<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): December 30, 1999
EMERITUS CORPORATION
(Exact name of registrant as specified in charter)
Washington 1-14012 91-1605464
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
Kelly J. Price
Vice President, Finance and Chief Financial Officer
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
(Address of principal executive offices) (Zip Code)
(206) 298-2909
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
On December 30, 1999, the Company completed the initial sale of $30 million
of Series B Convertible Preferred Stock (the "Series B Stock") to Saratoga
Partners IV, L.P. ("Saratoga") and a related investor pursuant to the terms of a
Series B Preferred Stock Purchase Agreement dated as of December 10, 1999 (the
"Agreement") between Emeritus Corporation and Saratoga. Pursuant to the terms
of the Agreement, the Company agreed to sell to Saratoga or related investors an
aggregate of 40,000 shares of Series B Stock and expects to complete the sale of
the remaining 10,000 shares during the first quarter of 2000.
The Series B Stock was sold in reliance on Section 4(2) for the Securities
Act of 1933, as amended, and Regulation D thereunder. Saratoga is a
sophisticated financial institution and the other investor is an affiliated
entity.
Each share of Series B Stock is convertible into a number of shares of
Common Stock of the Company equal to the liquidation value of $1,000 divided by
the conversion price of $7.22 per share. Currently, the Series B Stock is
convertible into an aggregate of 5,540,166 shares of Common Stock. The
conversion price is subject to adjustment in the event of stock dividends, stock
subdivisions and combinations and extraordinary distributions, as well as the
issuance of additional shares of Common Stock, or securities convertible into or
exercisable for Common Stock, at a price less than the then effective conversion
price.
Saratoga has the right to appoint directors that represent the same
percentage of the Board of Directors, rounded up to the nearest whole director,
as the percentage of the Company's voting securities represented by the Series B
Stock owned by Saratoga and its related parties. The transaction documents also
provide for tag-along rights in the event Mr. Baty transfers more than 30% of
his ownership in the Company, registration rights and standstill obligations.
In connection with the closing on December 30, 1999, the Company paid a fee
of $750,000 to Saratoga Management Company, LLC, a fee of $250,000 to Warburg
Dillon Read, and a fee of $100,000 to Richard Sontgerath. No underwriters were
involved in the offering.
Item 7. Exhibits
4.1 Series B Preferred Stock Purchase Agreement dated as of December 10,
1999 between Emeritus Corporation and Saratoga Partners IV, L.P.
-2-
<PAGE>
4.2 Designation of Rights and Preferences of Series B Convertible
Preferred Stock as filed with the Secretary of State of Washington on December
29, 1999.
4.3 Shareholders Agreement dated as of December 30, 1999 among Emeritus
Corporation, Daniel R. Baty, B.F., Limited Partnership and Saratoga Partners IV,
L.P.
4.4 Registration Rights Agreement dated as of December 30, 1999 between
Emeritus Corporation and Saratoga Partners IV, L.P.
4.5 Investment Agreement dated as of December 30, 1999 among Emeritus
Corporation, Daniel R. Baty, B.F., Limited Partnership and Saratoga Partners IV,
L.P., Saratoga Partners IV, L.P. and Saratoga Management Company LLC.
99.1 Press release dated January 5, 2000, announcing the sale of the
Series B Stock.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
EMERITUS CORPORATION
By: /s/ Kelly J. Price
-----------------------------------------
Kelly J. Price
Vice President, Finance and Chief
Financial Officer
Dated: January 14, 2000
-4-
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------------------------------------------------------------
4.1 Series B Preferred Stock Purchase Agreement dated as of December
10, 1999 between Emeritus Corporation and Saratoga Partners IV,
L.P.
4.2 Designation of Rights and Preferences of Series B Convertible
Preferred Stock as filed with the Secretary of State of
Washington on December 29, 1999
4.3 Shareholders Agreement dated as of December 30, 1999 among
Emeritus Corporation, Daniel R. Baty, B.F., Limited Partnership
and Saratoga Partners IV, L.P.
4.4 Registration Rights Agreement dated as of December 30, 1999
between Emeritus Corporation and Saratoga Partners IV, L.P.
4.5 Investment Agreement dated as of December 30, 1999 among Emeritus
Corporation, Daniel R. Baty, B.F., Limited Partnership and
Saratoga Partners IV, L.P., Saratoga Partners IV, L.P. and
Saratoga Management Company LLC.
99.1 Press release dated January 5, 2000, announcing the sale of the
Series B Stock.
-5-
<PAGE>
EXHIBIT 4.1
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
By and Among
EMERITUS CORPORATION,
as Seller,
and
SARATOGA PARTNERS IV, L.P.,
as Purchaser
__________________________________________
Dated as of December 10, 1999
__________________________________________
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT, dated as of December 10, 1999, by and
among EMERITUS CORPORATION, a Washington corporation (the "Company"), as seller,
and Saratoga Partners IV, L.P., a Delaware limited partnership ("Saratoga" and,
collectively with its successors and assigns, the "Purchaser"), as purchaser.
RECITALS:
A. The Company proposes to issue and sell to the Purchaser for cash 40,000
shares (the "Preferred Shares") of its Series B Convertible Preferred Stock, par
value $.0001 per share (the "Preferred Stock").
B. The Preferred Shares will be issued pursuant to and subject to the
terms and conditions of this Agreement (the term "this Agreement" as used herein
or in any Exhibit or Schedule hereto shall mean this Agreement and the Exhibits
and Schedules hereto individually and collectively as they may from time to time
be modified or amended).
AGREEMENT
---------
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. Definitions. As used in this Agreement, unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means, with respect to any Person, either (i) any Subsidiary of
such Person, or (ii) any other Person that, directly or indirectly, controls, is
controlled by or is under common control with such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" has the meaning set forth in the preamble of this Agreement.
"AMEX" is defined in Section 3.1(g) of this Agreement.
-2-
<PAGE>
"Business Day" means any day except Saturday, Sunday and any day that is a
legal holiday or on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Closing Dates" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Designation" means that certain statement of designation of rights and
preferences and other characteristics of the Series B Convertible Preferred
Stock of the Company, annexed hereto as Exhibit A, pursuant to which the
---------
Preferred Stock was authorized by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Initial Closing" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Losses" means all damages, losses, penalties, fines, settlement payments,
obligations to third parties, claims, costs or expenses actually suffered or
incurred by such Person excluding any consequential, special or punitive
damages.
"Partnership Agreement" means the partnership agreement of Purchaser, dated
as of September 17, 1998, pursuant to which the Purchaser is organized and
governed.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Shares" has the meaning set forth in the recitals of this
Agreement.
"Preferred Stock" has the meaning set forth in the recitals of this
Agreement.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Registration Rights Agreement" means the certain registration rights
agreement annexed hereto as Exhibit B.
---------
-3-
<PAGE>
"SEC" means the Securities and Exchange Commission.
"SEC Documents" is defined in Section 3.1(1) of this Agreement.
"Second Closing" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholders' Agreement" means that certain shareholders' agreement
annexed hereto as Exhibit C.
---------
"Subsidiary" means, with respect to any Person, (i) a corporation, a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a Subsidiary of such Person or by such Person and a Subsidiary thereof or
(ii) any other Person (other than a corporation) in which such Person, a
Subsidiary thereof or such Person and a Subsidiary thereof, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Transaction Documents" is defined in Section 3.1(d) of this Agreement.
Section 1.2. Construction. When used herein the words "herein",
------------
"hereunder", "hereby", "hereof" and similar words refer to this Agreement as a
whole. All references to a party's "knowledge" refer to actual knowledge and
not to any constructive or imputed knowledge.
ARTICLE II
PURCHASE OF SHARES
------------------
Section 2.1. Purchase of Shares; the Closing.
-------------------------------
(a) On the terms and subject to the conditions herein set forth, the
Company shall sell to Purchaser and Purchaser shall purchase from the Company on
the Closing Dates the Preferred Shares for a purchase price of $40,000,000.
(b) The purchase and sale of (i) at least 30,000 of the Preferred Shares
shall take place at a closing (the "Initial Closing") to be held at the offices
of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (the
"Cahill Offices"), at 10:00 a.m. local time, on the date that is not more than
20 days from the date hereof, provided that all conditions set forth in Article
IV and Article V have been satisfied or waived, or at such other time or place
as the Company and the Purchaser mutually agree, but no later than
-4-
<PAGE>
January 31, 2000, and (ii) with respect to any Preferred Shares not purchased at
the Initial Closing, such remaining Preferred Shares shall take place at a
closing (the "Second Closing" and, together with the Initial Closing, the
"Closing Dates" at the Cahill Offices, at 10:00 a.m. local time, on the date
that is not more than 90 days from the date of the Initial Closing, provided
that all conditions set forth in Article IV and Article V have been satisfied or
waived, or at such other time or place as the Company and the Purchaser mutually
agree, but no later than April 30, 2000.
(c) Delivery of the Preferred Shares shall be made at the Closing by
delivery to Purchaser, against payment of the purchase price therefor provided
in Section 2.1(a), of a stock certificate representing the Preferred Shares duly
registered in the name of Purchaser.
(d) Payment of the purchase price to the Company for the Preferred Shares
shall be made by wire transfer of same day funds pursuant to the Company's
written instructions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1. Representations and Warranties of the Company.
---------------------------------------------
In order to induce Purchaser to enter into this Agreement and to purchase
the Preferred Shares, the Company hereby represents and warrants to, and agrees
with, Purchaser and its successors, endorsees and assigns that:
(a) Statement of Designation. Before the Initial Closing, the Company will
------------------------
file the Designation with the Secretary of State of the State of Washington.
Upon filing the Designation and the resolutions of the Company's Board of
Directors contained therein will be in full force and effect.
(b) Organizational Documents. The Company has delivered to Purchaser an
------------------------
accurate and complete copy of (a) its Restated Articles of Incorporation and all
amendments thereto, certified by the Secretary of State of the State of
Washington, and (b) its Amended and Restated Bylaws and all amendments thereto,
certified by its Secretary or Assistant Secretary.
(c) Existence and Qualification. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Washington. The Company is duly qualified to do business and in good standing
as a foreign corporation in each jurisdiction where standing to so qualify or be
in good standing as a foreign corporation could reasonably be expected to have a
material adverse effect on its
-5-
<PAGE>
business, operations, properties or condition (financial or otherwise), or its
ability to perform its obligations hereunder.
(d) Power and Authority. The Company has all corporate power and authority
-------------------
necessary to own, operate or lease its properties and assets and to conduct its
business as now conducted by it. The Company has all corporate power and
authority necessary to issue the Preferred Shares pursuant to the Designation,
and to execute, deliver, and perform its obligations under this Agreement, the
Registration Rights Agreement and the Shareholders' Agreement (collectively, the
"Transaction Documents").
(e) Corporate Action. The Company has taken all corporate action required
----------------
to authorize the issuance of the Preferred Shares pursuant to the Designation
and the execution, delivery and performance of the Transaction Documents.
(f) Execution and Delivery. The Company has duly executed and delivered
----------------------
each of the Transaction Documents. The certificates representing the Preferred
Shares have been duly and properly authorized, executed and delivered pursuant
to the Designation.
(g) Consents; Governmental Approvals. No consent or approval of any
--------------------------------
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any governmental authority is
required to be obtained or made by or on behalf of the Company in connection
with the offer, issuance and sale of the Preferred Shares, the issuance of the
Common Stock upon conversion of the Preferred Shares, the execution, delivery or
performance of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for (i) the filing of the Designation
in the state of Washington, and (ii) filings with the SEC, the American Stock
Exchange ("AMEX") and under state securities laws that may be required; each of
which shall have been obtained (subject to notice of issuance in the case of
clause (ii) above) or made prior to or simultaneously with the closing of the
sale of Preferred Shares on the Initial Closing.
(h) Binding Effect. Each of the Transaction Documents is a legal, valid
--------------
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or limitations on the availability of
equitable remedies and except as rights to indemnification and contribution may
be limited under federal and state securities laws.
(i) Absence of Conflicts. The issuance of the Preferred Shares and the
--------------------
execution, delivery and performance of the Transaction Documents by the Company
do not and will not (i) conflict with or violate any provision of the Restated
Articles of Incorporation or Amended and Restated By-laws of the Company, (ii)
conflict with that
-6-
<PAGE>
certain Shareholder Agreement, dated as of April 17, 1995, between Assisted
Living of America, Inc. and various other parties, that certain Shareholders'
Agreement dated as of October 24, 1997 between the Company, Daniel R. Baty, B.F.
