Document:

exv4w2

Exhibit 4.2

AMENDED AND RESTATED

BYLAWS

OF

PENWEST PHARMACEUTICALS CO.

ARTICLE I.      OFFICES

          The principal office of the corporation shall be located at the principal place of business or
such other place as the board of directors may designate. The corporation may have such other
offices within or without the state of Washington as the board of directors may designate or the
business of the corporation may require from time to time.

ARTICLE II.     SHAREHOLDERS

          SECTION 2.1    ANNUAL MEETING. The annual meeting of the shareholders shall be held on such date
and at such time as may be determined by the board of directors, for the purpose of electing
directors and for the transaction of such other business as may come before the meeting.

          SECTION 2.2    SPECIAL MEETINGS. Unless otherwise set forth in the Articles of Incorporation,
special meetings of the shareholders, for any purpose or purposes unless otherwise prescribed by
the Washington Business Corporation Act, may not be called by shareholders and may only be called
by the board of directors, the chairman of the board of directors or the president of the
corporation.

          SECTION 2.3    PLACE OF MEETING. Meetings of the shareholders shall be held at such place within
or without the state of Washington as the board of directors, the chairman of the board of
directors or the president may designate.

          SECTION 2.4    FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination of shareholders
for any other proper purpose, the board of directors may fix a future date as the record date for
any such determination. Such record date shall not be more than 70 days prior to the date on which
the particular action requiring such determination of shareholders is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders or shareholders entitled to receive payment of a dividend, the day before the first
notice of a meeting is dispatched to shareholders or the date on which the resolution of the board
of directors authorizing such dividend is adopted, as the case may be, shall be the record date for
such determination. When a determination of shareholders entitled to notice of or to vote at any
meeting of shareholders has been made as provided in this section, such determination shall apply
to any adjournment thereof unless the board of directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed for the original
meeting.

 

 

          SECTION 2.5    VOTING LISTS. At least 10 days before each meeting of the shareholders, the
officer or agent having charge of the stock transfer books for shares of the corporation shall
prepare an alphabetical list of all its shareholders on the record date who are entitled to vote at
the meeting or any adjournment thereof, arranged by voting group, and within each voting group by
class or series of shares, with the address of and the number of shares held by each, which record
for ten days prior to the meeting shall be kept on file at the principal office of the corporation
or at a place identified in the meeting notice in the city where the meeting will be held. Such
record shall be produced and kept open at the time and place of the meeting and shall be subject to
the inspection of any shareholder, shareholder’s agent or shareholder’s attorney during the whole
time of the meeting. Failure to comply with the requirements of this Section shall not affect the
validity of any action taken at the meeting.

          SECTION 2.6    NOTICE OF MEETINGS. Written notice stating the date, time and place of a meeting
of shareholders, and in the case of a special meeting of shareholders, the purpose or purposes for
which the meeting is called, shall be given by or at the direction of the board of directors, the
chairman of the board of directors or the president to each shareholder of record entitled to vote
at such meeting (unless required by law to send notice to all shareholders regardless of whether or
not such shareholders are entitled to vote), not less than 10 days and not more than 60 days before
the meeting, except that notice of a meeting to act on an amendment to the Articles of
Incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange or other
disposition of all or substantially all of the assets of the corporation other than in the usual
course of business, or the dissolution of the corporation shall be given not less than 20 days and
not more than 60 days before the meeting. Such notice may be transmitted by mail, private carrier
or personal delivery; telegraph or teletype; or telephone, wire or wireless equipment which
transmits a facsimile of the notice. Such notice shall be effective upon dispatch if sent to the
shareholder’s address, telephone number, or other number appearing on the records of the
corporation.

          If a shareholders’ meeting is adjourned to a different date, time or place, notice need not be
given of the new date, time or place if the new date, time or place is announced at the meeting
before adjournment unless a new record date is or must be fixed. If a new record date for the
adjourned meeting is or must be fixed, however, notice of the adjourned meeting must be given to
persons who are shareholders as of the new record date.

          SECTION 2.7    WAIVER OF NOTICE. A shareholder may waive any notice required to be given under
the provisions of these Bylaws, the Articles of Incorporation or applicable law, whether before or
after the date and time stated therein. A valid waiver is created by any of the following methods:
(a) a writing signed by the shareholder entitled to the notice and delivered to the corporation for
inclusion in its corporate records; (b) attendance at the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business at the meeting; or
(c) failure to object at the time of presentation of a matter not within the purpose or purposes
described in the meeting notice.

          SECTION 2.8    PROXIES. A shareholder may vote either in person or by proxy. A shareholder may
vote by proxy by means of a proxy appointment form which is executed in writing by the shareholder,
such shareholder’s agent, or such shareholder’s attorney-in-fact. Such proxy shall be effective
when received by the secretary or other officer or agent authorized

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to tabulate votes. A proxy appointment is valid for 11 months after the date of its
execution, unless otherwise expressly provided in the appointment form.

          SECTION 2.9    PARTICIPATION BY COMMUNICATION EQUIPMENT. At the discretion of the board of
directors, shareholders may participate in a meeting of the shareholders by any means of
communication by which all persons participating in the meeting can hear each other during the
meeting, and participation by such means shall constitute presence in person at the meeting.

          SECTION 2.10   QUORUM. Unless the Articles of Incorporation or law provide otherwise, a
majority of the votes entitled to be cast on a matter by a voting group that, pursuant to the
Articles of Incorporation, is entitled to vote on such matter, represented in person or by proxy,
shall constitute a quorum of that voting group for action on that matter. Once a share is
represented at a meeting, other than to object to holding the meeting or transacting business, it
is deemed to be present for purposes of a quorum for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be fixed for the adjourned meeting.
At such reconvened meeting, any business may be transacted which might have been transacted at the
adjourned meeting.

          SECTION 2.11   MANNER OF ACTING. If a quorum exists with respect to a matter, action on such
matter other than the election of directors is approved by a voting group if the votes cast within
the voting group favoring the action exceed the votes cast within the voting group opposing the
action, unless the question is one upon which a different vote is required by the Articles of
Incorporation or applicable law.

          SECTION 2.12   VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders, except as may be
otherwise provided in the Articles of Incorporation.

          SECTION 2.13   VOTING FOR DIRECTORS. Each shareholder entitled to vote at an election of
directors may vote, in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are directors to be elected and for whose election such shareholder has a
right to vote. Unless otherwise provided in the Articles of Incorporation, the candidates elected
are those receiving the largest number of votes cast, up to the number of directors to be elected.

          SECTION 2.14   ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action which may or is required
to be taken at a meeting of the shareholders may be taken without a meeting if one or more written
consents setting forth the action taken shall be signed, either before or after the action taken,
by all the shareholders entitled to vote with respect to the subject matter thereof. Action taken
by written consent of the shareholders is effective when all consents are in possession of the
corporation, unless the consent specifies a later effective date.

