangement maintained by FSQ or any Affiliate.
(2) At least one day prior to the Closing , FSQ and each Affiliate
shall take all actions necessary to terminate each Qualified Plan that Five Star
directs FSQ to terminate. If a Qualified Plan is terminated in accordance with
this SECTION 6.2(2), benefit accruals, including contributions of salary
reduction contributions, if any, shall cease. FSQ and each Affiliate agrees to
take no action to merge any of its Qualified Plans, transfer the assets of any
of its Qualified Plans, or terminate any of its Qualified Plans, except as
otherwise provided in this SECTION 6.2(2) following the execution of this
Agreement without the consent of Five Star.
6.3. INSPECTION OF THE PROPERTIES AND ACCESS TO INFORMATION.
At all times prior to the Closing Date, FSQ will permit Five Star and
its representatives to examine the contracts, books, records and other
information of FSQ, including, without limitation, all Contracts, and make
copies thereof, at such reasonable times as Five Star or its representatives may
reasonably request by notice to FSQ (which notice may be oral).
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6.4. NO SOLICITATION.
Between the date of this Agreement and the Effective Time or until this
Agreement is terminated as permitted under SECTION 8.1, FSQ shall not, and shall
not permit any officer or director of FSQ, directly or indirectly, to solicit or
initiate (including by way of furnishing any non-public information concerning
FSQ's business, properties or assets) discussions, inquiries or proposals or
participate in any negotiation leading to any Purchase Proposal, except for the
transactions contemplated by this Agreement.
6.5. REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION.
Each of the Parties shall use its commercially reasonable efforts to
perform its obligations under this Agreement and to take, or cause to be taken
or do, or cause to be done, all things necessary, proper or advisable under
applicable law to obtain all regulatory approvals and satisfy all conditions to
the obligations of the Parties under this Agreement and to cause the Merger and
the other transactions contemplated in this Agreement to be carried out promptly
in accordance with the terms of this Agreement and shall cooperate fully with
each other and their respective officers, trustees, directors, general partners,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as a part of its obligations under this
Agreement. Upon the execution of this Agreement and thereafter, each Party shall
do such things as may be reasonably requested by the other Parties in order more
effectively to consummate the Merger and the other transactions contemplated by
this Agreement.
6.6. PUBLIC ANNOUNCEMENTS.
Each party will consult with the other party before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other written public statements which address in any manner the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such written public statement prior to such consultation, except as may
be required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange.
6.7. SUPPLEMENTS TO SCHEDULES.
From time to time prior to the Effective Time, FSQ and Five Star will
each promptly supplement or amend the respective schedules which they have
delivered pursuant to this Agreement with respect to any matter arising which,
if existing or occurring at the date of this Agreement, would have been required
to be set forth or described in any such disclosure schedule or which is
necessary to correct any information in any such schedule which has been
rendered inaccurate. The delivery of any supplement or amendment to the
respective disclosure letters of the parties pursuant to this SECTION 6.7 shall
not in any matter constitute a waiver by any party of any of the conditions
contained in SECTION 7.
6.8. TAX RETURNS.
FSQ will prepare and file all Tax Returns and other tax reports,
filings and amendments thereto required to be filed by FSQ with respect to
periods ending on or before the Effective
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Time, and provide Five Star, at its request, with copies for Five Star's review,
of all such returns, reports, filings and amendments prior to filing.
6.9. TERMINATION OF MANAGEMENT AGREEMENT.
Provided that the closing of the Merger takes place on the date
provided for in SECTION 3.1 hereof, the Management Agreement shall be
terminated, and the liabilities of the parties thereunder settled, as of
December 31, 2001.
SECTION 7.
CONDITIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each Party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
(1) ILLEGALITY. No statute, rule or regulation shall have been enacted
by the government (or any governmental agency) of the United States or any
state, municipality or other political subdivision thereof that makes the
consummation of the Merger and any other material transaction contemplated by
this Agreement illegal.
(2) INJUNCTION. At the Effective Time there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or governmental agency of competent jurisdiction that the
transactions provided for in this Agreement or any of them not be consummated as
provided in this Agreement; PROVIDED that the Parties shall have used their
reasonable efforts to cause any such injunction, writ or order to be vacated or
lifted.
(3) CONSENTS. All consents, authorizations, orders and approvals of (or
filing or registration with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained.