Limited Partnership and Merit Partners, LLC or that certain Registration Rights
Agreement dated as of October 24, 1997 between the Company and Merit Partners,
LLC, (iii) conflict with or result in a violation, breach or default by the
Company or any of its Subsidiaries under (x) any provision of any existing
statute, law, rule or regulation binding on it or any order, judgment, award,
decree, license or authorization of any court or governmental instrumentality,
authority, bureau or agency binding on it or any of its Subsidiaries, or (y) any
material provision of any mortgage, indenture, lease or other contract,
agreement, instrument or undertaking to which it or any of its Subsidiaries is a
party or will be a party immediately after the Initial Closing, or by which or
to which it or any of its Subsidiaries or any of its or any of its Subsidiaries'
property or assets is now or immediately after the Initial Closing will be bound
or subject, or (iv) result in the creation or imposition of any lien,
encumbrance or other charge on any of its or any of its Subsidiaries' properties
or assets.
(j) No Defaults. None of the Company or its Subsidiaries is, or
-----------
immediately after each of the Initial Closing and the Second Closing will be, in
default under or in violation of (i) its Restated Articles of Incorporation or
Amended and Restated Bylaws, (ii) any agreement or instrument to which it is a
party relating to its indebtedness for borrowed money, (iii) any other agreement
or instrument to which it is a party, (iv) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any court or governmental authority
having jurisdiction over it, or (v) any license, permit, certification or
approval requirement of any customer, supplier, governmental authority or other
person, in any way that could reasonably be expected to have a material adverse
effect on the business, operations, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole, or the
Company's ability to perform its obligations under any of the Transaction
Documents.
(k) Capitalization and Stockholders. The entire authorized, issued and
-------------------------------
outstanding capital stock of the Company was as set forth in the SEC Documents,
on and as of the dates indicated therein. Immediately after each of the Initial
Closing and the Second Closing, all outstanding shares of capital stock will be
duly and validly issued and after each of the Initial Closing and the Second
Closing, except as described in the SEC Documents and other public announcements
by the Company, and except for the Preferred Shares, there will be no options,
warrants or other rights outstanding or proposed involving the issuance of any
additional shares of capital stock of the Company, and except for (i) the
Registration Rights Agreement, (ii) that certain registration rights agreement,
dated as of February 8, 1996, between the Company and holders of its 6.25%
Convertible Subordinated Debentures due 2006, (iii) that certain Shareholder
Agreement, dated as of April 17, 1995, between Assisted Living of America, Inc.
and various other
-7-
<PAGE>
parties and (iii) Registration Rights Agreement dated as of October 24, 1997
between the Company and Merit Partners, LLC, there will be no agreements or
other instruments providing registration rights to stockholders or holders of
other securities of the Company.
(l) SEC Documents.
-------------
(i) The Common Stock of the Company is registered pursuant to Section
12(b) of the Exchange Act and the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC. The Company has delivered or made available to the Purchaser true
and complete copies of (i) its annual reports on Form 10-K and quarterly reports
on Form 10-Q for its 1997 and 1998 fiscal years, (ii) proxy statements,
information and solicitation materials filed by the Company with the SEC since
January 1, 1997, and (iii) each other report, registration statement, proxy
statement and other document filed with the SEC since the filing of its most
recent Form 10-K (all of the foregoing, collectively, the "SEC Documents"). The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement.
(ii) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(m) Financial Statements. The financial statements of the Company included
--------------------
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
-8-
<PAGE>
(n) No Material Adverse Changes. Since December 31, 1998, the date through
---------------------------
which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or reflected in other SEC Documents
or other public announcements of the Company, or otherwise disclosed in writing
to the Purchasers on or before the date of this Agreement.
(o) No Undisclosed Events or Circumstances. No event or circumstance has
--------------------------------------
occurred or exists with respect to the Company or its Subsidiaries, or their
respective businesses, properties, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company and which has not been so publicly disclosed or
announced, or otherwise disclosed in writing to the Purchasers on or before the
date of this Agreement.
(p) No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Preferred Shares.
(q) No Integrated Offering. Neither the Company, nor any of its
----------------------
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Preferred Shares under the Securities Act.
(r) Brokers. The Company represents and warrants that it has employed no
-------
brokers, agents or finders in carrying on the negotiations relating to this
Agreement or to the transactions herein contemplated, except that the Company
has agreed to pay (i) Saratoga Management Company, LLC a fee of $750,000 as
provided in Section 8.11, (ii) Warburg Dillon Read a fee of $250,000 and (iii)
Richard Sontgerath a fee of $100,000, all in connection with the transactions
contemplated by this Agreement.
(s) Untrue or Misleading Statements. Neither this Agreement nor any other
-------------------------------
Transaction Document or other agreement, certificate, instrument or written
statement furnished by or on behalf of the Company to the Purchaser in
connection with the transactions contemplated by this Agreement, (including the
SEC Documents but excluding any financial forecasts or projections furnished to
or reviewed by the Purchaser), when taken together, contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which such statement were made. With respect to financial forecasts, estimates,
budgets and projections the Company has furnished to the Purchaser, such
materials have been reasonably prepared on a basis reflecting the best currently
-9-
<PAGE>
available estimates and judgments of the management of the Company as to the
future performance of the Company and its Subsidiaries.
(t) Reservation of Common Stock. As of the Initial Closing, the Company
---------------------------
shall have reserved for issuance, and will at all times keep available, a
sufficient number of shares of Common Stock to permit the conversion of all
Preferred Shares into Common Stock. Such Common Stock when issued upon such
conversion will be duly authorized, fully paid and nonassessable.
(u) Status of Shares. The Preferred Shares, upon issuance by the Company
----------------
following receipt of the consideration provided for herein and satisfaction of
the other conditions set forth herein, will be duly authorized, fully paid and
nonassessable.
(v) Government Regulations. The Company is not (i) an "investment company"
----------------------
as defined in or subject to regulation under the Investment Company Act of 1940,
as amended, or controlled by an "investment company", or (ii) subject to
regulation under the Public Utility Holding Company Act of 1935.
(w) Year 2000 Compliance. All computer applications (including to the
--------------------
knowledge of the Company after due inquiry, those of its suppliers and vendors)
that are material to the conduct of the business of the Company and any of its
Subsidiaries are able to perform properly date sensitive functions for all dates
before and after January 1, 2000 (i.e., "Year 2000 Compliant"), except as
described in the SEC Documents or except to the extent that a failure to do so
could not reasonably be expected to have material adverse effect on the business
operations, properties, assets or conditions (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole.
(x) Environmental Laws. Except as would not, individually or in the
------------------
aggregate, reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, (i) each of the Company and its
Subsidiaries, is in compliance with and not subject to liability under
applicable Environmental Laws (as defined below), (ii) each of the Company and
its Subsidiaries has made all filings and provided all notices required under
any applicable Environmental Law, and has, and is in compliance with, all
Permits required under any applicable Environmental Laws and each of them is in
full force and effect, (iii) there is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries under any Environmental Law, (iv) no lien, charge, encumbrance or
restriction has been recorded under any Environmental Law with respect to any
assets, facility or property owned, operated, leased or controlled by the
Company or its Subsidiaries, (v) none of the Company or its Subsidiaries has
received notice that it has been identified as a potentially responsible
-10-
<PAGE>
party under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERLA"), or any comparable state law, (vi) no property
or facility of the Company or any of its Subsidiaries is (A) listed or proposed
for listing on the National Priorities List under CERCLA or is (B) listed in the
Comprehensive Environmental Response, Compensation, Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable federal, state and local laws or regulations, codes, orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder, relating to pollution or protection of public or employee health and
safety or the environment, including, without limitation, laws relating to (i)
emissions, discharges, releases or threatened releases of hazardous materials
into the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of hazardous materials, and (iii) underground and
aboveground storage tanks and related piping, and emissions, discharges,
releases or threatened released therefrom.
(y) Insurance. The Company and each of its Subsidiaries maintain insurance
---------
covering their properties, operations, personnel and businesses. Such insurance
insures against such losses and risks as are adequate in accordance with
customary industry practice to protect the Company and its Subsidiaries and
their respective businesses. All such insurance is outstanding and in force on
the date.
(z) Certain Representations as to Real Estate Matters. The most recent
-------------------------------------------------
consolidated balance sheet and any notes thereto included in the financial
statements filed with the SEC by the Company reflect the real property owned
(the "Owned Property"), leased (the "Leased Property") or managed with an option
to purchase (the "Managed Property" and, collectively, with the Owned Property
and the Leased Property, the "Real Property") by the Company and its
Subsidiaries. The Company or a Subsidiary of the Company has good and
marketable title to the Owned Property, free and clear of any Liens, except for
(i) mortgage liens securing repayment of indebtedness of the Company or any of
its Subsidiaries, (ii) statutory liens for current taxes not yet delinquent,
(iii) mechanics', carriers', workers', repairers' and other similar liens
imposed by law arising or incurred in the ordinary course of business for
obligations not yet due and payable, (iv) Liens and other matters that will be
satisfied, discharged or removed at or prior to Closing and (v) easements,
rights-of-way, restrictions, minor defects or irregularities in title that do
not individually or in the aggregate interfere in any material respect with the
business of the Company (the matters described in clauses (i) through (v) are
together called the "Permitted Encumbrances").
-11-
<PAGE>
The Company or a Subsidiary of the Company has a valid and binding
leasehold interest in each Leased Property free and clear of any Liens created
by, through or under the Company or a Subsidiary of the Company except for
Permitted Encumbrances.
The Company or a Subsidiary of the Company has a valid, binding and
properly recorded management agreement with option to purchase for each Managed
Property.
There are no eminent domain proceedings pending or threatened against the
Real Property or any material portion thereof which proceedings (if resulting in
a taking) could be expected, individually or in the aggregate, to have a
material adverse effect on the use of such Real Property as currently used in
the operation of the business of the Company and its Subsidiaries. To the best
knowledge of the Company after due inquiry, (i) the Real Property and the
improvements thereon (including the roof and structural portions of each
building) are in good operating order and condition, subject to ordinary wear
and tear, (ii) there are no structural, mechanical or other defects of a
material nature in any improvements located on the Real Property, (iii) all
building systems in respect of the Real Property are in good condition and
working order, subject to ordinary wear and tear and (iv) the Real Property is
served by all utilities required or necessary for the present use thereof.
(aa) ERISA. The Company and its Subsidiaries have complied in all material
-----
respects with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), in connection with the Benefit Plans (as defined
below). No reportable event, as defined in Section 4043 of ERISA, has occurred
during the past five years with respect to any Benefit Plan that is subject to
Title IV of ERISA, except where notice for such reportable event is waived by
statutes or regulations. There have been no non-exempt prohibited transactions
under the Code or ERISA with respect to any Benefit Plan which could result in a
material liability to the Company or any Subsidiary. The present value of all
accrued benefits under each Benefit Plan subject to Title IV of ERISA (based on
the current liability, interest rate and other assumptions used in preparation
of the plan's Form 5500 Annual Report) did not, as of the last annual valuation
date, exceed the value of the assets of such plan allocable to such accrued
benefits, as of such date, by $100,000. Neither of the Company, any Subsidiary,
or any Commonly Controlled Entity (as defined below) has any material liability
with respect to any multiemployer plan (as defined in Section 4001(a)(3) of
ERISA). There are no material liabilities of the Company or any Subsidiary for
post-retirement benefits to be provided to their current and former employees
under Benefit Plans which are welfare benefit plans (as described in Section
3(1) of ERISA), other than with respect to benefits mandated by applicable law.
With respect to each Benefit Plan, no event has occurred and there exists no
conditions or set of circumstances in connection with which the Company or any
Subsidiary may, directly or indirectly (through a Commonly Controlled Entity or
-12-
<PAGE>
otherwise) be subject to material liability under the Code, ERISA or any other
applicable law, except for liability for benefit claims, funding obligations and
administrative expenses payable in the ordinary course. For purposes of this
paragraph, (i) "Commonly Controlled Entity" shall mean any person or entity
that, together with the Company, any Subsidiary or any Commonly Controlled
Entity, is treated as a single employer under Section 414(b) or (c), of the Code
(or, solely for purposes of Section 302 of ERISA and Section 412 of the Code,
Section 414(m) or (o) of ERISA), and (ii) "Benefit Plan" shall mean any
"employee benefit plan," as defined in Section 3(3) of ERISA, which is
maintained or contributed to by the Company, a Subsidiary or Commonly
Controlled Entity to which the Company, a Subsidiary or any Commonly Controlled
Entity may have liability.