          SECTION 2.15   SHAREHOLDER NOMINATIONS. Nominations for the election of directors may be made
by the board of directors or by any shareholder entitled to vote in the election of the directors
generally. In the case of nominations by a shareholder, written notice of the intent to make a
nomination at a meeting of shareholders must be received by the secretary of

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the corporation not later than 120 days in advance of the date of such meeting in the case of
an annual meeting and not more than seven days following the date of notice of the meeting in the
case of a special meeting. The notice must include, among other things: (i) the name, address and
stock ownership of the nominating shareholder and a representation that such shareholder is
entitled to vote at such meeting and that such shareholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice, (ii) the name, age and
address of each person to be nominated, (iii) the number of shares of capital stock of the
corporation beneficially owned by each nominee, (iv) a statement that the nominee is willing to be
nominated, and (v) such other information regarding each nominee as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission if the corporation were soliciting proxies for the election of such nominees. If the
facts warrant, the board of directors, or the chairman of the shareholders’ meeting at which
directors are to be elected, shall determine and declare that a nomination was not made in
accordance with the foregoing procedure, and, if it is so determined, the defective nomination
shall be disregarded. The right of shareholders to make nominations pursuant to the foregoing
procedure is subject to the superior rights, if any, of the holders of any class or series of stock
having a preference over the common stock. The procedures set forth in this Section for nomination
for the election of directors by shareholders are in addition to, and not in limitation of, any
procedures now in effect or hereafter adopted by or at the direction of the board of directors or
any committee thereof.

          SECTION 2.16   BUSINESS FOR SHAREHOLDERS MEETINGS

                    2.16.1    BUSINESS AT ANNUAL MEETINGS. In addition to the election of directors, other proper
business may be transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto), (b) otherwise brought
before the meeting by or at the direction of the board of directors or the chairman of the meeting
or (c) otherwise properly brought before the meeting by a shareholder pursuant to written notice
thereof, in accordance with Subsection 2.16.3 hereof, and received by the secretary not less than
60 nor more than 90 days prior to the date specified in Subsection 2.1 hereof for such annual
meeting (or if less than 70 days notice or prior public disclosure of the date of the annual
meeting is given or made to the shareholders, not later than the 10th day following the day on
which the notice of the date of the annual meeting was mailed or such public disclosure was made).
Any such shareholder notice shall set forth (i) the name and address of the shareholder proposing
such business; (ii) a representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation that are beneficially owned by the
shareholder; (iii) a representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting, the language of the proposal (if
appropriate), and any material interest of the shareholder in such business. No business shall be
conducted at any annual meeting of shareholders except in accordance with this Subsection 2.16.1.
If the facts warrant, the board of directors or the chairman of the annual meeting of shareholders
may determine and declare (a) that a proposal does not constitute proper business to be transacted
at the meeting or (b) that business was not properly brought before the meeting in accordance with
the provisions of this Subsection 2.16.1,

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and, if in either case it is so determined, any such business shall not be transacted. The
procedures set forth in this Subsection 2.16.1 are in addition to, and not in lieu of, the
requirements set forth in Rule a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.

                    2.16.2    BUSINESS AT SPECIAL MEETINGS. At any special meeting of the shareholders, only such
business as is specified in the notice of such special meeting given by or at the direction of the
person or persons calling such meeting, in accordance with Subsection 2.2 hereof, shall come before
such meeting.

                    2.16.3    NOTICE TO CORPORATION. Any written notice required to be delivered by a shareholder to
the corporation pursuant to Subsection 2.16.1 hereof must be given either by personal delivery or
by registered or certified mail, postage prepaid, to the secretary at the corporation’s principal
executive offices.

ARTICLE III.    BOARD OF DIRECTORS

          SECTION 3.1    GENERAL POWERS. All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the direction of, the
board of directors, except as may be otherwise provided by these Bylaws, the Articles of
Incorporation or law.

          SECTION 3.2    NUMBER, TENURE AND QUALIFICATION. The board of directors shall be composed of not
less than five nor more than ten directors, the specific number to be set by resolution of the
board of directors. The number of directors may be increased or decreased from time to time by
amendment to or in the manner provided in these Bylaws. No decrease, however, shall have the
effect of shortening the term of any incumbent director unless such director resigns or is removed
in accordance with the provisions of these Bylaws.

          The directors shall be divided into three classes, designated Class I, Class II and Class III.
Initially, Class I directors shall be elected for a term ending at the first annual meeting of
shareholders after their election, Class II directors shall be elected for a term ending at the
second annual meeting of shareholders after their election, and Class III directors shall be
elected for a term ending at the third annual meeting of shareholders after their election. At
each annual meeting of shareholders thereafter, successors to the class of directors whose term
expires at that annual meeting shall be elected to serve until the third succeeding annual meeting
of shareholders. If the number of directors is changed in the manner provided by the Bylaws, any
increase or decrease shall be apportioned among the classes so that the number of directors in each
class is as nearly equal as possible. A director shall hold office until the annual meeting of
shareholders at which such director’s term expires and until such director’s successor shall be
elected and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors, may be filled only by the affirmative vote
of a majority of all the directors then in office (although less than a quorum) or by the sole
remaining director. The term of a director elected to fill a vacancy shall expire at the next
shareholders’ meeting at which directors are elected.

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          Directors need not be residents of the state of Washington or shareholders of the corporation.

          SECTION 3.3    ANNUAL AND OTHER REGULAR MEETINGS. An annual meeting of the board of directors
shall be held immediately after and at the same place as the annual meeting of shareholders. The
board of directors may specify by resolution the time and place, either within or without the state
of Washington, for holding any other regular meetings of the board of directors without notice
other than such resolution.

          SECTION 3.4    SPECIAL MEETINGS. Special meetings of the board of directors may be called by the
board of directors, the chairman of the board, the president or any two or more directors. Notice
of special meetings of the board of directors stating the date, time and place thereof shall be
given at least two days prior to the date set for such meeting by the person or persons authorized
to call such meeting, or by the secretary at the direction of the person or persons authorized to
call such meeting. The notice may be oral or written. Oral notice may be communicated in person
or by telephone, wire or wireless equipment, which does not transmit a facsimile of the notice.
Oral notice is effective when communicated. Written notice may be transmitted by mail, private
carrier, or personal delivery; telegraph or teletype; or telephone, wire, or wireless equipment
which transmits a facsimile of the notice. Written notice is effective upon dispatch if such
notice is sent to the director’s address, telephone number, or other number appearing on the
records of the corporation. If no place for such meeting is designated in the notice thereof, the
meeting shall be held at the principal office of the corporation. Any director may waive notice of
any meeting at any time. Whenever any notice is required to be given to any director pursuant to
applicable law, a waiver thereof in writing signed by the director, entitled to notice, shall be
deemed equivalent to the giving of notice. The attendance of a director at a meeting shall
constitute a waiver of notice of the meeting except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the meeting is not lawfully
convened. Unless otherwise required by law, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.

          SECTION 3.5    QUORUM. A majority of the number of directors specified in or fixed in accordance
with these Bylaws shall constitute a quorum for the transaction of any business at any meeting of
directors. If less than a majority shall attend a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice, and a quorum present at such
adjourned meeting may transact business.