7.2. CONDITIONS TO OBLIGATIONS OF FSQ.
The obligations of FSQ to effect the Merger shall be subject to the
fulfillment (or waiver by FSQ) at or prior to the Closing of each of the
following conditions:
(1) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Five Star set forth in this Agreement shall be true and correct in all
material respects (except that where any statement in a representation or
warranty includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective
Time (except where such representation or warranty specifically relates to an
earlier date).
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(2) PERFORMANCE OF OBLIGATIONS BY FIVE STAR. Five Star shall have
performed in all material respects all covenants and agreements required to be
performed by it under this Agreement.
(3) CERTIFICATES. Five Star shall have furnished FSQ with a certificate
of its appropriate officers as to compliance with the conditions set forth in
this SECTION 7.2.
7.3. CONDITIONS TO OBLIGATIONS OF FIVE STAR AND MERGER SUB.
The obligations of Five Star and Merger Sub to effect the Merger shall
be subject to the fulfillment (or waiver by Five Star) at or prior to the
Closing of each of the following conditions:
(1) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of FSQ set forth in this Agreement shall be true and correct (except that where
any statement in a representation or warranty includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of the date of this Agreement and as of the
Effective Time (except where such representation or warranty specifically
relates to an earlier date).
(2) PERFORMANCE OF OBLIGATIONS OF FSQ. FSQ shall have performed in all
material respects all covenants and agreements required to be performed by it
under this Agreement.
(3) CERTIFICATES. FSQ shall have furnished Five Star with a certificate
of its appropriate officers as to compliance with or satisfaction of the
conditions set forth in this SECTION 7.3.
(4) NO MATERIAL ADVERSE EFFECT. No change which has a Material Adverse
Effect on FSQ shall have occurred from the date hereof to the Effective Time.
(5) INDEMNIFICATION AGREEMENT. The shareholders of FSQ shall have
executed and delivered an Indemnification Agreement in the form of EXHIBIT A.
SECTION 8.
TERMINATION
8.1. TERMINATION.
This Agreement may be terminated at any time (subject to the provisions
of this SECTION 8.1) prior to the Effective Time:
(a) by mutual agreement of the directors of each of FSQ and
Five Star;
(b) by either Five Star or FSQ, in writing, if for any
reason the Closing has not occurred by January 15, 2002, except
that no party shall have the right to terminate under this
SECTION 8.1(b) if the conditions precedent to such Party's
obligation to close have been or at Closing would be satisfied or
have been waived by such Party and such Party has nonetheless
failed or refused to close;
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(c) by either Five Star or FSQ, in writing, if there
shall be any order, writ, injunction or decree of any court or
governmental or regulatory agency binding on Five Star and/or
FSQ, which prohibits or restrains Five Star and/or FSQ from
consummating the transactions contemplated by this Agreement,
provided that Five Star and FSQ shall have used commercially
reasonable efforts to have any such order, writ, injunction or
decree lifted and the same shall not have been lifted within
90 days after entry, by any such court or governmental or
regulatory agency;
(d) by FSQ in writing without liability:
(1) if the conditions set forth in SECTIONS 7.1 and
7.2 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated)
by Five Star or otherwise by January 15, 2002, or
(2) if Five Star shall have (a) failed to perform in any
material respect its agreements contained in this Agreement
required to be performed by it on or prior to the Closing
Date or (b) breached any of its representations or
warranties contained in this Agreement, which failure or
breach is not cured within 10 days after FSQ has notified
Five Star of its intent to terminate.
(e) by Five Star in writing without liability if:
(1) the conditions set forth in SECTIONS 7.1 and 7.3
shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated)
by FSQ or otherwise by January 15, 2002; or
(2) if FSQ shall have (a) failed to perform in any
material respect its agreements contained in this Agreement
required to be performed by it on or prior to the Closing
Date or (b) breached any of its representations or
warranties contained in this Agreement, which failure or
breach is not cured within 10 days after Five Star has
notified FSQ of its intent to terminate.
8.2. EFFECT OF TERMINATION.
If this Agreement is terminated by either Five Star or FSQ pursuant to
SECTION 8.1, this Agreement shall become void and there shall be no further
obligation on the part of either Five Star or FSQ.
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SECTION 9.
MISCELLANEOUS PROVISIONS
9.1. NOTICES.
All notices, communications and deliveries required or permitted by
this Agreement shall be made in writing signed by the Party making the same,
shall specify the Section of this Agreement pursuant to which it is given or
being made, and shall be deemed given or made (i) on the date delivered if
delivered in person, (ii) on the third Business Day after it is mailed if mailed
by registered or certified mail (return receipt requested) (with postage and
other fees prepaid), or (iii) on the day after it is delivered, prepaid, to an
overnight express delivery service that confirms to the sender delivery on such
day, as follows:
To Five Star or Merger Sub:
Five Star Quality Care, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
To FSQ:
FSQ, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
or to such other representative or at such other address of a Party as such
Party may furnish to the other Party by notice similarly given.