(bb) Labor Relations. Neither the Company nor any of its Subsidiaries are
---------------
a party to or bound by any labor agreement or collective bargaining agreement
respecting the employees of the Company or its Subsidiaries, nor is there
pending, or to the knowledge of the Company threatened, any strike, walkout,
slowdown or other work stoppage by the employees of the Company or its
Subsidiaries. No petition for certification has been filed and is pending
before the National Labor Relations Board with respect to any employee of the
Company or its Subsidiaries, the Company and its Subsidiaries are in compliance
with all applicable laws respecting employment practices, terms and conditions
of employment and wages and hours, except for those failures to comply that,
individually or in the aggregate, would not have a material adverse effect on
the business operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
(cc) Licenses. The Company and each of its Subsidiaries hold all material
--------
licenses, permits, approvals, certificates of inspection, other authorizations,
filings and registrations which are necessary for such entitles to operate their
businesses as presently conducted (collectively, the "Licenses"). The Licenses
are in good standing and the Company has no knowledge that any disciplinary
proceeding in respect thereof is pending. There is no proceeding pending, or to
the Company's knowledge, threatened or probable of assertion to revoke or limit
any such Licenses which would reasonably be expected to result in a material
adverse effect on the business operations, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole.
None of the transactions contemplated by the Transaction Documents will
terminate, violate or limit the effectiveness of any such Licenses. With
respect to renewal of Licenses, the Company and its Subsidiaries have taken, in
a timely manner, all action known or anticipated to be required to be taken by
the Company and its Subsidiaries reasonably necessary to secure the renewal of
the Licenses prior to the date of their respective expirations. The Company
believes that it or its Subsidiaries should be able to secure the renewals of
the Licenses prior to the date of their respective expirations.
-13-
<PAGE>
(dd) Legal Compliance. The Company and each of its Subsidiaries have
----------------
complied and are in compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of Federal, state, local and foreign governments (and all
agencies thereof) and of any self-regulatory agencies that regulate the Company
and/or its Subsidiaries, except for any non-compliance therewith which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business operations, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole. Neither the Company nor any of its Subsidiaries has received any
notification of any asserted present or past failure by it to comply with such
laws, rules, regulations, codes, plans, injunctions, orders, decrees, rulings or
charges which, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the business operations, properties, assets or
conditions (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole.
(ee) Litigation; Proceedings. There are no actions, suits, proceedings,
-----------------------
investigations or claims (whether or not purportedly on behalf of the Company or
any Subsidiary) pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or the assets, business or goodwill of the
Company or any Subsidiary, in any court or before any arbitrator of any kind or
before or by any governmental or regulatory body or agency which could
reasonably be expected to have a material adverse effect on the business
operations, properties, assets or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or adversely affect or question
the transactions contemplated herein. There is no outstanding order, writ,
injunction or decree of or stipulation with any court, arbitrator or
governmental or regulatory body or agency against the Company or any Subsidiary,
or the assets, business or goodwill of the Company or any Subsidiary.
(ff) Tax Matters.
-----------
(i) All Federal, state and local income, and all other material federal,
state and local, tax returns and tax reports required as of the date hereof to
be filed by the Company or any of its Subsidiaries for taxable periods ending
prior to the date hereof and as of each of the Initial Closing and the Second
Closing, have been or will be duly and timely filed prior to the due date (as
such date may be lawfully extended) by the Company with the appropriate
governmental agencies, and all such returns and reports are true, correct and
complete in all material respects.
(ii) All Federal, state and local income, and all material federal, state
and local profits, franchise, sales, use, occupation, property, excise, payroll,
withholding, employment, estimated and other taxes of any nature, including
interest, penalties and other additions to such taxes ("Taxes"), payable by, or
due from, the Company or any of
-14-
<PAGE>
its Subsidiaries for all periods prior to the date hereof and as of each of the
Initial Closing and the Second Closing, have been fully paid or adequately
reserved for by the Company or any of its Subsidiaries, as applicable, or, with
respect to Taxes required to be accrued, the Company has properly accrued or
will properly accrue such Taxes in the ordinary course of business consistent
with past practice of the Company.
(iii) The Federal income tax returns of the Company and its Subsidiaries
have not been audited by the Internal Revenue Service ("IRS") for the years
ended December 31, 1997 and 1998, respectively. To the knowledge of the
Company, (A) neither the Company nor any of its Subsidiaries has received any
notice of any assessed or proposed claim or deficiency against it in respect of,
or of any present dispute between it and any governmental agency concerning, any
Taxes which would reasonably be expected to have a material adverse effect on
the business operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, (B) no
examination or audit of any material tax return or report of the Company or any
of its Subsidiaries by any applicable taxing authority is currently in progress
and (C) there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return or report of the Company or
any of its Subsidiaries.
(gg) Intellectual Property. The Company and its Subsidiaries own or have
---------------------
the right to use pursuant to license, sublicense, agreement or permission all
material trademarks, patents, copyrights, trade names, service marks, software
and know-how ("Intellectual Property") necessary for the operation of its
businesses as presently conducted. To the knowledge of the Company, neither the
Company nor its Subsidiaries have interfered with or otherwise come into
conflict with any material Intellectual Property rights of third parties, nor
has any third party interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any material Intellectual Property rights of
the Company or its Subsidiaries, in any case which would reasonably be expected
to have a material adverse effect on the business operations, properties, assets
or conditions (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole. There is no existing claim or, to the knowledge of the
Company, any basis for any claim against the Company or its Subsidiaries (A)
that any of its or its Subsidiaries operations, activities or products infringe
the Intellectual Property or other property rights of others or (B) that the
Company or its Subsidiaries are wrongfully or otherwise using the property
rights of others, which would reasonably be expected to have a material adverse
effect on the business operations, properties, assets or conditions (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole.
(hh) Title to Assets; Related Matters. The Company and its Subsidiaries
--------------------------------
have good and marketable title to all of their respective material assets,
rights, interests and other properties, real, personal and mixed, tangible and
intangible, including, without limitation, capital leases and leasehold
interests and all of the assets in the unaudited
-15-
<PAGE>
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1999, except those transferred in the ordinary course of business since
September 30, 1999 (including without limitation the sale of its investment in
Alert Care), free and clear of all encumbrances and liens except for taxes not
yet due and payable and except as otherwise described in the SEC Documents.
Section 3.2. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to the Company, as of the date hereof, as follows:
(a) Investment Intent. The Preferred Shares to be acquired hereunder
-----------------
are being acquired for its own account with no intention of distributing or
reselling such Preferred Shares or any part thereof or interest therein in any
transaction that would be in violation of the securities laws of the United
States or any State. It is understood that the certificates evidencing the
Preferred Shares may bear one or more legends, including a legend substantially
as follows:
The securities evidenced by this certificate have not been
registered under the Act, or applicable state securities
law, and no interest therein may be sold, distributed,
assigned, offered, pledged or otherwise transferred unless
(i) there is an effective registration statement under the
Act and applicable state securities laws covering any such
transaction involving said securities, (ii) this corporation
receives an opinion of legal counsel for the holder of these
securities reasonably satisfactory to this corporation
stating that such transaction is exempt from registration,
or (iii) this corporation otherwise satisfies itself that
such transaction is exempt from registration.
(b) Transfer Restrictions. Purchaser acknowledges that the Preferred
---------------------
Share are subject to restrictions on transfer and represents and warrants that
it has reviewed and is familiar with the provisions of the Designation and the
Transaction Documents which impose such restrictions.
(c) Purchaser Status. Purchaser is an "accredited investor" as
----------------
defined in Rule 501(a) under the Securities Act, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Preferred Shares to be acquired hereunder, has so evaluated the merits and risks
of such investment and is able to bear the economic risk of such investment and,
at the present time, is able to afford a complete loss of such investment.
(d) Authorization; Execution. The purchase of the Preferred Shares
------------------------
to be acquired hereunder has been duly and properly authorized by the Purchaser
by all
-16-
<PAGE>
necessary action and the Transaction Documents have been duly executed and
delivered by it and neither the purchase of the Preferred Shares to be acquired
hereunder nor the execution and performance of the Transaction Documents
conflicts with or violates its Partnership Agreement or any law, regulation or
court order applicable to it or any other agreement to which it is subject.
(e) Purchaser's Investigation. Purchaser has made such examination,
-------------------------
review and investigation of facts and circumstances necessary to evaluate the
purchase of the Preferred Shares to be acquired hereunder as it has deemed
necessary or appropriate and has made its own investment determination and
analysis in concluding to purchase the Preferred Shares.
(f) Organization; Organizational Documents. Purchaser is a limited
--------------------------------------
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware. Purchaser has all requisite power and authority to own
and lease its properties and to carry on its business as presently conducted
except where a lack of such power would not reasonably be expected to have a
material adverse effect upon the financial condition, business, or results of
operations of Purchaser. Purchaser has all the power and authority necessary to
execute, deliver and perform its obligations under the Transaction Documents.
(g) Consents; Governmental Approvals. No consent or approval of any
--------------------------------
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any governmental authority is
required to be obtained or made by or on behalf of Purchaser in connection with
the purchase of the Preferred Shares, the execution, delivery or performance by
the Purchaser of any of the Transaction Documents or the completion of the
transactions contemplated thereby.
(h) Binding Effect. Each of the Transaction Documents is a legal,
--------------
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors, rights generally or limitations on the availability of
equitable remedies and except as rights to indemnification and contribution may
be limited under federal and state securities laws.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase Preferred Shares hereunder on each
of the Closing Dates shall be subject to the satisfaction of each of the
following conditions precedent on each of the Closing Dates:
-17-
<PAGE>
Section 4.1. Representations. All representations and warranties made in
---------------
this Agreement, any other Transaction Document and in any other agreement,
certificate or instrument furnished to Purchaser in connection herewith shall be
true and correct in all material respects with the same force and effect as
though such representations and warranties had been made at the time of, and
immediately after giving effect to, the sale of Preferred Shares. Purchaser
shall have received on each of the Closing Dates a certificate dated the
applicable Closing Date signed by the Chief Executive Officer and Chief
Financial Officer of the Company to the effect set forth in this Section 4.1.
Section 4.2. No Material Adverse Change. Purchaser shall be satisfied
--------------------------
that no event, circumstance or condition shall have occurred and be continuing
that could reasonably be expected to have a material adverse effect on the
business, operations, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or the
Company's ability to perform its obligations hereunder.
Section 4.3. Suspension of Trading. Prior to or on each of the Closing
---------------------
Dates, (i) trading in the Company's Common Stock shall not have been suspended
by the SEC or any exchange on which it is listed for trading (except for any
suspension of trading of limited duration agreed to by the Company solely to
permit dissemination of material information regarding the Company), and trading
in securities generally as reported by such exchange(s) shall not have been
suspended or limited, or (ii) there shall not have been declared a banking
moratorium either by the United States or New York State or Washington State
authorities, or if the United States shall have declared war in accordance with
its constitutional processes or there shall have occurred any material outbreak
or escalation of hostilities or other national or international calamity or
crisis of such magnitude in its effect on the financial markets of the United
States it is, in Purchaser's sole judgment, impracticable to purchase the
Preferred Shares.
Section 4.4. Registration Rights Agreement. The Company shall have
-----------------------------
executed and delivered to Purchaser a Registration Rights Agreement
substantially in the form of Exhibit B attached hereto.
---------
Section 4.5. Shareholders' Agreement. The Company shall have executed and
-----------------------
delivered to Purchaser a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
- ---------
Section 4.6. Legal Opinion. The Company shall have delivered to Purchaser
-------------
on each of the Closing Dates the executed legal opinion of counsel to the
Company, dated the applicable Closing Date, in form and substance reasonably
satisfactory to the Purchaser and its counsel.
-18-
<PAGE>
Section 4.7. Additional Documents. Purchaser shall have received all such
--------------------
agreements, documents, instruments, approvals, certificates, legal opinions and
information as the Purchaser shall reasonably request in connection with the
Transaction Documents, the Preferred Shares and the transactions herein and
therein contemplated, all of which shall be in form and in substance reasonably
satisfactory to Purchaser and its counsel.
Section 4.8. Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to Purchaser.
Section 4.9. No Governmental Proceeding or Litigation. At each of the
----------------------------------------
Closing Dates, no order, injunction, decree or judgment of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated hereby, and no suit, action, investigation, inquiry or
proceeding by any governmental body, or legal or administrative proceeding by
any governmental body shall have been instituted, or threatened in writing,
which questions the validity or legality of the transactions contemplated
hereby.