          SECTION 3.6    MANNER OF ACTING. If a quorum is present when a vote is taken, the affirmative
vote of a majority of directors present is the act of the board of directors, except as may be
otherwise provided in the Articles of Incorporation or the Washington Business Corporation Act.

          SECTION 3.7    PARTICIPATION BY CONFERENCE TELEPHONE. Directors may participate in a regular or
special meeting of the board by, or conduct the meeting through the use of, any means of
communication by which all directors participating can hear each other during the meeting and
participation by such means shall constitute presence in person at the meeting.

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          SECTION 3.8    PRESUMPTION OF ASSENT. A director who is present at a meeting of the board of
directors at which action is taken shall be deemed to have assented to the action taken unless (a)
the director objects at the beginning of the meeting, or promptly upon the director’s arrival, to
holding the meeting or transacting any business thereat, (b) the director’s dissent or abstention
from the action taken is entered in the minutes of the meeting, or (c) the director delivers
written notice of the director’s dissent or abstention to the presiding officer of the meeting
before its adjournment or to the corporation within a reasonable time after adjournment of the
meeting. Such right of dissent or abstention shall not apply to a director who voted in favor of
the action taken.

          SECTION 3.9    ACTION BY BOARD WITHOUT A MEETING. Any action permitted or required to be taken
at a meeting of the board of directors may be taken without a meeting if one or more written
consents setting forth the action so taken are signed, either before or after the action taken, by
all the directors and delivered to the corporation. Action taken by written consent is effective
when the last director signs the consent, unless the consent specifies a later effective date.

          SECTION 3.10   BOARD COMMITTEES. The board of directors may by resolution designate from among
its members an executive committee and one or more other committees, each of which must have two or
more members and shall be governed by the same rules regarding meetings, action without meetings,
notice, waiver of notice, and quorum and voting requirements as applied to the board of directors.
To the extent provided in such resolutions, each such committee shall have and may exercise the
authority of the board of directors, except as limited by applicable law. The designation of any
such committee and the delegation thereto of authority shall not relieve the board of directors, or
any members thereof, of any responsibility imposed by law.

          SECTION 3.11   RESIGNATION. Any director may resign at any time by delivering written notice to
the chairman of the board, the president, the secretary or the board of directors. A resignation
is effective when the notice is delivered unless the notice specifies a later effective date.
Unless otherwise specified in the notice, the acceptance of such resignation shall not be necessary
to make it effective.

          SECTION 3.12   REMOVAL. Any director or the entire Board may be removed only for cause by the
affirmative vote of the holders of not less than two-thirds of the shares entitled to vote in the
election of such director or directors. Such action may only be taken at a special meeting of the
shareholders called expressly for that purpose, providing that notice of the proposed removal,
which shall include a statement of the charges alleged against the director, shall have been duly
given to the shareholders together with or as a part of the notice of meeting.

          Where a question of the removal of a director for cause is to be presented for shareholder
consideration, an opportunity must be provided to such director to present his or her defense to
the shareholders by a statement which must accompany or precede the notice of the special meeting
of the shareholders, or, if provided to shareholders prior to the notice of the special meeting,
the initial solicitation of proxies seeking authority to vote for the removal of such director for
cause. If not provided, then such proxies may not be voted for removal. The director involved
shall be served with notice of the meeting at which such action is proposed to

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be taken together with a statement of the specific charges and shall be given an opportunity
to be present and to be heard at the meeting at which his or her removal is considered.

          SECTION 3.13   VACANCIES. A vacancy on the board of directors may occur by the resignation,
removal or death of an existing director, or by reason of increasing the number of directors on the
board of directors as provided in these Bylaws. Unless the Articles of Incorporation provide
otherwise, any vacancy occurring on the board of directors may be filled by only the affirmative
vote of a majority of all the directors then in office (although less than a quorum) or by the sole
remaining director. Any vacant office held by a director elected by the holders of one or more
classes or series of shares entitled to vote and be counted collectively thereon shall be filled
only by the vote of the holders of such class or series of shares. A director elected to fill a
vacancy shall serve only until the next election of directors by the shareholders.

          SECTION 3.14   COMPENSATION. By resolution of the board of directors, the directors may be paid
a fixed sum plus their expenses, if any, for attendance at meetings of the board of directors or
committee thereof, or a stated salary as director, or any other form of compensation (including
corporation common stock or options to purchase common stock), or a combination of the foregoing.
No such payment shall preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.

ARTICLE IV.    OFFICERS

          SECTION 4.1    AUTHORIZED OFFICERS. The corporation shall have a president and may have one or
more vice presidents (who may be designated as Vice Presidents, Senior Vice Presidents or Executive
Vice Presidents), and a secretary, each of whom shall be appointed by the board of directors. Such
other officers and assistant officers, including a chairman of the board, as may be deemed
necessary or appropriate may be appointed by the board of directors. By resolution, the board of
directors may designate any officer as chief executive officer, chief operating officer, chief
financial officer, or any similar designation. Any two or more offices may be held by the same
person.

          SECTION 4.2    APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall be
appointed by the board of directors for such term as the board may deem advisable. Each officer
shall hold office until a successor shall have been appointed regardless of such officer’s term of
office, subject to such officer’s earlier death, resignation or removal.

          SECTION 4.3    RESIGNATION. Any officer may resign at any time by delivering written notice to
the chairman of the board, the president or the board of directors. A resignation is effective
when the notice is delivered unless the notice specifies a later effective date. Unless otherwise
specified in the notice, the acceptance of such resignation shall not be necessary to make it
effective.

          SECTION 4.4    REMOVAL. Any officer appointed by the board of directors may be removed by the
board of directors with or without cause. The removal shall be without prejudice to the contract
rights, if any, of the person so removed. Appointment of an officer does not itself create
contract rights.

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          SECTION 4.5    POWERS AND DUTIES. The officers of the corporation shall have the authority and
shall perform the duties prescribed by the board of directors.

          SECTION 4.6    COMPENSATION OF OFFICERS AND EMPLOYEES. The board of directors shall fix the
compensation of officers and may fix the compensation of other employees from time to time. No
officer shall be prevented from receiving a salary by reason of the fact that such officer is also
a director of the corporation.

ARTICLE V.      CONTRACTS, LOANS, CHECKS AND DEPOSITS

          SECTION 5.1    CONTRACTS. The board of directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the name of and on
behalf of the corporation, and that authority may be general or confined to specific instances.

          SECTION 5.2    LOANS. No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of the board of
directors, which authority may be general.

          SECTION 5.3    CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the corporation shall be
signed by the officer or officers, or agent or agents, of the corporation and in the manner as
shall from time to time be prescribed by resolution of the board of directors.

          SECTION 5.4    DEPOSITS. All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in the banks, trust companies or other
depositories as the board of directors may select.

ARTICLE VI.     SHARES

          SECTION 6.1    CERTIFICATES FOR SHARES. The shares of the corporation may be represented by
certificates in such form as prescribed by law and the board of directors. Signatures of the
corporate officers on the certificate may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or registered by a registrar, other than the corporation itself or an
employee of the corporation. All certificates shall be consecutively numbered or otherwise
identified. All certificates shall bear such legend or legends as prescribed by the board of
directors or these Bylaws.