9.2. SCHEDULES AND EXHIBITS.
The Schedules, Exhibits and all documents expressly referred to in this
Agreement, are incorporated into this Agreement and are made a part of this
Agreement as if set out in full.
9.3. COMPUTATION OF TIME.
Whenever the last day for the exercise of any privilege or the
discharge of any duty under this Agreement shall fall upon a Saturday, Sunday or
any date on which banks in Boston, Massachusetts are not required to be open,
the Party having such privilege or duty may exercise such privilege or discharge
such duty on the next succeeding day which is a regular Business Day.
9.4. ASSIGNMENT: SUCCESSORS IN INTEREST.
No assignment or transfer by Five Star or FSQ, of its rights and
obligations under this Agreement prior to the Closing shall be made except with
the prior written consent of the other
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Party. This Agreement shall be binding upon and shall inure to the benefit of
the Parties and their permitted successors and assigns, and any reference to a
Party shall also be a reference to a permitted successor or assign.
9.5. NO THIRD-PARTY BENEFICIARIES.
With the exception of the Parties, there shall exist no right of any
person to claim a beneficial interest in this Agreement or any rights occurring
by virtue of this Agreement.
9.6. INVESTIGATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The respective representations and warranties of FSQ and Five Star
contained in this Agreement or in any Schedule, certificate, or other document
delivered by any Party prior to Closing shall not be deemed waived or otherwise
affected by any investigation made by a Party. Except for the obligations of the
shareholders of FSQ under the Indemnification Agreement and as provided in
SECTION 8.2, the respective representations and warranties, covenants and
agreements of Five Star and FSQ contained in this Agreement shall expire with
and be terminated by the Merger.
9.7. NUMBER; GENDER.
Whenever the context so requires, the singular number shall include the
plural and the plural shall include the singular, and the gender of any pronoun
shall include the other genders.
9.8. CAPTIONS.
The titles, captions and table of contents contained in this Agreement
are inserted in this Agreement only as a matter of convenience and for reference
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision of this Agreement. Unless otherwise specified to the
contrary, all references to Sections are references to Sections of this
Agreement and all references Schedules and Exhibits are references to Schedules
and Exhibits to this Agreement.
9.9. AMENDMENTS.
To the extent permitted by law, this Agreement may be amended by a
subsequent writing signed by all of the Parties upon the approval of the general
partner, board of directors or board of trustees, as the case may be, of each of
the Parties.
9.10. CONTROLLING LAW: INTEGRATION: WAIVER.
This Merger shall be governed by Delaware Law and otherwise, this
Agreement shall be governed by and construed and enforced in accordance with the
laws of The Commonwealth of Massachusetts. This Agreement supersedes all
negotiations, agreements and understandings among the Parties with respect to
the subject matter of this Agreement and constitutes the entire agreement among
the Parties. The failure of any Party at any time or times to require
performance of any provisions of this Agreement shall in no manner affect the
right to enforce the same. No waiver by any Party of any conditions, or of the
breach of any term, provision,
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warranty, representation, agreement or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach of
any other term, provision, warranty, representation, agreement or covenant
contained in this Agreement.
9.11. SEVERABILITY.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction will, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement, and any such prohibition or unenforceability in
any jurisdiction will not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by law, the Parties waive any
provision of law which renders any such provision prohibited or unenforceable in
any respect.
9.12. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which shall together be considered
one and the same agreement, and it shall not be necessary in making proof of
this Agreement or the terms of this Agreement to produce or account for more
than one of such counterparts.
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EXECUTED under seal as of the date first above written.
FIVE STAR QUALITY CARE, INC.
By:_________________________________
Name:
Title:
FSQ ACQUISITION, INC.
By:_________________________________
Name:
Title:
FSQ, INC. (formerly known as "Five Star Quality Care,
Inc.")
By:__________________________________
Name:
Title:
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Exhibit A
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("AGREEMENT") is made and entered into
___________, 2001, by and among the undersigned stockholders (the
"STOCKHOLDERS") of FSQ, Inc., a Delaware corporation ("FSQ"), and FIVE STAR
QUALITY CARE, INC., a Maryland corporation ("FIVE STAR").