Section 4.10. Appointment of Initial Saratoga Directors. The Initial
-----------------------------------------
Saratoga Directors, as defined in the Shareholders' Agreement, shall be
appointed as members of the Board of Directors of the Company effective upon the
Initial Closing. One of the Initial Saratoga Directors shall also be appointed
as a member of the Compensation Committee of the Board of Directors of the
Company effective upon the Initial Closing.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
The obligations of the Company under this Agreement to consummate the sale
of the Preferred Shares to be acquired by Purchaser hereunder and the other
transactions contemplated hereby shall be subject to the satisfaction, on or
before each of the Closing Dates, of the following conditions:
Section 5.1. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Section 3.2 hereof are true and accurate in all material
respects as of the date when made (or with respect to those representations
stated to be as of a different date, as of such date).
Section 5.2. Performance of Agreements. Purchaser shall have performed
-------------------------
and complied, in all material respects, with each and every agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on each of the Closing Dates.
-19-
<PAGE>
Section 5.3. No Governmental Proceeding or Litigation. At each of the
----------------------------------------
Closing Dates, no order, injunction, decree or judgment of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated hereby, and no suit, action, investigation, inquiry or
proceeding by any governmental body, or legal or administrative proceeding by
any governmental body shall have been instituted, or threatened in writing,
which questions the validity or legality of the transactions contemplated
hereby.
Section 5.4. Shareholders' Agreement. Purchaser shall have executed and
-----------------------
delivered to the Company a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
- ---------
Section 5.5. Legal Opinion. Purchaser shall have delivered to the Company
-------------
on each of the Closing Dates the executed legal opinion of counsel to Purchaser,
dated the applicable Closing Date, in form and substance reasonably satisfactory
to the Company and its counsel.
Section 5.6. Additional Documents. The Company shall have received all
--------------------
such agreements, documents, instruments, approvals, certificates, legal opinions
and information as the Company shall reasonably request in connection with this
Agreement, the Preferred Shares and the transactions herein and therein
contemplated, all of which shall be in form and in substance reasonably
satisfactory to the Company and its counsel.
Section 5.7. Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Company.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
-----------------------------------
The Company covenants and agrees so long as the Preferred Shares remain
outstanding, unless expressly stated otherwise that:
Section 6.1. Registration and Listing. The Company will use its best
------------------------
efforts to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement and will not take any action or file any document (whether or not
permitted by the Securities Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under such Acts. The Company will use its best efforts to
continue the listing or trading of its Common Stock on the AMEX or NASDAQ
National
-20-
<PAGE>
Market and comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange or NASDAQ, as the case
may be.
Section 6.2. Financial Statement and Information. The Company will furnish
-----------------------------------
or cause to be furnished to the Purchaser the following financial statements and
information:
(a) All reports and other written communications delivered by the Company
to its stockholders as such, and all registration statements (when available to
the public) and periodic reports filed by the Company with the SEC or any
securities exchange, pursuant to the Securities Act, the Exchange Act, or the
rules of such securities exchange.
(b) With reasonable promptness, (i) all financial statements or reports
(including comment letters to management) furnished to the Company by its
independent certified public accountants, (ii) information disclosing occupancy
rates, unit prices and margins at individual Company facilities, such
information to be set forth in reasonable detail, and (iii) budgets, business
plans and projections when available.
(c) The Company will permit the Purchaser or its representatives to
discuss such financial statements, plans and projections with such officers of
the Company as the Purchaser or its representatives may reasonably designate.
Section 6.3. Use of Proceeds.
---------------
(a) Within 6 months of the date of the Initial Closing, the Company shall
use the proceeds received from the sale of Preferred Shares as follows:
(i) (A) $23.1-26.8 million in the aggregate to finance the equity
portion of the acquisition prices of the facilities indicated in the table below
(with the debt portion of such acquisition prices not being outside the range of
the amounts in the table below):
<TABLE>
<CAPTION>
Previously Contributed
----------------------
Facilities Acquisition Price Debt Portion Equity Portion New Equity Portion
---------- ----------------- ------------- --------------------- ------------------
(In Millions)
<S> <C> <C> <C> <C>
Northeast $ 21.3- 22.7 $15.8-$16.5 $1.3 $ 4.2- 4.9
Hearthside Facilities $ 8.5-$ 8.7 $ 6.8-$ 7.8 $0.5 $ 0.4- 1.4
Emeritrust II Facilities $ 86.0-$89.0 $67.5-$68.5 $0.0 $18.5-$20.5
</TABLE>
and (B) $13.2-16.9 million of the proceeds to be used for general
corporate purposes, or
(ii) for such other business purpose of the Company as may be approved
by the Purchasers.
-21-
<PAGE>
(b) The Company shall confirm the uses of the proceeds from the issuance of
the Preferred Shares, as well as the amounts of the debt portion and acquisition
price with respect to the facilities in the table above, to the Purchasers by
delivery, from time to time as such proceeds are utilized, of an officers'
certificate executed by the chief executive officer and the chief financial
officer of the Company which sets forth in reasonable detail the equity, debt
and acquisition price information relevant to each acquisition through the date
of each such certificate. Such officers' certificate shall be delivered to the
Purchasers promptly following the application of the proceeds to one or more of
the uses specified in this Section 6.3, but in any event, at least one such
certificate shall be delivered to the Purchasers describing the use of all
proceeds from the issuance of the Preferred Shares no later than the fifth
business day following the end of the 6-month period following the Closing Date.
(c) If the Company fails to spend at least $23 million of the proceeds to
finance the equity portion of the acquisitions as set forth in the above table
and notwithstanding Section (b) above, the Company shall (i) place until
approval is obtained pursuant to clause (ii) below, an amount of cash equal to
(x) $35 million minus (y) the amount of proceeds actually spent by the Company
in accordance with the above table, in an interest bearing bank account and (ii)
obtain the written consent of Saratoga prior to the use of any proceeds held in
such account.
Section 6.4. Expenses. The Company will pay all reasonable out-of-pocket
--------
expenses of Purchaser in connection with this Agreement and the transactions
contemplated hereby; provided, however, that if the Initial Closing does not
occur, such reimbursement shall be limited to $50,000.
Section 6.5. Public Announcements; Confidentiality. Except as agreed by
-------------------------------------
the Company and the Purchaser and except for such disclosures as may be required
by law, legal process or regulatory authority, neither party hereto shall issue
any press release or otherwise make any announcement or disclosure concerning
the transactions herein contemplated unless such information is already in the
public domain.
Section 6.6. Sales and Transfer Taxes. All transfer taxes incurred in
------------------------
connection with this Agreement and the transactions contemplated hereby shall be
borne by the Company.
Section 6.7. Conduct of Business. During the period from the date hereof
-------------------
to the Second Closing, except as otherwise expressly contemplated by this
Agreement or as the Purchaser shall otherwise consent to in writing (which
consent shall not be unreasonably withheld), the Company covenants and agrees
that it shall conduct, and will cause it Subsidiaries to conduct its business in
the ordinary and usual course consistent in all material respects with past
practice, and neither the Company nor its Subsidiaries shall
-22-
<PAGE>
take any action except in the ordinary and usual course consistent in all
material respects with past practice. By way of amplification and not
limitation, during the period from the date hereof to the Second Closing, except
as otherwise expressly contemplated by this Agreement, or as the Purchaser shall
otherwise consent to in writing (which consent shall not be unreasonably
withheld), the Company covenants and agrees that it shall not, and it shall not
permit its Subsidiaries to, do or propose to do any of the following:
(a) make any dividend or distribution in respect of the Company's
capital stock or repurchase, redeem or otherwise acquire any of the Company's
capital stock;
(b) sell, lease, transfer or dispose of all or substantially all of
its assets;
(c) intentionally do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect;
(d) amend the Company's Restated Articles of Incorporation or Amended
and Restated Bylaws in a manner that would adversely affect the Purchaser or the
transactions contemplated hereby;
(e) authorize for issuance, issue, sell, deliver, grant or issue any
options, warrants, calls, subscriptions or other rights for, or otherwise agree
or commit to issue, sell or deliver, any of the Company's capital stock or any
securities convertible into or exchangeable or exercisable for its capital
stock, except for options granted in the ordinary course of business consistent
with past practice under the Company's 1995 Stock Incentive Compensation Plan;
(f) increase in any manner the compensation of any of the Company's
directors or employees, except in the ordinary course of business and consistent
with past practice; (ii) pay or agree to pay any pension, retirement allowance
or other employee benefit, or enter into any Contract with any of the Company's
past or present employees relating to any such pension, retirement allowance or
other employee benefit, except as required under agreements, plans or
arrangements existing as of the date hereof; (iii) grant any severance or
termination pay to, or enter into any employment, consulting (except in the
ordinary course of business and consistent with past practice), or severance
agreement with, any person; (iv) enter into any material contract with any of
the Company's past or present employees; and (v) except in the ordinary course
of business and consistent with past practice, or as may be required to comply
with applicable law, become obligated under any new pension plan, welfare plan,
multiemployer plan, employee benefit plan, benefit arrangement, or similar plan
or arrangement for the benefit of the Company's or its Subsidiaries' employees
that was not in existence on or prior to the date hereof, including any bonus,
incentive, deferred compensation, stock purchase, stock option,
-23-
<PAGE>
stock appreciation right, group insurance, severance pay, retirement or other
benefit plan, contract, agreement or understanding, or amend any such plans or
contracts in existence on or prior to the date hereof;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with any other person with respect to, any plan of liquidation or
dissolution, any disposition of a material amount of assets or securities or any
material change in the capitalization of the Company;
(h) authorize or commit to make capital expenditures on the part of
Company in excess of $1,000,000;
(i) maintain the Company's books and records in a manner not in the
ordinary course of business and consistent with past practice;
(j) institute any change in the Company's accounting methods,
principles or practices or revalue any of its assets, including without
limitation, writing off notes or, except in the ordinary course of business
consistent with past practice, writing down the value of property, plant and
equipment;
(k) solicit any offers for, respond to any offers for, enter into or
conduct any negotiations with any other person or entity in respect of, or
consummate or enter into any agreement, arrangement or understanding in respect
of (i) a sale of any voting securities of the Company or (ii) a material
recapitalization, restructuring, merger, consolidation or other business
combination involving the Company other than those disclosed to the Purchaser
prior to the execution of this Agreement;
(l) disclose any non-public information relating to the businesses,
operations or affairs of the Company to any person or entity, afford any such
other person or entity access to the books, records, information or assets of
the Company, or otherwise assist or encourage any such other person or entity in
connection with any proposed (i) acquisition of any securities of the Company or
(ii) material recapitalization, restructuring, merger, consolidation or other
business combination involving the Company other than those disclosed to the
Purchaser prior to the execution of this Agreement; and
(m) agree to do any of the foregoing.
Section 6.8. Year 2000. The Company and its Subsidiaries shall not
---------
experience a material adverse effect on the business, operations, properties,
assets or conditions (financial or otherwise) of the Company or of the Company
and its Subsidiaries, taken as a whole, attributable to computer applications
(including, without limitation, those of its
-24-
<PAGE>
suppliers and vendors) being unable to properly perform date sensitive functions
for all dates before and after January 1, 2000.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 7.1. Survival of Representation and Warranties. The
-----------------------------------------
representations and warranties of the Company and of Purchaser set forth in
Article III hereof shall survive the Closing until the third anniversary of the
date of this Agreement, provided that the representations and warranties set
forth in Sections 3.1(a), (b), (c), (d), (e), (g), (k), (s), (t), (u), (x), (ff)
and (gg) shall survive without respect to such limitation.
Section 7.2. Indemnification by the Company. The Company shall indemnify
------------------------------
and hold harmless Purchaser from and against any and all Losses suffered or
incurred by Purchaser as a result of the breach or incorrectness of any
representation and warranty of the Company set forth in Section 3.1 of this
Agreement. Purchaser shall promptly notify the Company in writing of the
occurrence of any event, or of its discovery of any facts, which in Purchaser's
opinion entitle or may entitle it to indemnification hereunder. Purchaser's
failure to do so shall not preclude it from seeking indemnification hereunder
from the Company unless such failure has materially prejudiced the Company's
ability to defend as provided herein. With respect to any threatened or
asserted claims of third parties, the Company shall have the right to defend
such claims by counsel of its choosing and to direct or control the defense and
settlement thereof. Purchaser shall cooperate in all reasonable respects with
such counsel. In no event shall the indemnification obligations of the Company
exceed the aggregate sale price of the Preferred Shares sold by the Company
pursuant to this Agreement, plus reasonable legal fees and expenses.