          SECTION 6.2    ISSUANCE OF SHARES. Shares of the corporation shall be issued only when
authorized by the board of directors, which authorization shall include the consideration to be
received for each share.

          SECTION 6.3    BENEFICIAL OWNERSHIP. Except as otherwise permitted by these Bylaws, the person
in whose name shares stand on the books of the corporation shall be deemed by the corporation to be
the owner thereof for all purposes. The board of directors may adopt by resolution a procedure
whereby a shareholder of the corporation may certify in writing to the corporation that all or a
portion of the shares registered in the name of such shareholder are held for the account of a
specified person or persons. Upon receipt by the corporation of a

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certification complying with such procedure, the persons specified in the certification shall
be deemed, for the purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the certification.

          SECTION 6.4    TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on
the stock transfer books of the corporation by the holder of record thereof or by such holder’s
legal representative who shall furnish proper evidence of authority to transfer, or by such
holder’s attorney thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation, on surrender for cancellation of the certificate for the shares. All
certificates surrendered to the corporation for transfer shall be canceled and no new certificate
shall be issued until the former certificate for a like number of shares shall have been
surrendered and canceled.

          SECTION 6.5    LOST OR DESTROYED CERTIFICATES. In the case of a lost, destroyed or mutilated
certificate, a new certificate may be issued therefor upon such terms and indemnity to the
corporation as the board of directors may prescribe.

          SECTION 6.6    STOCK TRANSFER RECORDS. The stock transfer books shall be kept at the principal
office of the corporation or at the office of the corporation’s transfer agent or registrar. The
name and address of the person to whom the shares represented by any certificate, together with the
class, number of shares and date of issue, shall be entered on the stock transfer books of the
corporation. Except as otherwise provided in these Bylaws, the person in whose name shares stand
on the books of the corporation shall be deemed by the corporation to be the owner thereof for all
purposes.

ARTICLE VII.    SEAL

          This corporation need not have a corporate seal. If the directors adopt a corporate seal, the
seal of the corporation shall be circular in form and consist of the name of the corporation, the
state and year of incorporation, and the words “Corporate Seal.”

ARTICLE VIII.   INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

          SECTION 8.1    POWER TO INDEMNIFY. The corporation shall have the following powers:

                    8.1.1    POWER TO INDEMNIFY. The corporation may indemnify and hold harmless to the full extent
permitted by applicable law each person who was or is made a party to or is threatened to be made a
party to or is involved (including, without limitation, as a witness) in any actual or threatened
action, suit or other proceeding, whether civil, criminal, administrative or investigative, by
reason of that fact that he or she is or was a director, officer, employee or agent of the
corporation or, being or having been such a director, officer, employee or agent, he or she is or
was serving at the request of the corporation as a director, officer, employee, agent, trustee, or
in any other capacity of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action or omission in an official capacity or in any other capacity while
serving as a director, officer, employee, agent, trustee or in any other

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capacity, against all expense, liability and loss (including, without limitation, attorneys’
fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement)
actually and reasonably incurred or suffered by such person in connection therewith. Such
indemnification may continue as to a person who has ceased to be a director, officer, employee or
agent of the corporation and shall inure to the benefit of his or her heirs and personal
representatives.

                    8.1.2    POWER TO PAY EXPENSES IN ADVANCE OF FINAL DISPOSITION. The corporation may pay expenses
incurred in defending any such proceeding in advance of the final disposition of any such
proceeding; provided, however, that the payment of such expenses in advance of the final
disposition of a proceeding shall be made to or on behalf of a director, officer, employee or agent
only upon delivery to the corporation of an undertaking, by or on behalf of such director, officer,
employee or agent, to repay all amounts so advanced if it shall ultimately be determined, that such
director, officer, employee or agent is not entitled to be indemnified under this Article or
otherwise, which undertaking may be unsecured and may be accepted without reference to financial
ability to make repayment.

                    8.1.3    POWER TO ENTER INTO CONTRACTS. The corporation may enter into contracts with any
person who is or was a director, officer, employee and agent of the corporation in furtherance of
the provisions of this Article and may create a trust fund, grant a security interest in property
of the corporation, or use other means (including, without limitation, a letter of credit) to
ensure the payment of such amounts as may be necessary to effect indemnification as provided in
this Article.

                    8.1.4    EXPANSION OF POWERS. If the Washington Business Corporation Act is amended in the
future to expand or increase the power of the corporation to indemnify, to pay expenses in advance
of final disposition, to enter into contracts, or to expand or increase any similar or related
power, then, without any further requirement of action by the shareholders or directors of the
corporation, the powers described in this Article shall be expanded and increased to the fullest
extent permitted by the Washington Business Corporation Act, as so amended.

                    8.1.5    LIMITATION ON POWERS. No indemnification shall be provided under this Article to any
such person if the corporation is prohibited by the nonexclusive provisions of the Washington
Business Corporation Act or other applicable law as then in effect from paying such
indemnification.

          SECTION 8.2    INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.

                    8.2.1    DIRECTORS AND OFFICERS. The corporation shall indemnify and hold harmless any person
who is or was a director or officer of the corporation and pay expenses in advance of final
disposition of a proceeding, to the full extent to which the corporation is empowered.

                    8.2.2    EMPLOYEES AND AGENTS. The corporation may, by action of its board of directors from
time to time, indemnify and hold harmless any person who is or was an employee or agent of the
corporation and pay expenses in advance of final disposition of a

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proceeding, to the full extent to which the corporation is empowered, or to any lesser extent
which the board of directors may determine.

                    8.2.3    CHARACTER OF RIGHTS. The rights to indemnification and payment of expenses in advance
of final disposition of a proceeding conferred by or pursuant to this Article shall be contract
rights.

                    8.2.4    ENFORCEMENT. A director, officer, employee or agent (“claimants”) shall be presumed to
be entitled to indemnification and/or payment of expenses under this Article upon submission of a
written claim (and, in an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the undertaking in Subsection 8.1.2 above has
been delivered to the corporation) and thereafter the corporation shall have the burden of proof to
overcome the presumption that the claimant is so entitled.

          If a claim under this Article is not paid in full by the corporation within 60 days after a
written claim has been received by the corporation, except in the case of a claim for expenses
incurred in defending a proceeding in advance of its final disposition, in which case the
applicable period shall be 20 days, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in
part, the claimant shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the corporation (including its board of directors, its shareholders or
independent legal counsel) to have made a determination prior to the commencement of such action
that indemnification of or reimbursement or advancement of expenses to the claimant is proper in
the circumstances nor an actual determination by the corporation (including its board of directors,
its shareholders or independent legal counsel) that the claimant is not entitled to indemnification
or to the reimbursement or advancement of expenses shall be a defense to the action or create a
presumption that the claimant is not so entitled.

                    8.2.5    RIGHTS NOT EXCLUSIVE. The right to indemnification and payment of expenses in advance
of final disposition of a proceeding conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, the Articles of
Incorporation, these Bylaws, any agreement, vote of shareholders or disinterested directors or
otherwise.