RECITALS
A. Five Star, FSQ Acquisition, Inc., a Delaware corporation ("MERGER
SUB") and FSQ have entered into an Agreement of Merger, dated ___________, 2001
(the "
MERGER AGREEMENT"), pursuant to which Merger Sub will be merged with and
into FSQ, with FSQ remaining as the survivor (the "MERGER").
B. Pursuant to the
Merger Agreement, each share of common stock of FSQ
outstanding immediately prior to the Merger will be converted into a right to
receive 250 shares of common stock, par value $0.01, of Five Star (the "FIVE
STAR COMMON SHARES").
C. On the date hereof, each Stockholder owns 50% of the issued and
outstanding shares of common stock of FSQ.
D. Pursuant to the terms of the
Merger Agreement, and as a condition to
Five Star's obligations under the
Merger Agreement, the Stockholders have agreed
to provide certain indemnities to Five Star and the other Indemnified Parties
(as hereinafter defined).
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings given therefor in the
Merger Agreement.
2. INDEMNIFICATION BY THE STOCKHOLDERS.
Subject to the other provisions of this Agreement, for the period from
and after the Closing and ending January 1, 2003 (the "CLAIM PERIOD"), each of
the Stockholders shall indemnify and hold harmless, Five Star and its
subsidiaries and affiliates, each of their respective officers, trustees,
directors, employees, agents and representatives, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"INDEMNIFIED PARTIES"), against such Stockholder's Allocable Portion (as defined
in PARAGRAPH 4 below) of any losses, claims, damages, liabilities or expenses
whenever arising or incurred (including, without limitation, amounts paid in
settlement, reasonable costs of investigation and reasonable attorneys' fees and
expenses) (collectively, "LOSSES") arising out of or relating to any breach of
any representation or warranty made by FSQ in the
Merger Agreement, provided
that, solely for the purposes of this Agreement no breach shall be deemed to
have occurred if the applicable representation and warranty made by FSQ (other
than the representations and warranties made by FSQ in Sections 4.1 though 4.4,
4.5 (as to clauses (i) and (ii) of the first sentence thereof and
the second sentence thereof), 4.6 (except to the extent such representation is
qualified as to knowledge), 4.9 (except to the extent such representation is
qualified as to knowledge), 4.11, 4.16 and 4.20 of the
Merger Agreement) would
have been true and correct in all material respects had it been qualified by the
phrase "to the knowledge of FSQ" (as defined in the
Merger Agreement), whether
or not so qualified in the
Merger Agreement.
3. INDEMNIFICATION PROCEDURE.
(a) Promptly after receipt by an Indemnified Party of notice of
the commencement of any action or proceeding involving a claim to which
indemnification is being sought, such Indemnified Party will, if a claim is to
be made against any Stockholder, give notice to each Stockholder of the
commencement of such action or proceeding.
(b) In case any such action is brought against an Indemnified
Party, unless in such Indemnified Party's reasonable judgment a conflict of
interest between the Indemnified Party and either Stockholder may exist in
respect of such claim, the Stockholders shall be entitled to assume and control
the defense of such action to the extent that they may wish, with counsel
reasonably satisfactory to such Indemnified Party, and after notice from the
Stockholders to such Indemnified Party of their election so to assume and
control the defense of such action, the Stockholders shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense of such action other than reasonable costs
of investigation. Notwithstanding the foregoing, in any such action, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and disbursements of such counsel shall be at the expense of such Indemnified
Party unless the Stockholders shall have failed to retain counsel for the
Indemnified Party. It is understood that the Stockholders shall not, in
connection with any action or related actions in the same jurisdiction, be
liable for the fees and disbursements of more than one separate firm qualified
in such jurisdiction to act as counsel for all Indemnified Parties, unless in
any such Indemnified Party's reasonable judgment a conflict of interest between
such Indemnified Party and any other Indemnified Party may exist in respect of
such claim. The Stockholders shall not be liable for any settlement of any
proceeding effected without their consent; no Stockholder shall, without the
consent of the Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
4. LIABILITY LIMITS; ALLOCABLE PORTION; ETC.
(a) The Stockholders shall have no liability for Losses until such
time as the aggregate of such Losses exceeds $50,000 (the "DEDUCTIBLE"), and
thereafter each Stockholder shall indemnify the Indemnified Parties for such
Stockholder's Allocable Portion of all Losses incurred in excess of the
Deductible.
(b) Each Stockholder's aggregate liability for all Losses under
this Agreement shall not exceed the value of the Merger Consideration paid to
such Stockholder,
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determined as of the Closing Date. The value of each Five Star Common Share paid
as Merger Consideration shall be deemed to equal the closing sale price for a
Five Star Common Share as reported by the American Stock Exchange for the
Closing Date.