Notwithstanding the Company's election to assume the defense of a claim,
the Purchaser shall have the right to employ separate counsel and to participate
in the defense of such claim, and the Company shall bear the reasonable fees,
costs and expenses of such separate counsel if: (i) the use of counsel chosen by
the Company to represent the Purchaser would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any such claim include both the Company and the Purchaser, and the Purchaser
shall have reasonably concluded that there may be legal defenses available to it
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of such
claim on the Purchaser's behalf), (iii) the Company shall not have employed
counsel reasonably satisfactory to the Purchaser to represent the Purchaser
within a reasonable time after notice of the institution of such claim, or (iv)
the Company shall authorize the Purchaser to employ separate counsel at the
Company's expense. If the Company assumes the defense of a claim, no compromise
or settlement thereof may be effected by
-25-
<PAGE>
the Company without the Purchaser's written consent unless (a) there is no
finding or admission of any violation of law and no effect on any other claims
that may be made against the Purchaser and (b) the sole relief provided is
monetary damages that are to be paid in full by the Company. For purposes of
this Section 7.2, the term "Purchaser" shall include the Purchaser, any of its
affiliates, each person, if any, controlling the Purchaser or any of its
affiliates, their respective officers, current and former directors, employees,
partners, members and agents, and the successors and assigns of all of the
foregoing persons. The foregoing indemnity agreement shall be in addition to any
rights that any indemnified party may have at common law or otherwise.
Section 7.3. Indemnification by Purchaser. Purchaser shall indemnify and
----------------------------
hold harmless the Company from and against any and all Losses suffered or
incurred by the Company as a result of the breach or incorrectness of any
representation and warranty of the Company set forth in Section 3.2 of this
Agreement. The Company shall promptly notify Purchaser in writing of the
occurrence of any event, or of its discovery of any facts, which in the
Company's opinion entitle or may entitle it to indemnification hereunder. The
Company's failure to do so shall not preclude it from seeking indemnification
hereunder from Purchaser unless such failure has materially prejudiced
Purchaser's ability to defend as provided herein. With respect to any
threatened or asserted claims of third parties, Purchaser shall have the right
to defend such claims by counsel of its choosing and to direct or control the
defense and settlement thereof. Notwithstanding the Purchaser's election to
assume the defense of a claim, the Company shall have the right to employ
separate counsel and to participate in the defense of such claim, and the
Purchaser shall bear the reasonable fees, costs and expenses of such separate
counsel if: (i) the use of counsel chosen by the Purchaser to represent the
Company would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such claim include both the
Purchaser and the Company, and the Company shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the Purchaser (in which case the Purchaser
shall not have the right to assume the defense of such claim on the Company's
behalf), (iii) the Purchaser shall not have employed counsel reasonably
satisfactory to the Company to represent the Purchaser within a reasonable time
after notice of the institution of such claim, or (iv) the Purchaser shall
authorize the Company to employ separate counsel at the Purchaser's expense. If
the Purchaser assumes the defense of a claim, no compromise or settlement
thereof may be effected by the Purchaser without the Company's written consent
unless (a) there is no finding or admission of any violation of law and no
effect on any other claims that may be made against the Company and (b) the sole
relief provided is monetary damages that are to be paid in full by the
Purchaser. For purposes of this Section 7.3, the term "Company" shall include
the Company, any of its affiliates, each person, if any, controlling the Company
or any of its affiliates, their respective officers, current and former
directors, employees, partners, members and agents, and the
-26-
<PAGE>
successors and assigns of all of the foregoing persons. The foregoing indemnity
agreement shall be in addition to any rights that any indemnified party may have
at common law or otherwise. The Company shall cooperate in all reasonable
respects with such counsel. In no event shall the indemnification obligations of
the Purchaser exceed the aggregate purchase price of the Preferred Shares
purchased by the Purchaser pursuant to this Agreement. Notwithstanding the
foregoing, no representation, warranty, covenant or acknowledgment made herein
by the Purchaser shall in any manner be deemed to constitute a waiver of any
rights granted to it under the Exchange Act or state securities laws.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. No Waiver; Modifications in Writing. (a) No failure or delay
-----------------------------------
on the part of the Company or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity.
No waiver of or consent to any departure by the Company or Purchaser from any
provision of this Agreement shall be effective unless in writing and signed by
the party entitled to the benefit thereof. No amendment, modification or
termination of any provision of this Agreement shall be effective unless in
writing and signed by or on behalf of the Company and Purchaser. Any amendment,
supplement or modification of or to any of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given.
Section 8.2. Notices. All notices and demands provided for hereunder
-------
shall be in writing, and shall be given by registered or certified mail, return
receipt requested, telecopy, courier service or personal delivery, and, if to
Purchaser, addressed to Purchaser at:
Saratoga Partners IV, L.P.
c/o Saratoga Management Company LLC
535 Madison Avenue
New York, NY 10022
Attention: David W. Niemiec
Telephone: (212) 906-7044
Telecopy: (212) 750-3343
-27-
<PAGE>
or to such other address as Purchaser may designate to the Company in writing
and, if to the Company, addressed to the Company at:
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attention: Kelly J. Price
Telephone: (206) 298-2909
Telecopy: (206) 301-4500
With a copy to:
Perkins Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Michael E. Stansbury, Esq.
Telephone: (206) 583-8771
Telecopy: (206) 583-8500
or to such other address as the Company may designate in writing. All such
notices and demands shall be deemed given when received.
Section 8.3. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 8.4. Binding Effect; Assignment. The rights of Purchaser or the
--------------------------
Company under this Agreement may not be assigned to any other Person except with
the prior written consent of the other parties hereto. This Agreement shall not
be construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and permitted
assigns. This Agreement shall be binding upon the Company and Purchaser, and
their respective successors and permitted assigns.
Section 8.5. Governing Law.
-------------
(a) This Agreement shall be deemed to be a contract made under the laws of
the state of New York, and for all purposes shall be construed in accordance
with the laws of said state, without regard to principles of conflicts of laws.
(b) The Company hereby expressly waives any right it may have now or
hereafter to a jury trial in any suit, action or proceeding arising out of or
relating to this
-28-
<PAGE>
Agreement or any of the preferred shares or the securities into which they may
be converted or for which they may be exchanged.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, under the Preferred Shares or the Securities into which they may be
converted or for which they may be exchanged, the Purchaser (or its agents)
shall be entitled to protect and enforce their rights at law, or in equity or by
other appropriate proceedings for specific performance of such obligation, or
for an injunction against such breach or default, or in aid of the exercise of
any power or remedy granted hereby or thereby or by law.
Section 8.6 Submission to Jurisdiction; Venue
---------------------------------
(a) Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Company hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Company further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to CT Corporation Systems at its address at 1633 Broadway, New York,
New York 10019, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any Holder to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 8.7. Severability of Provisions. Any provision of this Agreement
--------------------------
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.8. Headings. The Article and Section headings used or contained
--------
in this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
-29-
<PAGE>
Section 8.9. No Reliance. Each party hereto acknowledges that it has
-----------
obtained separate advice with respect to the legal, tax and accounting
consequences of the transactions contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice from any other party hereto or
its Affiliates.
Section 8.10. Entire Agreement. This Agreement and agreements executed
----------------
contemporaneously herewith constitute the entire agreement among the parties
with respect to the purchase and sale of the Preferred Shares to be acquired by
Purchaser hereunder, and, as of the date hereof, there are no promises or
undertakings with respect thereto relative to the subject matter hereof not
expressly set forth or referred to herein or therein.
Section 8.11. Further Assurances. Each of the Company and the Purchaser
------------------
will execute and deliver or cause to be executed and delivered such further
instruments and do or cause to be done such further acts as may be reasonably
necessary to carry out its obligations under this Agreement.
Section 8.12 Advisory Fee. At the Initial Closing, the Company shall pay
------------
to Saratoga Management Company, LLC an advisory fee of $750,000.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EMERITUS CORPORATION
By:/s/ KELLY J. PRICE
------------------------------------
Name: Kelly J. Price
Title: Vice President of Finance
SARATOGA PARTNERS IV, L.P.
By: SARATOGA ASSOCIATES IV LLC, as
General Partner
By: SARATOGA MANAGEMENT
COMPANY LLC, as Manager
By:/s/ DAVID NIEMIEC
------------------------------------
Name: David Niemiec
Title:
-31-
<PAGE>
Exhibit 4.2
Designation of Rights and Preferences of
Series B Convertible Preferred Stock
<PAGE>
DESIGNATION
OF RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
EMERITUS CORPORATION
A series of Preferred Stock of Emeritus Corporation (the "Company") is
hereby designated with the rights, preferences, privileges and limitations set
forth below.
1. Designation and Amount.
----------------------
The shares of such series shall be designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock"), $.0001 par value, with a
stated value of $1,000 per share and the number of shares constituting the
Series B Preferred Stock shall be 70,000.
The Company shall from time to time in accordance with the laws of the
state of Washington increase the authorized amount of the Series B Preferred
Stock if at any time the number of shares of Series B Preferred Stock remaining
unissued and available for issuance shall not be sufficient to permit the
payment of Series B Preferred Stock dividends in accordance with Section 2
hereof.
The Series B Preferred Stock shall rank junior to the Company's Series A
Convertible Exchangeable Redeemable Preferred Stock (the "Series A Preferred
Stock") as provided herein.
2. Dividends.
---------
(a) Initial Rate and Payment. Subject to the rights of the holders of
------------------------
the Series A Preferred Stock or any other holders of outstanding shares of
preferred stock having a preferential right to dividends ranking superior to the
rights of the holders of record of shares of Series B Preferred Stock, the
holders of record of shares of the Series B Preferred Stock, when and as
declared by the Board of Directors out of any assets legally available therefor,
shall be entitled to receive cumulative dividends at the rate per annum and per
share equal to the Initial Accrual
-2-
<PAGE>
Rate (as defined below) times the stated value per share of the Series B
Preferred Stock. Such dividends shall be payable quarterly in arrears on January
1, April 1, July 1 and October 1 of each year ("Dividend Payment Dates")
commencing April 1, 2000, until the earlier to occur of (i) the date of any
conversion or redemption of the Series B Preferred Stock (but only with respect
to those shares of Series B Preferred Stock so converted or redeemed) or (ii)
January 1, 2004 (the "First Adjustment Date"). For purposes of this Section 2,
"Initial Accrual Rate" shall mean 6.0% per annum, of which 2.0% per annum shall
be payable in cash and 4.0% per annum shall be payable by the issuance of shares
of Series B Preferred Stock at a rate of .001 shares per $1.00 of such dividend.
(b) Final Rate and Payment. Commencing on January 1, 2004 and until
----------------------
the date of any conversion or redemption of the Series B Preferred Stock (but
only with respect to those shares of Series B Preferred Stock so converted or
redeemed), the holders of record of shares of the Series B Preferred Stock, when
and as declared by the Board of Directors out of any assets legally available
therefor, shall be entitled to receive cumulative dividends at the rate per
annum and per share equal to the Final Accrual Rate (as defined below) times the
stated value per share of the Series B Preferred Stock. Such dividends shall be
payable quarterly in arrears on Dividend Payment Dates, commencing April 1,
2004. For purposes of this Section 2, "Final Accrual Rate" shall mean 7.0% per
annum, of which 3.0% per annum shall be payable in cash and 4.0% per annum shall
be payable by the issuance of shares of Series B Preferred Stock at a rate of
.001 shares per $1.00 of such dividend.
(c) Increase in Accrual Rate. Dividends on outstanding Series B
------------------------
Preferred Stock shall accrue from the date of original issuance of such Series B
Preferred Stock. If the holders of record of shares of the Series B Preferred
Stock do not receive on a Dividend Payment Date the full dividends provided for
above, (i) such dividends shall cumulate, whether or not earned or declared, and
(ii) for the period from the first issuance of the Series B Preferred Stock
until December 31, 2006, whenever, at any time or times, the cash dividend
portion of the Initial Accrual Rate or the Final Accrual Rate, as the case may
be, for any quarter shall not be paid,, the cumulating dividend rate of the cash
portion of the Initial Accrual Rate or Final Accrual Rate, as the case may be,
shall be increased to 7.0% per annum and shall be payable entirely in cash,
commencing at the time such cash dividend was due and payable and ending when
the unpaid cash dividends have been paid or January 1, 2007, whichever first
occurs. The amount of any dividends "accrued" on any share of the Series B
Preferred Stock at any date shall be calculated as the amount of any unpaid
dividends accumulated to and including the date as of which the calculation is
-3-
<PAGE>
made, whether or not earned or declared. In lieu of issuing fractional shares
in connection with the payment of dividends in additional shares of Series B
Preferred Stock, the Company, at its option, may round any such fractional share
up to the next whole share of Series B Preferred Stock or pay cash in the amount
equal to the portion of the dividend attributable to such fractional share.