          SECTION 8.3    INSURANCE. The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, agent or trustee of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act.

          SECTION 8.4    SURVIVAL OF BENEFITS. Any repeal or modification of this Article shall not
adversely affect any right of any person that existed at the time of such repeal or modification.

          SECTION 8.5    SEVERABILITY. If any provision of this Article or any application thereof shall
be invalid, unenforceable or contrary to applicable law, the remainder of this

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Article, or the application of such provision to persons or circumstances other than those as
to which it is held invalid, unenforceable or contrary to applicable law, shall not be affected
thereby and shall continue in full force and effect.

          SECTION 8.6    APPLICABLE LAW. For purposes of this Article, “applicable law” shall at all times
be construed as the applicable law in effect at the date indemnification may be sought, or the law
in effect at the date of the action, omission or other event giving rise to the situation for which
indemnification may be sought, whichever is selected by the person seeking indemnification. As of
the date hereof, applicable law shall include RCW 23B.08.500 through .600, as amended.

ARTICLE IX.    BOOKS AND RECORDS

          The corporation shall keep correct and complete books and records of account, stock transfer
books, minutes of the proceedings of its shareholders and the board of directors and such other
records as may be necessary or advisable.

ARTICLE X.     FISCAL YEAR

          The fiscal year of the corporation shall be determined by resolution adopted by the board of
directors. In the absence of such a resolution, the fiscal year shall be the calendar year.

ARTICLE XI.    AMENDMENTS TO BYLAWS

          The board of directors shall have the power to adopt, amend or repeal the Bylaws of the
corporation, at a duly called meeting or by written consent. The shareholders shall also have the
power to adopt, amend or repeal the Bylaws of the corporation upon the affirmative vote of the
holders of two-thirds of the outstanding shares entitled to vote thereon.

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AMENDMENT TO

AMENDED AND RESTATED BYLAWS OF

PENWEST PHARMACEUTICALS CO.

          The Amended and Restated Bylaws of Penwest Pharmaceuticals Co. (the “Bylaws”) are hereby
amended as follows:

1.      A new ARTICLE VI, Section 6.7 shall be added to the Bylaws after ARTICLE VI, Section 6.6, which
shall read as follows:

          SECTION 6.7.    SHARES WITHOUT CERTIFICATES. Notwithstanding any other provisions herein,
the board of directors may authorize the issuance of some or all of the shares of any or all of the
corporation’s classes or series without certificates. The authorization does not affect shares
already represented by certificates until they are surrendered to the corporation. Within a
reasonable time after the issuance or transfer of shares without certificates, the corporation
shall send the shareholder a record containing the information required under Section 23B.06.260(2)
of the Washington Business Corporation Act (or any successor provision in the Washington Business
Corporation Act).

2.      ARTICLE VI, Section 6.4 of the Bylaws is deleted in its entirety and the following is
substituted in lieu thereof:

          SECTION 6.4.      TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only
on the stock transfer books of the corporation by the holder of record thereof or by such holder’s
legal representative who shall furnish proper evidence of authority to transfer, or by such
holder’s attorney thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation, and if such shares are represented by certificates, by the surrender
for cancellation of the certificate for the shares. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and canceled.

3.      Except as aforesaid, the Bylaws shall remain in full force and effect.

	 	 	 
	 

	 	Adopted by the Board of Directors of
	 

	 	Penwest Pharmaceuticals Co. on
	 

	 	November 7, 2007EXHIBIT 10.1

EXECUTION FORM

EARN OUT AGREEMENT

THIS EARN OUT AGREEMENT (“Earn Out Agreement”) is entered into effective as of June 26, 2008 (“Effective Date”) by and among Ames Bickford Cottage, L.L.C., a Kansas limited liability company, Bourbonnais Bickford House, L.L.C., a Kansas limited liability company, Burlington Bickford Cottage, L.L.C., a Kansas limited liability company, Crawfordsville Bickford Cottage, L.L.C., a Kansas limited liability company, Lincoln Bickford Cottage, L.L.C., a Kansas limited liability company, Marshalltown Bickford Cottage, L.L.C., a Kansas limited liability company, Moline Bickford Cottage, L.L.C., a Kansas limited liability company, Muscatine Bickford Cottage, L.L.C., a Kansas limited liability company, Quincy Bickford Cottage, L.L.C., a Kansas limited liability company, Rockford Bickford House, L.L.C., a Kansas limited liability company, Springfield Bickford House, L.L.C., a Kansas limited liability company, and Urbandale Bickford Cottage, L.L.C., a Kansas limited liability company, (each of the foregoing referred to individually as a “Seller” and collectively as the “Sellers”), and Care YBE Subsidiary LLC, a Delaware limited liability company (“Buyer”), and Bickford Master I, L.L.C., a Kansas limited liability company (“Tenant”), and Bickford Senior Living Group, L.L.C., a Kansas limited liability company (“Manager”) and Eby Realty Group, L.L.C., a Kansas limited liability company (“Eby”).

RECITALS

WHEREAS, pursuant to the terms of (a) that certain Purchase and Sale Contract dated as of May 14, 2008 by and among Sellers, Buyer, Tenant, Manager, Eby, and certain additional parties (the “Contract”), and (b) that certain Master Lease Agreement dated as of the Effective Date by and between Tenant (as tenant) and Buyer (as landlord, and in such capacity, “Landlord”) (as amended, restated, supplemented or otherwise modified from time to time, the “Lease”), Sellers have sold to Buyer, and Buyer has purchased from Sellers and then leased back to Tenant (as tenant) certain
real, personal and intangible property and improvements constituting twelve (12) assisted living facilities located in Iowa, Nebraska, Indiana and Illinois (each a “Facility” and collectively the “Facilities”) and more particularly described in the Lease (the “Leased Property”); and

WHEREAS, as of the Effective Date, Tenant (which is an Affiliate of each of the Sellers) has subleased each Facility back to the respective Seller (as subtenant) of that Facility pursuant to certain subleases dated as of the Effective Date (as the same may be amended, restated, supplemented or otherwise modified from time to time with the consent of Buyer, the “Subleases,” and Sellers in such capacity as subtenants, the “Subtenants”); and

 

 

 

 

	
                         
 	
                         
 	
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WHEREAS, Sellers, Tenant, Manager and Eby (collectively, the “Seller Parties”) and Buyer agree that it is in their mutual beneficial interest to optimize the net operating income from, and the fair market value of, the Leased Property; and

WHEREAS, in connection with the purchase of the Leased Property, Buyer has agreed to provide Sellers, under certain terms and conditions as more particularly set forth herein, with the right to receive additional contingent deferred consideration from Buyer for the conveyance of the Leased Property by Sellers if certain conditions are satisfied, all as more particularly set forth hereinbelow.

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, Buyer and Seller Parties do hereby covenant, stipulate and agree as follows:

1. Ratification. The recitals set forth hereinabove are true and correct.

2. Definitions. For all purposes of this Earn Out Agreement, capitalized terms used herein, or incorporated within the definition of capitalized terms used herein, unless specifically defined otherwise, shall have the meaning assigned to them in the Lease.