(c) In satisfaction of any liability hereunder, each Stockholder
shall tender to the Indemnified Party such number of Five Star Common Shares as
is sufficient to satisfy his Allocable Portion of such liability. Each Five Star
Common Share delivered in satisfaction of a claim made under PARAGRAPH 2 or 3
above shall be valued at the closing sale price for a Five Star Common Share as
reported by the American Stock Exchange for the Closing Date.
(d) A Stockholder's "Allocable Portion" of any Losses or claims
hereunder shall mean 50% of such Losses or claims.
5. ARBITRATION.
Any and all disputes and disagreements arising out of or relating to
this Agreement, other than actions or claims for injunctive relief or claims
raised in actions or proceedings brought by third parties, shall be resolved
through negotiations or, if the dispute is not so resolved, through binding
arbitration conducted in Boston, Massachusetts under the J.A.M.S./Endispute
Comprehensive Arbitration Rules and Procedures, with the following amendments to
those rules. First, in no event shall the arbitration from commencement to
issuance of an award take longer than 180 days. Second, the arbitration tribunal
shall consist of three arbitrators and the optional appeal procedure provided
for in Rule 32 shall not be utilized. Third, in lieu of the depositions
permitted in Rule 15(c), the only depositions per side shall be (1) a single
deposition to last no longer than one six-hour day that each Party may take of
the opposing Party or an individual under the control of the opposing Party and
(2) no more than three depositions by each Party limited to witnesses who will
not be available to testify at the hearing, each such deposition to last no
longer than one six-hour day. Judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
6. NOTICES. All notices, communications and deliveries required or
permitted by this Agreement shall be made in writing signed by the Party making
the same, shall specify the Section of this Agreement pursuant to which it is
given or being made, and shall be deemed given or made (i) on the date delivered
if delivered by telecopy or in person, (ii) on the third business day after it
is mailed if mailed by registered or certified mail (return receipt requested)
(with postage and other fees prepaid), or (iii) on the day after it is
delivered, prepaid, to an overnight express delivery service that confirms to
the sender delivery on such day, as follows:
To: Five Star Quality Care, Inc.
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Attn: President
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To the Stockholders:
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▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇; and
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or to such other representative or at such other address of a Party as such
Party hereto may furnish to the other Parties in writing.
7. TIME OF THE ESSENCE; COMPUTATION OF TIME. Time is of the essence for
each and every provision of this Agreement. Whenever the last day for the
exercise of any privilege or the discharge of any duty under this Agreement
shall fall upon a Saturday, Sunday or any date on which banks in Boston,
Massachusetts are closed, the Party having such privilege or duty may exercise
such privilege or discharge such duty on the next succeeding day which is a
regular business day.
8. CAPTIONS. The titles and captions contained in this Agreement are
inserted in this Agreement only as a matter of convenience and for reference and
in no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision of this Agreement. Unless otherwise specified to the
contrary, all references to Sections are references to Sections of this
Agreement.
9. AMENDMENTS. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by all of the Parties.
10. CONTROLLING LAW; INTEGRATION; WAIVER. This Agreement shall be
governed by and construed and enforced in accordance with the laws of The
Commonwealth of Massachusetts. This Agreement supersedes all negotiations,
agreements and understandings among the Parties with respect to the subject
matter of this Agreement and constitutes the entire agreement among the Parties
to this Agreement relating to the subject matter of this Agreement. The failure
of any Party at any time or times to require performance of any provisions of
this Agreement shall no manner affect the right to enforce the same. No waiver
by any Party of any conditions, or of the breach of any term, provision,
warranty, representation, agreement or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach of
any other term, provision, warranty, representation, agreement or covenant
contained in this Agreement.
11. SOLE RECOURSE. The Parties agree that the remedies set forth in
this Agreement shall be the sole recourse of the Indemnified Parties for any and
all Losses and any other breaches by any Stockholders under this Agreement and,
after the Closing Date, under the
Merger Agreement.
12. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such
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prohibition or unenforceability without invalidating the remaining provisions of
this Agreement, and any such prohibition or unenforceability in any jurisdiction
will not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by law, the Parties waive any provision of
law which renders any such provision prohibited or unenforceable in any respect.
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EXECUTED under seal as of the date first above written.
FIVE STAR QUALITY CARE, INC.
By:
-----------------------------
Title:
STOCKHOLDERS:
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