(e) Restricted Payments; Dividend Arrearages. So long as any of the
----------------------------------------
shares of Series B Preferred Stock are outstanding, no dividends shall be paid
or declared, nor any distribution be made, on the Company's Common Stock, par
value $.0001 per share ("Common Stock"), nor shall any shares of Common Stock,
or any other security junior to the Series B Preferred Stock, be acquired by the
Company for consideration other than consideration constituting capital stock of
the Company, unless all dividends then payable on the Series B Preferred Stock
shall have been paid or declared and payment thereof provided for.
3. Liquidation Rights.
------------------
(a) Subject to the rights of the holders of the Series A Preferred
Stock or any other holders of outstanding shares of preferred stock having a
preferential right to dividends ranking superior to the rights of the holders of
record of shares of Series B Preferred Stock, in the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary (a
"Liquidation"), the holders of the Series B Preferred Stock shall be entitled to
receive a preferential amount equal to $1,000 for each share of Series B
Preferred Stock then held by them (subject to adjustment in the event of any
stock dividend, stock split, stock distribution or combination with respect to
such shares) (the "Liquidation Preference") plus an amount equal to any accrued
but unpaid dividends, prior and in preference to any such distribution to the
holders of the Common Stock or any other class or series of the Company's
capital stock ranking junior as to liquidation rights to the Series B Preferred
Stock; provided, however, that such rights shall accrue to the holders of Series
-------- -------
B Preferred Stock only in the event that the Company's payments with respect to
the liquidation preferences of the holders of the Series A Preferred Stock and
the holders of any other capital stock of the Company, if any, ranking senior as
to liquidation rights to the Series B Preferred Stock are fully met. Upon
receipt of payment of the Liquidation Preference, plus an amount equal to any
accrued unpaid dividends as set forth in the preceding sentence, the holders of
the Series B Preferred Stock shall have no further rights to participate in any
remaining assets of the Company. If upon the occurrence of a Liquidation the
assets and funds thus distributed among the holders of the Series B Preferred
Stock and the holders of any preferred stock ranking pari passu with the Series
---- -----
B Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amount to
-4-
<PAGE>
which such holders are entitled, then the entire assets of the Company legally
available for distribution shall be distributed among the holders of the Series
B Preferred Stock and the holders of any preferred stock ranking pari passu with
---- -----
the Series B Preferred Stock in proportion to the full preferential amount each
such holder is otherwise entitled to receive.
(b) A reorganization, consolidation or merger of the Company with or
into any other corporation or corporations, or a sale of all or substantially
all of the assets of the Company, shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 3.
4. Redemption.
----------
(a) Optional Redemption.
-------------------
(i) At any time on or after January 10, 2003, the Company may
redeem in whole, but not in part, the Series B Preferred Stock then outstanding,
if the Sale Price (as defined below) of the Common Stock in its principal
trading market is at least 175% of the then effective Conversion Price (as
defined below) in effect for 30 consecutive Trading Days ending not more than
ten Trading Days prior to the date the notice of redemption is mailed at the
redemption price per share equal to 100% of the Liquidation Preference, together
with any accrued and unpaid dividends on such shares. The Company shall effect
each such redemption pro rata according to the number of shares of Series B
Preferred Stock held by each holder thereof.
(ii) For purposes of this statement of designation, the date of
any redemption pursuant to subsection 4(a)(i) is hereinafter referred to as the
"Redemption Date." For purposes of this statement of designation, "Trading Day"
means a day on which the principal national securities exchange on which the
Common Stock is listed is open for the transaction of business or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
a day on which any New York Stock Exchange member firm is open for the
transaction of business; the "Sale Price" of Common Stock shall be the reported
closing price of the Common Stock on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the last reported sale price of the Common Stock on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq"), or, in the case no
such sale price is so reported on such day, the closing bid price quotation
therefor on the Nasdaq, or, in case no such
-5-
<PAGE>
quotation is available, the price determined in the good faith judgment of the
Board of Directors of the Company (irrespective of the accounting treatment
thereof).
(b) Redemption Procedures.
---------------------
(i) For purposes of this statement of designation, the
applicable redemption price per share at a Redemption Date is hereinafter
referred to as the "Redemption Price." At least 20 but not more than 60 days
prior to any Redemption Date, written notice shall be mailed, first class,
postage prepaid, to each holder of record of Series B Preferred Stock to be
redeemed, at his or its post office address last shown on the records of the
Company, notifying such holder of the number of shares so to be redeemed,
calling upon such holder to surrender to the Company, in the manner and at the
place designated, its certificate or certificates representing the shares to be
redeemed (such notice is hereinafter referred to as the "Redemption Notice") and
stating the Redemption Price for such shares to be redeemed. On or prior to each
Redemption Date, each holder of Series B Preferred Stock to be redeemed shall
surrender its certificate or certificates representing such shares to the
Company, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares, shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. From and after the
Redemption Date, unless there shall have been a default in payment of the
Redemption Price, all rights of the holders of the Series B Preferred Stock
designated for redemption in the Redemption Notice as holders of Series B
Preferred Stock of the Company (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Company or be deemed to be outstanding for any
purpose whatsoever.
(ii) Neither failure to mail a Redemption Notice, nor any defect
therein or in the mailing thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings for redemption with
respect to any other holder. Any Redemption Notice mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the holder receives the notice.
(iii) If the Redemption Notice has been given pursuant to this
Section 4 and any holder of shares of Series B Preferred Stock to be redeemed
shall, prior to the close of business on the Redemption Date, give written
notice to the Company pursuant to Section 7(c) of the conversion or any or all
of the shares to be redeemed held by the holder, then the redemption shall not
become effective as to the
-6-
<PAGE>
shares to be converted and the conversion shall become effective as provided in
Section 7(c), whereupon any funds deposited by the Company, or on its behalf,
with a paying agent or segregated and held in trust by the Company for the
redemption of such shares shall (subject to any right of the holder of such
shares to receive the dividend payable thereon as provided in Section 7 below)
immediately upon such conversion be returned to the Company or, if then held in
trust by the Company, shall be discharged from the trust.
(c) No other Permitted Redemptions; No Defaults; Retirement.
-------------------------------------------------------
(i) Except as expressly provided in paragraph (a) of this
Section 4, the Company shall have no right to redeem the shares of Series B
Preferred Stock.
(ii) No redemption shall be effected pursuant to this Section 4
if the effect of same would be to cause an event of default (or which, with
notice, lapse of time or both would constitute an event of default) under the
terms of any Indebtedness of the Company. For purposes of this statement of
designation, "Indebtedness" of the Company as of any date shall mean and include
all material recourse indebtedness for money borrowed of the Company or
evidenced by notes, bonds, debentures or similar evidences of indebtedness of
the Company.
5. Voting Rights.
-------------
(a) Each issued and outstanding share of Series B Preferred Stock
shall be entitled to receive notice of each meeting of the shareholders of the
Company and at each such meeting shall be entitled to the number of votes equal
to (i) $1,000, divided by (ii) the then effective Conversion Price with respect
to any and all matters presented to the shareholders of the Company for their
action or consideration. Except as provided by law or by the provisions of
subsection (b) below, holders of Series B Preferred Stock shall vote together
with the holders of Common Stock as a single voting group.
(b) (i) Whenever, at any time or times, cash dividends shall be in
arrears in an amount equal to six full consecutive quarterly dividends, the
holders of the outstanding Series B Preferred Stock shall have the exclusive
right, voting separately as a class, to elect one director of the Company at any
meeting of shareholders of the Company called for the purpose of electing
directors. Upon the vesting of such right of the holders of the Series B
Preferred Stock, any applicable number of directors of the Company set forth in
the Restated Articles of Incorporation or Restated Bylaws of the Company, as
determined pursuant thereto,
-7-
<PAGE>
shall automatically be increased by one and the vacancy so created shall be
filled immediately by vote of the holders of a majority of the outstanding
Series B Preferred Stock as hereinabove set forth. Such right of the holders of
the Series B Preferred Stock, voting separately as a class, to elect one member
of the Board of Directors of the Company as aforesaid shall continue until such
time as all cash dividends accumulated on the Series B Preferred Stock shall
have been paid in full, at which time such right shall terminate, subject to
revesting in the event of each and every subsequent default of the character
above mentioned.
(ii) Upon any termination of the right of the holders of the Series B
Preferred Stock as a class to vote for directors as herein provided, the term of
office of any director then in office elected by the holders of Series B
Preferred Stock voting pursuant to this Section 5 as a class shall terminate
immediately.
(iii) If the office of any director elected by the holders of the
Series B Preferred Stock voting as a class becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise, the
holders of the Series B Preferred Stock voting separately as a class may elect a
successor who shall hold office for the unexpired term in respect of which such
vacancy occurred. Whenever the term of office of the Director elected by the
holders of the Series B Preferred Stock voting as a class shall end and the
special voting powers vested in the holders of the Series B Preferred Stock as
herein provided shall have expired, the number of directors shall be such a
number as may be provided for in the Restated Articles of Incorporation or
Restated Bylaws of the Company, or determined pursuant thereto, irrespective of
any increase made pursuant to the foregoing provisions.
(c) The Company shall not amend, alter or repeal the preferences,
including by way of any merger or consolidation, special rights or other powers
of the Series B Preferred Stock so as to affect adversely the Series B Preferred
Stock, without the written consent or affirmative vote of the holders of at
least a majority of the then outstanding aggregate number of shares of Series B
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a voting group.
(d) Notwithstanding the foregoing clause (c), the Company shall not
increase the number of authorized shares of preferred stock or create another
series of the preferred stock, in each case ranking prior to or pari passu with
---- -----
the Series B Preferred Stock as to dividends or as to distribution of assets,
without the written consent or affirmative vote of the holders of at least 75%
of the then outstanding
-8-
<PAGE>
aggregate number of shares of Series B Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
voting group.
6. Conversion. The holders of the Series B Preferred Stock shall have
----------
conversion rights as follows (the "Series B Conversion Rights"):
(a) Optional Conversion. Each share of Series B Preferred Stock may
-------------------
be converted at any time, and from time to time, at the option of the holder
thereof, in the manner hereinafter provided, into such number of shares of
fully-paid and nonassessable shares of Common Stock as shall equal (i) the
Liquidation Preference per share of Series B Preferred Stock divided by (ii) the
then effective Series B Conversion Price (as defined below); provided,
--------
however, that upon any redemption of any Series B Preferred Stock or any
- -------
liquidation of the Company, the right of conversion, if not sooner exercised,
shall terminate at the close of business on the business day preceding the date
fixed for such redemption or for the payment of any amounts distributable on
liquidation to the holders of Series B Preferred Stock.
(b) Conversion Price. The initial conversion price (the "Series B
----------------
Conversion Price") shall be equal to $7.22 per share, subject to adjustment as
provided in Section 7.
(c) Conversion Mechanics.
--------------------
(i) In order to exercise the conversion privilege, the holder of
any Series B Preferred Stock to be converted shall surrender his or its
certificate or certificates therefor to the principal office of the transfer
agent for the Series B Preferred Stock (or if no transfer agent is at the time
appointed, then the Company at its principal office), and shall give written
notice to the Company at such office that the holder elects to convert the
Series B Preferred Stock represented by such certificates, or any number
thereof. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, subject to any restriction on
transfer relating to shares of the Series B Preferred Stock or shares of Common
Stock upon conversion thereof. If so required by the Company, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Company, duly
authorized in writing. The "Conversion Date" for any such conversion shall be
the date of receipt by the transfer agent (or by the Company if the Company
serves as its own transfer agent) of the certificates and notice of conversion.
As soon as practicable after receipt of such notice and the surrender of the
certificate or certificates for Series B Preferred Stock as aforesaid, the
Company shall cause to be issued and delivered at such office
-9-
<PAGE>
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in paragraph (ii) of
this Section 6(c) in respect of any fraction of a share of Common Stock
otherwise issuable upon such conversion.