“Accounting Period” shall mean each calendar month accounting period of Tenant. If Tenant shall, for a bona fide business reason, change its accounting period during the term of the Lease, as such term may be extended, appropriate adjustments, if any, shall be made with respect to the timing of applicable accounting and reporting requirements of this Earn Out Agreement; provided, however, that in no event shall any such change or adjustment alter the amount or frequency of payment of Minimum Rent (as such Minimum Rent is set forth in Section 3.2 of the Lease and subject to prorations and adjustments as set forth in Section 3.2 of the Lease) within any Fiscal Year, or otherwise increase or reduce any monetary obligation under the Lease. Subtenants have and shall continue to have the same
accounting periods as the Tenant.

“Accounting Year” shall mean each period of twelve (12) consecutive Accounting Periods during the term of the Lease, as such term may be extended; the first Accounting Year shall commence with the first full Accounting Period after the commencement date of the Lease.

“Bickford Guaranty” shall mean that certain Guaranty of Lease by Manager dated as of the Effective Date.

 

 

	
                         
 	
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“Earn Out Payment Request Expiration Date” shall mean the date which is two (2) years and one (1) month after the Effective Date. 

“Earn Out Payment” or “Earn Out Payments” shall mean additional contingent deferred consideration from Buyer for the conveyance of the Leased Property by Sellers not to exceed the amount of Seven Million One Hundred Seventy-five Thousand and no/100 dollars ($7,175,000.00) less the aggregate amounts of Landlord Expansion Payments funded by Buyer as Landlord under the Lease for Initial Expansion Projects (as said terms are defined in the Lease).

“Eby Guaranty” shall mean that certain Guaranty of Lease by Eby dated as of the Effective Date.

“Facility Property” shall mean the portion of the Land on which a Facility is located (as further described in the Lease), the Leased Improvements on such portion of the Land, the easements, rights and appurtenances relating to such portion of the Land and the Leased Improvements located thereon, the FF&E, Inventories and other personal property with respect to such Facility, the Leased Intangible Property with respect to such Facility, and other property and interests included in the Leased Property with respect to such Facility.

“Facility Revenue” shall mean, for the applicable period of time, but without duplication, all gross revenues and receipts of every kind derived by or for the benefit of a Subtenant, Tenant, or its Affiliates from operating or causing the operation of a Facility Property and all parts thereof, including, but not limited to: income from both cash and credit transactions (after reasonable deductions for bad debts and discounts for prompt or cash payments and refunds) from rental or subleasing of every kind (including any termination or cancellation fees paid in connection therewith); entrance fees, fees for health care and personal care services, in each case, net of all contractual adjustments, license, lease and concession fees and rentals, off premises catering, if any; parking (not
including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixtures and equipment no longer necessary to the operation of any Facility, which shall be deposited in the Reserve, unless the same is included within the category of Tenant Personal Property) and service charges, to the extent not distributed to employees at the Facility as gratuities, interest income except as specifically provided below; community fees; and deposits forfeited; provided, however, that Facility Revenue shall not include the following: gratuities to Facility employees; federal, state or municipal excise, sales, occupancy, use or similar taxes collected directly from residents or included as part of the sales price of any goods or services; insurance proceeds (but including proceeds of business income/rental interruption
insurance); any proceeds from any sale of any Facility Property or from the refinancing of any debt encumbering any Facility Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of any Facility; and interest which accrues on amounts deposited in the Reserve.

 

 

	
                         
 	
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“Fiscal Year” shall mean Tenant’s Fiscal Year which as of the commencement date of the Lease begins on January 1 and ends on December 31 in each calendar year. Any partial Fiscal Year between the commencement date of the Lease and the commencement of the first full Fiscal Year (except with respect to the calculation and payment of minimum rent as referenced in Section 3.1 of the Lease), shall constitute a separate Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the termination of the Lease shall also constitute a separate Fiscal Year. If Tenant’s Fiscal Year is changed in the future, appropriate adjustments to this Earn Out Agreement’s reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment shall alter the term of the Lease or in any way reduce the payments due under the Lease. Each full Fiscal Year shall consist of twelve Accounting Periods. Subtenants have and shall continue to have the same Fiscal Year periods as Tenant.

“Lease Coverage Ratio” shall mean the ratio of (i) Net Operating Income for the preceding six (6) Accounting Periods multiplied by two (2) divided by (ii) the total of all Minimum Rent due under the Lease for the next twelve (12) Accounting Periods, including all scheduled increases in such Minimum Rent during such period, including the increased Minimum Rent due as a result of the Earn Out Payment.

“Net Operating Income” shall mean an amount equal to the Total Facilities Revenue less the Property Expenses for the Leased Property for the applicable period of time.

“Property Expenses” shall have the meaning assigned that term in the Lease for all of the Facility Properties and shall include, without limitation, all operating expenses, capital reserves, and tax and insurance expenses (including all amounts paid into any reserve or escrow account); provided, however, that for the purposes of this Earn Out Agreement, Property Expenses shall also be deemed to include management fees of no less than five percent (5%) of Total Facilities Revenue. 

“Total Facilities Revenue” shall mean, for the applicable period of time, but without duplication, the aggregate Facility Revenue for all Facilities, including all the Leased Property.

3. Earn Out Payment. Sellers shall have the option to apply for an Earn Out Payment within thirty (30) days after the end of the Fiscal Quarter ending September 30, 2008 and within thirty (30) days after the end of each subsequent Fiscal Quarter ending prior to the Earn Out Payment Request Expiration Date, if all of the following conditions are satisfied:

a. Sellers shall have delivered to Buyer on or before the Earn Out Payment Request Expiration Date, a Notice requesting the Earn Out Payment,stating the specific amount requested, together with evidence satisfactory to Buyer that the conditions set forth in Sections 3(b) and 3(c) below have been satisfied; and 

 

 

	
                         
 	
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b. the Lease Coverage Ratio at the time of Sellers’ Notice request for the Earn Out Payment is not less than 1.10; and 

c. (i) Tenant shall have submitted Requests for Landlord Expansion Payments with respect to each of the Initial Expansion Projects pursuant to Section 6.2 and Section 17.10 of the Lease and Landlord shall have funded the applicable Landlord Expansion Payments, except for any final Request for Landlord Expansion Payment which may not yet have been processed for payment or paid but for which Tenant’s Lease Coverage Ratio qualifies Tenant to receive the requested Landlord Expansion Payment, (ii) Tenant shall have substantially completed at least two (2) of the Initial Expansion Projects (as evidenced by the issuance of occupancy permits by the applicable Governmental Agencies with respect to the Initial Expansion Projects) by the Earn Out Payment Request Expiration Date, and (iii) Tenant shall have committed to Buyer (as Landlord) to construct and substantially complete the
remaining Initial Expansion Projects by not later than the 3rd anniversary of the Effective Date (as evidenced by the issuance of occupancy permits), subject to the disbursement as contemplated by the Lease of funds from any Expansion Project Escrow Account to pay for completion of such Initial Expansion Projects, as contemplated by Section 6.2 of the Lease. 