(ii) The Company shall not issue fractions of shares of Common Stock
upon conversion of Series B Preferred Stock or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph (ii), be issuable upon conversion of any Series B Preferred Stock, the
Company shall in lieu thereof pay to the person entitled thereto an amount in
cash equal to the current value of such fraction, calculated to the nearest one-
thousandth (1/1000) of a share, to be computed (1) if the Common Stock is listed
on any national securities exchange on the basis of the last closing price of
the Common Stock on such exchange (or the quoted closing bid price if there
shall have been no sales) on the Conversion Date, or (2) if the Common Stock
shall not be listed, on the basis of the last reported sale price of the Common
Stock as reported by Nasdaq, or its successor, on the Conversion Date and if
there is not such a last reported sale price, on the basis of the fair market
value per share as determined by the Board of Directors of the Company.
(iii) The Company shall at all times when the Series B Preferred
Stock shall be outstanding reserve and keep available out of its authorized but
unissued stock, for the purposes of effecting the conversion of the Series B
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series B Preferred Stock.
(iv) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices, to vote and to receive accrued and unpaid dividends,
shall forthwith cease and terminate except only the right of the holder thereof
to receive shares of Common Stock in exchange therefor.
7. Anti-dilution Provisions. The Series B Conversion Price shall be
------------------------
subject to adjustment from time to time as follows:
(a) Issuances of Additional Stock.
-----------------------------
-10-
<PAGE>
(i) If the Company shall issue any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Series B Conversion Price in effect immediately prior to the issuance of such
Additional Stock, the Series B Conversion Price upon such issuance (except as
otherwise provided in this Section 7(a) shall be adjusted (unless such
adjustment is waived by written agreement of the holders of a majority of the
outstanding shares of Series B Preferred Stock), to a price equal to the
quotient obtained by dividing the total computed under clause (A) below by the
total computed under clause (B) below as follows:
(A) an amount equal to the sum of (1) the result obtained by
multiplying the number of shares of Common Stock deemed outstanding immediately
prior to such issuance (which shall include the actual number of shares
outstanding plus all shares issuable upon the conversion or exercise of all
outstanding convertible securities, warrants and options) by the Series B
Conversion Price then in effect, and (2) the aggregate consideration, if any,
received by the Company upon the issuance of such Additional Stock;
(B) the number of shares of Common Stock of the Company
outstanding immediately after such issuance (including the shares deemed
outstanding as provided above).
(ii) No adjustment of the Series B Conversion Price shall be made in
an amount less than $.01 per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be taken into account in any subsequent adjustment made to the Series B
Conversion Price. Except as provided in subsections 7(a)(v)(C) and (D) below,
no adjustment of the Series B Conversion Price shall have the effect of
increasing the Series B Conversion Price above the Series B Conversion Price in
effect immediately prior to such adjustment.
(iii) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid before deducting any
discounts, commissions or other expenses allowed, paid or incurred by the
Company for any underwriting or otherwise in connection with its issuance and
sale.
(iv) In the case of the issuance of Common Stock for consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be its fair value as determined by the Board irrespective of any
accounting treatment.
-11-
<PAGE>
(v) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities (which options, rights, convertible
or exchangeable securities are not excluded from the definition of Additional
Stock), the following provisions shall apply:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued for a consideration equal to the consideration (determined in
the manner provided in Sections 7(a)(iii) and (iv) above) received by the
Company upon the issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common Stock covered thereby,
but no further adjustment to the Series B Conversion Price shall be made for the
actual issuance of Common Stock upon the exercise of such options or rights in
accordance with their terms;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights, plus the additional consideration, if
any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in Sections 7(a)(iii) and
(iv) above), but no further adjustment to the Series B Conversion Price shall be
made for the actual issuance of Common Stock upon the conversion or exchange of
such securities in accordance with their terms;
(C) if such options, rights or convertible or exchangeable
securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Series B Conversion Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such increase
or decrease becoming effective, be recomputed to reflect such increase or
decrease with respect to such options, rights and securities not already
exercised, converted or exchanged prior to such increase or decrease becoming
effective, but no further adjustment to the Series B Conversion Price shall be
made for the actual issuance of Common Stock
-12-
<PAGE>
upon the exercise of any such options or rights or the conversion or exchange of
such securities in accordance with their terms;
(D) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series B Conversion Price shall promptly be readjusted to such Series B
Conversion Price as would have been obtained had the adjustment which was made
upon the issuance of such options, rights or securities or options or rights
related to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities; and
(E) if any such options or rights shall be issued in connection
with the issue and sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is allocated to such
options or rights by the parties thereto, such options or rights shall be deemed
to have been issued for such consideration as determined in good faith by the
Board.
(vi) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to Section 7(a)(v)) by the Company after
December 10, 1999 other than
(A) Common Stock issued pursuant to a transaction described in
Section 7(b) or (c);
(B) up to 600,000 shares in the aggregate of Common Stock and
options or warrants therefor, issued (i) to directors, officers, employees or
consultants of the Company pursuant to a stock option, stock purchase or other
equity incentive plan or agreement approved by the Board of Directors of the
Company, (ii) upon the repricing of options pursuant to a plan to reprice such
stock options, stock purchase or other equity incentive plans or agreements
where such repricing has been approved by the Board of Directors of the Company,
(iii) to financial institutions or lessors in connection with commercial credit
arrangements, real property or other financing arrangements or similar
transactions approved by the Board of Directors, and (iv) to vendors or
suppliers of the Company pursuant to an agreement approved by the Board of
Directors of the Company;
(C) Common Stock issued or issuable upon conversion of Series A
Preferred Stock or Series B Preferred Stock;
-13-
<PAGE>
(D) Common Stock issuable upon commitments to issue Common Stock
outstanding on December 30, 1999; and
(E) Such additional securities that are designated as excluded
from the definition of Additional Stock by the written consent of holders of a
majority of the outstanding Series B Preferred Stock;
(b) Stock Dividends. In case shares of Common Stock are issued after
---------------
the Initial Issuance Date as a dividend or other distribution on any class of
capital stock of the Company, the Conversion Price shall be reduced by
multiplying the Conversion Price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution.
(c) Subdivisions and Combinations. In case outstanding shares of
-----------------------------
Common Stock shall be subdivided into a greater number of shares of Common Stock
or combined into a smaller number of shares of Common Stock, the Conversion
Price shall be reduced (in the event of a subdivision) or increased (in the
event of a combination), by multiplying the Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date immediately preceding the effective date of
such subdivision or combination and the denominator shall be the number of
shares of Common Stock outstanding immediately after such subdivision or
combination becomes effective.
(d) Extraordinary Dividends, etc. In case the Company distributes, as
-----------------------------
dividends or otherwise, to any holders of its capital stock evidences of its
indebtedness or assets (excluding any dividend or distribution which is
permitted by Section 2 hereof and excluding regular quarterly cash dividends on
the Common Stock not in excess of 5% of the Conversion Price as adjusted from
time to time per share per annum), the Conversion Price shall be reduced,
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution, by multiplying the
Conversion Price by a fraction of which the numerator shall be (x) the Fair
Market Value per share of the Common Stock less (y) the Fair Market Value of
such distribution, and the denominator shall be the Fair Market Value per share
of the Common Stock.
As used in this Section 7, "Fair Market Value" means:
-14-
<PAGE>
(i) in the case of securities for which a public market exists,
the average, computed over the 30 trading days preceding the date as of which
valuation is required, of (A) each day's closing price for such securities as
reported by the principal national securities exchange on which such securities
are listed, (B) if such securities are not traded on a national securities
exchange, each day's mean of the closing bid and ask prices for such securities
as reported by the Nasdaq National Market System, (C) if such securities are not
traded over such exchange or System, each day's mean of the closing bid and ask
prices for such securities as reported by Nasdaq, and (D) if such securities are
not traded on any such exchange or System or reported by Nasdaq, each day's mean
of the closing bid and ask prices as reported by the National Quotation Bureau;
and
(ii) in the case of securities for which no public market exists
and in all other cases, as determined in the good faith judgment of the Board of
Directors of the Company (irrespective of the accounting treatment thereof).
(e) Reorganization, Reclassification, Merger and Consolidation. In
----------------------------------------------------------
case of any capital reorganization or any reclassification of the capital stock
of the Company (other than a subdivision or combination of its outstanding
shares of Common Stock) or in case of the consolidation or merger of the Company
with another corporation or the sale of all or substantially all of the assets
of the Company, each share of Series B Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
of the Company, or of the successor corporation resulting from such
consolidation or merger, as the case may be, to which the Common Stock
deliverable upon conversion of such share of Series B Preferred Stock would have
been entitled upon such capital reorganization, reclassification of capital
stock, consolidation or merger or sale of assets; and, in any such case,
appropriate adjustments (as determined by the Board of Directors of the Company)
shall be made consistent with the application of the provisions herein set forth
with respect to rights and interests thereafter of the holders of the Series B
Preferred Stock, to the end that the provisions set forth herein (including the
specified change in and other adjustments of the Conversion Price) shall
thereafter be applicable, as near as reasonably may be, in relation to any
shares or other property thereafter deliverable upon the conversion of the
Series B Preferred Stock.
(f) Notice of Adjustments. Whenever the Conversion Price is adjusted
---------------------
as provided in this Section 7, the Company shall forthwith file with the
transfer agent for the Common Stock a statement signed by the chief financial
officer for the Company stating that the Conversion Price shall be the price as
adjusted pursuant to Section 7. Such statement shall include a statement of the
then current total amount of Fully Diluted Common Shares and the total amount of
Fully Diluted
-15-
<PAGE>
Common Shares issued after the Closing Date. Whenever the Conversion Price is so
adjusted, the Company shall cause written notice thereof to be mailed to the
holders of record of the outstanding Series B Preferred Stock within 20 days of
such adjustment.
(g) Notice of Events. In case:
----------------
(i) the Company shall declare any dividend payable in stock
upon its Common Stock or make any distribution (other than cash dividends or
distributions) to the holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(iii) of any capital reorganization or reclassification of the
capital stock of the Company (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or merger to which
the Company is a party and for which approval of any shareholders of the Company
is required or of the sale of all or substantially all of the assets of the
Company; or
(iv) of the Liquidation or voluntary or involuntary dissolution
of the Company,
then, and in any one of said cases, the Company shall cause at least ten
days' prior notice to be mailed to the holders of record of the outstanding
Series B Preferred Stock as of the date on which the books of the Company shall
close, or a record be taken for such stock dividend, distribution or
subscription rights or the date on which such reorganization, reclassification,
consolidation, merger, sale, Liquidation or dissolution is expected to become
effective. Such notice shall also specify the date as of which holders of
Common Stock of record shall participate in said dividend, distribution or
subscription rights, or the date as of which it is expected that holders of
capital stock shall be entitled to exchange their shares for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, Liquidation or dissolution.
(h) If, as a result of an adjustment to the Conversion Price in
accordance with Section 7 the Series B Conversion Price is less than $6.0625 per
share (the "Triggering Adjustment"), the Company shall:
-16-
<PAGE>
(i) with respect to up to 2,070,072 shares of Common Stock, issue up
to such number of shares in the event holders elect to convert the Series B
Preferred Stock;
(ii) with respect to shares in excess of 2,070,072 shares of Common
Stock (such excess shares being referred to herein as the ("Additional Shares"),
obtain either
(A) written confirmation from the American Stock Exchange
("Exchange Confirmation") that the approval of the shareholders of the Company
is not required under American Stock Exchange Rule 713 (or any successor rule)
prior to the issuance of any of the Additional Shares (or if the Common Stock is
not then listed on the American Stock Exchange, such written confirmation shall
be obtained from the principal market on which the Common Stock is then listed
for trading) and a copy of such Exchange Confirmation shall be delivered to the
holders by the Company, or
(B) shareholder approval for the issuance of the Additional
Shares (the "Shareholder Approval") as required by American Stock Exchange Rule
713 (or any successor rule), or
(C) if the Common Stock is not listed on the American Stock
Exchange or other national securities exchange or trading market, a written
opinion of counsel experienced in securities law matters to the effect that
shareholder approval is not required prior to the issuance of the Additional
Shares upon conversion of the Series B Preferred Stock (the "Opinion").