4. Payment of Earn Out Payment and Adjustment of Minimum Rent. In the event the conditions set forth in Section 3 above have been satisfied, Seller shall be entitled to receive payment of such Earn Out Payment from Buyer within sixty (60) days after Buyer’s receipt of Sellers’ Notice that all four (4) Initial Expansion Projects have been substantially completed, with evidence that occupancy permits have been issued for all such Initial Expansion Projects; provided, however, that delivery of the Earn Out Payment to Sellers shall be made subject to the following conditions:

(a) The amount of the Earn Out Payment shall be limited to the maximum amount that Tenant can receive and remain in compliance with the Lease Coverage Ratio (to equal not less than 1.10) after adjusting the Lease Coverage Ratio to reflect the increased annual Minimum Rent due as a 

 

 

	
                         
 	
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result of the Earn Out Payment, all as determined by Buyer in Buyer’s reasonable discretion and tested as of the end of the last Fiscal Quarter preceding the application for an Earn Out Payment, provided such maximum amount is subject to further reduction to satisfy the additional Lease Coverage Ratio condition in clause (c)(iii) below. 

(b) Sellers’ Notice of substantial completion of the four (4) Initial Expansion Project shall be delivered to Buyer not later than the 3rd anniversary of the Effective Date. 

(c) On the day the Earn Out Payment is scheduled to be paid to Sellers (the “Earn Out Payment Date”), which date shall not be later than sixty (60) days following the 3rd anniversary of the Effective Date, Landlord’s obligation to make the Earn Out Payment shall be conditioned upon the following: (i) the Lease shall remain in full force and effect and there shall be no uncured Default or Event of Default under the Lease of which notice has been given to Tenant or which otherwise is known to Tenant or Sellers (provided however the Earn Out Payment Date shall be extended by Buyer if necessary to allow Tenant and other Seller Parties an opportunity to take advantage of any applicable cure rights with respect thereto), (ii) the Total Costs for the Initial
Expansion Projects shall have been paid in full or reserved against in a manner reasonably satisfactory to Buyer, and Buyer shall have been furnished with evidence of such payment, and (iii) the Lease Coverage Ratio, tested as of the end of the last Fiscal Quarter ending prior to the Earn Out Payment Date, is not less than 1.10, or if it would be less when so tested, then the amount of the Earn Out Payment payable to Sellers shall be reduced to an amount (but not below $0), which would result in the Lease Coverage Ratio being not less than 1.10. During any interim period between an Earn Out Payment Request and a subsequent Earn Out Payment Date, Landlord shall have no obligation to fund the requested Earn Out Payment into any escrow account.

(d) The increase in Minimum Rent and Additional Minimum Rent due by reason of the Earn Out Payment shall be increased effective as of the Earn Out Payment Date as provided in the Lease and Exhibit C to the Lease, with the Landlord’s Investment being increased by the amount of the Earn Out Payment. At Buyer’s request, Exhibit C to the Lease shall be updated or amended to reflect the increased Minimum Rent and Additional Minimum Rent effective as of the Earn Out Payment Date. The Seller Parties hereby consent to such increases in the Minimum Rent and Additional Minimum Rent, and any such updated or amended Exhibit C to the Lease. 

(e) Upon request by Buyer, on or prior to the Earn Out Payment Date, Tenant shall deliver to Buyer a Lease amendment executed by Tenant reflecting the increased Minimum Rent and Additional Minimum Rent effective as of the Earn Out Payment Date.

 

 

	
                         
 	
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(f) If requested by Buyer, on or before the Earn Out Payment Date, the Sellers shall execute a written consent to the applicable updated or amended Exhibit C to the Lease, or an amendment to the Lease, for the Sellers to confirm the related increased rent under their respective Subleases and their guaranty. 

(g) On or prior to the Earn Out Payment Date, Eby, as guarantor of Tenant’s obligations under the Lease, shall deliver to Buyer a written consent to the Lease amendment (if a Lease amendment is executed) and a ratification of the Eby Guaranty and its obligations thereunder; and

(g) On or prior to the Earn Out Payment Date, Manager, as guarantor of Tenant’s obligations under the Lease, shall deliver to Buyer a written consent to the Lease amendment (if a Lease amendment is executed) and a ratification of the Bickford Guaranty and its obligations thereunder.

5. Transfers Prohibited Without Consent. Sellers shall not, without the prior written consent of Buyer in each instance (which consent may be withheld by Buyer in its sole discretion for any reason or for no reason at all), sell, assign or otherwise transfer their interest in this Earn Out Agreement, or grant or permit any lien or encumbrance on or security interest in Sellers’ interest in this Earn Out Agreement other than any sale, transfer or conveyance by Sellers to (i) any Seller Party or its members, officers, directors or partners or (ii) any parent or affiliate of any Seller Party or its shareholders, members or partners.

6. Events of Termination. This Earn Out Agreement shall terminate and be of no further force and effect upon the occurrence of any of the following events:

(a) An Event of Default (as defined in the Lease) shall have occurred and Buyer within sixty (60) days of such occurrence shall have delivered notice to Seller Parties of Buyer’s election to terminate this Earn Out Agreement; or

(b) A termination of the Lease, any Sublease, the Eby Guaranty, or the Bickford Guaranty for any reason other than a default of Landlord under the Lease.

7. Entire Agreement; Memorandum for Recording. This Earn Out Agreement constitutes the entire agreement of Buyer and Seller Parties with respect to the Earn Out Payment, and supersedes any prior or contemporaneous 

 

 

	
                         
 	
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agreement with respect thereto. No amendment or modification of this Earn Out Agreement shall be binding upon the parties unless made in writing and signed by both Buyer and Sellers. In the event of a sale of the Leased Property prior to the Earn Out Expiration Date, unless Buyer provides security for or other assurances of payment of the Earn Out Payment which is or are acceptable to Sellers in their reasonable discretion, then Buyer’s successor with respect to the Leased Property and the Lease shall be required to assume and take subject to Buyer’s rights and obligations hereunder. 

8. Notices. Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Earn Out Agreement shall be given in writing and delivered either by hand, by fax with acknowledgment of receipt, or by mail or UPS or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by UPS or Federal Express or similar carrier). All such notices shall be deemed to have been given upon the date of acknowledged receipt, in the case of a notice by fax, and, in all other cases, upon the date of receipt or refusal. All such notices shall be addressed as follows:

 

	
                         
 	
                        If to any Seller Party:
 	
                         
 	
                        Eby Realty Group, L.L.C.
 13795 S. Mur-Len Road, Suite 301,
 Olathe, Kansas 66062
 Phone: (913) 782-6904
 Fax: (913) 782-6904
 Attn: Michael D. Eby
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                        with a copy to:
 	
                         
 	
                        Husch Blackwell Sanders LLP
 4801 Main Street, Suite 1000
 Kansas City, MO 64112
 Phone: (816) 983-8223
 Fax: (816) 983-8080
 Attn: Linda K. Tiller, Esq.
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                        If to Buyer:
 	
                         
 	
                        Care YBE Subsidiary LLC
  c/o Care Investment Trust Inc.
 483 Little Lake Drive, Suite 100
 Ann Arbor, MI 48103
 Attn: Scott Kellman
 Phone: (734) 222-5264
 Fax: (734) 913-0712
 

 

 

	
                         
 	
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                        Care YBE Subsidiary LLC
 c/o Care Investment Trust Inc.
 1500 Market Street, 12th Floor, East Tower
 Philadelphia, PA 19102
 Attn: Portfolio Mgr. (Bickford)
 Phone: (215) 246-3484
 Fax: (877)525-9182
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                        Care YBE Subsidiary LLC
 c/o Care Investment Trust Inc.
 505 Fifth Avenue, 6th Floor
 New York, New York 10017
 Attn: Senior Counsel 
 Phone: (212) 771-9317
 Fax: (212) 771-9317
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                        With a copy to:
 	
                         
 	
                        Waller Lansden Dortch & Davis, LLP
 511 Union Street, Suite 2700 
 Nashville, Tennessee 37219
 Attn: Barrett B. Sutton, Esq.
 Phone: (615) 850-8717
 Fax: (615) 244-6804
 

By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Earn Out Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

9. Time Periods. Unless otherwise expressly provided herein, all periods for performance, approval, delivery or review and the like shall be determined on a “calendar” day basis. If any day for performance, approval, delivery or review shall fall on a Saturday, Sunday or legal holiday, the time therefor shall be extended to the next business day.

10. Counterparts, Headings. This Earn Out Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Captions and headings in this Earn Out Agreement are for purposes of reference only and shall in no way define, limit or describe the scope or intent of, or otherwise affect, the provisions hereof.

 

 

	
                         
 	
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11. Applicable Law. This Earn Out Agreement shall be governed by, and construed in accordance with, the laws of the State of Kansas. Notwithstanding the foregoing, the Seller Parties hereby consent and agree to non-exclusive jurisdiction and venue in New York City, State of New York.

12. No Partnership or Joint Venture. Buyer shall not, by virtue of this Earn Out Agreement, in any way or for any purpose, be deemed to be a partner or joint venturer of any of the Seller Parties.

13. Default. In the event of a breach of or default under the terms of this Earn Out Agreement by either party, the other party shall be entitled to pursue any remedies available to it at law or in equity.

14. Costs and Attorneys’ Fees. If either Buyer or any Seller Parties shall bring an action to recover any sum due hereunder, or for any breach hereunder, and shall obtain a judgment or decree in its or their favor, the court may award to such prevailing party its reasonable costs and reasonable attorney’s fees based upon service rendered at hourly rates, specifically including reasonable attorney’s fees incurred in connection with any appeals (whether or not taxable as such by law). In addition to the foregoing, Seller Parties shall, and hereby agree to, indemnify and save and hold Buyer harmless from and against and reimburse Buyer for fees and expenses (including, without limitation, reasonable attorney’s fees based upon service rendered at hourly rates) up to the amount
of One Thousand and no/100 Dollars ($1,000.00) in each instance incurred by Buyer which is occasioned by or results, directly or indirectly, from any amendment or legal work necessary to effect an Earn Out Payment including, but not limited to, any amendment to the Lease or this Earn Out Agreement. 

15. Waiver of Jury Trial. BUYER AND EACH SELLER PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, THE RIGHT ANY OF THEM OR THEIR SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS EARN OUT AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, THE RELATIONSHIP OF BUYER AND SELLER PARTIES HEREUNDER, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO BUYER’S ENTRY INTO THIS EARN OUT AGREEMENT.

16. Successors and Assigns. The agreements, terms, provisions, covenants and conditions contained in this Earn Out Agreement shall be binding upon and inure to the benefit of Buyer and the respective Seller Parties and, to the extent permitted herein, their respective successors and assigns.

 

 

	
                         
 	
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                        Earn Out Portfolio
 
	
                         
 	
                         
 	
                         
 

 

 

17. Term. This Earn Out Agreement shall terminate sixty-one (61) days after the 3rd anniversary of the Effective Date, unless the Earn Out Payment Date shall have been extended pursuant to Section 4(c) above, in which event this Earn Out Agreement shall terminate on the day following such extended date.

[Signatures provided on following counterpart signature pages]

 

 

	
                         
 	
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                        Earn Out Portfolio
 
	
                         
 	
                         
 	
                         
 

 

 

IN WITNESS WHEREOF, the parties have caused these presents to be executed intending to be legally bound by the provisions herein contained.

 

	
                         
 	
                         
 	
                        BUYER:
 
	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                        CARE YBE SUBSIDIARY LLC,
 a Delaware limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                        By: Care Investment Trust, Inc., its sole member
 
	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                         
 	
                         
 	
                        Printed Name:
 	
                         
 
	
                         
 	
                         
 	
                        Its:
 	
                         
 
					

 

 

	
                         
 	
                         
 	
                        Earn Out Portfolio
 
	
                         
 	
                        Signature Page
 	
                         
 

 

 

 

	
                        SELLERS:
 	
                         
 	
                        SELLERS:
 
	
                         
 	
                         
 	
                         
 
	
                        AMES BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        BOURBONNAIS BICKFORD HOUSE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

	
                        CRAWFORDSVILLE BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        LINCOLN BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

	
                        MARSHALLTOWN BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        MOLINE BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

	
                        MUSCATINE BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        QUINCY BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

 

	
                         
 	
                         
 	
                        Earn Out Portfolio
 
	
                         
 	
                        Signature Page
 	
                         
 

 

 

 

	
                        SELLERS:
 	
                         
 	
                        SELLERS:
 
	
                         
 	
                         
 	
                         
 
	
                        ROCKFORD BICKFORD HOUSE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        SPRINGFIELD BICKFORD HOUSE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

	
                        URBANDALE BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 	
                         
 	
                        BURLINGTON BICKFORD COTTAGE, L.L.C., a Kansas limited liability company
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                        By: 
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                        Printed Name: Michael D. Eby
 
	
                        Its: Executive Vice President
 	
                         
 	
                        Its: Executive Vice President
 
					

 

	
                        TENANT:
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 
	
                        BICKFORD MASTER I L.L.C., a Kansas limited liability company
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 
	
                        By: 
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                         
 
	
                        Its: Executive Vice President
 	
                         
 	
                         
 
					

 

	
                        MANAGER:
 	
                         
 	
                        EBY:
 
	
                         
 	
                         
 	
                         
 
	
                        BICKFORD SENIOR LIVING GROUP,

                        L.L.C., a Kansas limited liability company
 	
                         
 	
                        EBY REALTY GROUP, LLC, 

                        a Kansas limited liability company
 

 

	
       
 	
                         
 	
                        By: 
 	
                         
 
	
                        By: Eby Realty Group, L.L.C., its Manager
 	
                         
 	
                        Printed Name: Michael D. Eby
 Its: Executive Vice President
 

 

	
                        By: 
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                        Printed Name: Michael D. Eby
 	
                         
 	
                         
 
	
                        Its: Executive Vice President
 	
                         
 	
                         
 

 

 

	
                         
 	
                         
 	
                        Earn Out Portfolio
 
	
                         
 	
                        Signature Page

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