(i) The Company will use its reasonable best efforts to obtain shareholder
approval for the issuance of the Additional Shares at its next regularly
scheduled annual meeting of shareholders. In the alternative, if such
Shareholder Approval is not obtained or if the Exchange Confirmation or Opinion,
as the case may be, is not obtained within 180 days following the Triggering
Adjustment, then following such 180 day period,
(i) the Initial Accrual rate or the Final Accrual Rate, as the case
may be, shall be increased to 12% and 14% per annum, as the case may be, the
amount of such increase to be payable in cash, and
(ii) the holders of the Series B Preferred Stock shall have the option
to require the company to repurchase all or a portion of the Series B Preferred
Stock, at a price equal to the Liquidation Preference, with dividends calculated
at the accrual rate determined from the date following the expiration of the 60-
day period
-17-
<PAGE>
referred to above in accordance with paragraph (i)(i). The option to have the
Series B Preferred Stock repurchased pursuant to this paragraph (i)(ii) may be
exercised by a holder by executing and delivering to the Company a notice
substantially in the form attached to the Series B Preferred Stock certificate.
The repurchase date for shares to be repurchased shall be the 10th day following
the date on which shares of Series B Preferred Stock are delivered to the
Company for repurchase pursuant to this paragraph (i)(ii).
(j) Notwithstanding the provisions of paragraph (i), if the Company
obtains the Exchange Confirmation, Shareholder Approval or Opinion contemplated
by paragraph (a)(ii) and the Series B Preferred Stock remains outstanding and no
conversion requiring the issuance of any of the Additional Shares has been
requested, the Initial Accrual Rate or the Final Accrual Rate, as the case may
be, shall be reduced to the respective rates set forth in Section 2 and the
right of the holders to require the Company to repurchase the Series B Preferred
Stock set forth in paragraph (i)(ii) shall cease, in each case immediately upon
delivery of the Exchange Approval or Opinion to the holders or upon the
Shareholder Approval being obtained and written notice thereof being given to
the holders, as the case may be.
(k) At the election of the holders of the Series B Preferred Stock,
the remedies provided in paragraph (i) upon the occurrence of a Triggering
Adjustment may be waived at any time. In the event of such a waiver, the Series
B Conversion Price shall not be the price per share giving rise to the
Triggering Adjustment, but shall instead be a price of not less than $6.0625 per
share and the restriction on the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock set forth in paragraph (a)(i) shall
not apply. Waiver of the remedies set forth in paragraph (b) may be made by the
holders by executing and delivering to the Company a waiver and notice of
election to convert all of the Series B Preferred Stock substantially in the
forms attached to the Series B Preferred Stock certificate.
8. Special Right of Redemption Upon Change in Control.
---------------------------------------------------
(a) If a Change in Control (as defined below) should occur with respect to
the Company, each holder of shares of the Series B Preferred Stock shall have
the right, at the holder's option, for a period of 45 days after the mailing of
a notice by the Company that a Change in Control has occurred, to require the
Company to repurchase all, or any portion, of such holder's shares of the Series
B Preferred Stock for a price per share equal to 100% of the Liquidation
Preference thereof (the "Repurchase Price").
-18-
<PAGE>
(b) If a Change in Control shall occur, then, as soon as practicable and
in any event within 30 days after the occurrence of such Change in Control, the
Company shall mail to each registered holder of a share of Series B Preferred
Stock a notice setting forth details regarding the special right of the holders
to have their shares of Series B Preferred Stock repurchased as a result of such
Change in Control (the "Special Right Notice"). A holder of a share of Series B
Preferred Stock must exercise such repurchase right within the 45 day period
after the mailing of the Special Right Notice by the Company or such special
right shall expire. The repurchase date for shares so repurchased shall be the
45th day after the mailing of the Special Right Notice. Exercise of such
repurchase right shall be irrevocable and no dividend on the shares of Series B
Preferred Stock tendered for repurchase shall accrue from and after the
repurchase date.
(c) The Special Right Notice shall state: (i) the event constituting the
Change in Control, (ii) the last date upon which holders may submit shares of
Series B Preferred Stock for repurchase, (iii) the Repurchase Price, (iv) the
Conversion Price then in effect under Section 6 and the continuing conversion
rights, if any, under Section 6, (v) the name and address of any paying agent
and conversion agent, (vi) that exercise of such conversion right shall be
irrevocable and no dividends on shares of Series B Preferred Stock tendered for
conversion shall accrue from and after the conversion date, and (vii) that the
consideration to be received shall be delivered within five business days after
the last date upon which holders may submit Series B Preferred Stock for
conversion.
(d) As used herein, a "Change in Control," means (i) the acquisition by
any person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (including,
without limitation for this purpose, Daniel R. Baty or any person or entity
controlled by Daniel R. Baty) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of securities that would entitle
such person, entity or group to appoint or elect a majority of the Board of
Directors of the Company; or (ii) individuals, who, as of the initial Issuance
Date, constitute the Board (as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Initial Issuance Date whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board shall be, for purposes of this definition, considered as though such
person were a member of the Incumbent Board; or (iii) the sale of all or
substantially all of the assets of the Company which does not also result in the
continued operation or management of such assets by the Company.
-19-
<PAGE>
9. No Reissuance of Series B Preferred Stock.
--------------------------------------------
All shares of Series B Preferred Stock acquired by the Company by reason of
redemption, exchange, conversion, purchase or otherwise shall be retired as
Series B Preferred Stock (and the number of authorized shares of Series B
Preferred Stock shall be decreased to reflect such retirement) and the retired
shares shall resume the status which they had prior to the adoption of this
resolution fixing the number of shares of Series B Preferred Stock.
-20-
<PAGE>
EXHIBIT 4.3
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of December 30, 1999 (the "Agreement"),
by and among Emeritus Corporation, a Washington corporation (the "Company"),
Daniel R. Baty and B.F., Limited Partnership (collectively, "Baty"), Saratoga
Partners IV, L.P., a Delaware limited partnership ("Saratoga") and certain other
investors who will become a party to this Agreement by execution of the Joinder
Agreement attached hereto as Exhibit A (the "Saratoga Co-Investors" and,
together with Saratoga and all successors and assignees by Saratoga pursuant to
Section 5.4, the "Saratoga Group").
R E C I T A L S:
- - - - - - - -
A. The Company and Saratoga are parties to a Series B Preferred Stock
Purchase Agreement, dated as of December 10, 1999, between the Company, as
seller, and Saratoga, as purchaser (the "Purchase Agreement"), pursuant to which
the Company is issuing and Saratoga is acquiring 40,000 shares of the Company's
Series B Convertible Preferred Stock, par value $.0001 per share (the "Series B
Preferred Stock").
B. The parties hereto desire to provide for, among other things, certain
matters relating to the management of the Company, the ownership and transfer of
the Series B Preferred Stock and the rights and remedies of Saratoga.
A G R E E M E N T:
- - - - - - - - -
The parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
Definitions. The following terms, as used herein, have the following
-----------
meanings:
"Affiliate" means, as to any Person, any other Person directly or
---------
indirectly Controlling, Controlled by or under direct or indirect common Control
with such Person.
"Baty" is defined in the first paragraph of this Agreement.
----
"Capital Stock" means the Series B Preferred Stock and any Common Stock
-------------
into which the Series B Preferred Stock is convertible.
<PAGE>
"Change of Control" means, as to any Person, a change, shift or transfer of
-----------------
Control with respect to such Person (including any change in the Control of any
entity Controlling such Person).
"Common Stock" means the common stock, par value $.0001 per share, of the
------------
Company.
"Company" is defined in the first paragraph of this Agreement.
-------
"Control" means the possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management and policies of a Person,
whether through the ownership of securities, partnership interests or by
contract, assignment or otherwise. The terms "Controlling" and "Controlled"
shall have meanings correlative to the foregoing.
"Designation" means that certain statement of rights and preferences and
-----------
other characteristics of the Series B Preferred Stock pursuant to which the
Series B Preferred Stock was authorized by the Company.
"Initial Saratoga Directors" shall mean Charles P. Durkin, Jr. and David
--------------------------
W. Niemiec.
"1933 Act" means the Securities Act of 1933, as amended.
--------
"1934 Act" means the Securities Exchange Act of 1934, as amended.
--------
"Person" means an individual, a corporation, a partnership, an association,
------
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Saratoga" is defined in the first paragraph of this Agreement.
--------
"Saratoga Directors" shall mean the Initial Saratoga Directors and any
------------------
person chosen by Saratoga to be added to the Company's Board of Directors as a
separate class to be designated by Saratoga as provided for herein.
"Series B Preferred Stock" is defined in Recital A of this Agreement.
------------------------
"Subsidiaries" means, with respect to any Person, (i) a corporation, a
------------
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a Subsidiary of such Person or by such Person and a Subsidiary thereof or
(ii) any other Person (other than a corporation) in which such Person, a
Subsidiary thereof or such Person and a Subsidiary
-2-
<PAGE>
thereof, directly or indirectly, at the date of determination thereof has at
least a majority ownership interest.
"Tag-Along Sale" is defined in Section 2.2(a) of this Agreement.
--------------
"Tag-Along Sale Date" is defined in Section 2.2(b) of this Agreement.
-------------------
"Transfer" means any direct or indirect transfer, sale, conveyance, pledge,
--------
hypothecation or other disposition, including, without limitation, any of the
foregoing which occurs by virtue of any Change of Control.
ARTICLE II
SARATOGA TRANSFERS: TAG-ALONG RIGHTS
------------------------------------
SECTION 2.1. Saratoga Transfers.
------------------
The Saratoga Group will not, in one transaction or a series of
transactions, Transfer 25% or more of its Capital Stock to any Person (including
its Affiliates) or group (as that term is defined in Section 13(d)(3) of the
1934 Act) unless such Person or group, as a condition to closing such Transfer,
shall enter into an agreement reasonably satisfactory to the Company to be bound
by the provisions of Article IV of this Agreement; provided, however, that any
-------- -------
Person or group who acquires and beneficially owns less than 5% of the total
outstanding shares of Common Stock of the Company shall not be required to enter
into such agreement.
SECTION 2.2. Tag-Along Provisions.
--------------------
(a) If at any time Baty shall receive and determine to accept any offer
from any Person to purchase or otherwise transfer for value, in one transaction
or a series of transactions, shares of Common Stock representing 30% or more of
the Common Stock then owned by Baty (a "Tag-Along Sale"), then Baty shall afford
the Saratoga Group the opportunity to participate in such Tag-Along Sale in the
manner set forth in this Section 2.2.
(b) Baty shall provide the Saratoga Group with written notice of the
proposed Tag-Along Sale that sets forth the number of shares of Common Stock
proposed to be sold, the price at which they are to be sold, and any other terms
or conditions of the offer, not more than 60 days nor less than 20 days before
the proposed date of the Tag-Along Sale (the "Tag-Along Sale Date").
(c) The Saratoga Group shall have the right to cause Baty to condition the
Tag-Along Sale on the simultaneous purchase by the purchaser of such number of
shares of Capital Stock beneficially owned by the Saratoga Group, whether such
purchaser
-3-
<PAGE>
purchases Preferred Stock or Common Stock issuable upon conversion of the
Preferred Stock, as the Saratoga Group shall designate in a written notice to
Baty no less than 10 days after the notice given in accordance with Section
2.2(b); provided, however, that the Saratoga Group may not so designate for
-------- -------
purchase a number of shares of Common Stock greater than the number of shares
determined as follows: the total number of shares offered to be purchased in
the Tag-Along Sale shall be multiplied by a fraction, the numerator of which is
the number of shares owned by the Saratoga Group and the denominator of which is
the sum of the number of shares owned by the Saratoga Group plus the number of
shares owned by Baty. The number of Baty shares to be sold pursuant to the Tag-
Along Sale shall be reduced by the number of shares which the Saratoga Group
elects to sell as permitted by the foregoing calculation. The purchase price
for each share of the Company's Capital Stock to be sold by the Saratoga Group
in the Tag-Along Sale and the terms of such purchase shall be the same as those
applicable to Baty. The number of shares owned by the Saratoga Group shall be
determined as if the Preferred Stock were converted into Common Stock in
accordance with its terms.
(d) Each member of the Saratoga Group shall be allowed to designate for
sale a number of shares equal to its percentage of ownership of the total number
of shares owned by the Saratoga Group multiplied times the total number of
shares the Saratoga Group may sell pursuant to the Tag-Along Sale; provided,
--------
that if a member or members of the Saratoga Group declines to participate in
such Tag-Along Sale, each participating member of the Saratoga Group may
designate for sale additional shares in a percentage equal to its percentage of
ownership of the total number of shares owned by the Saratoga Group until all of
the Shares allowed to be sold under Section 2.2(c) are offered for sale or all
members of the Saratoga Group decline to participate in the sale of such
additional shares.
SECTION 2.3. Transfers to Comply with Laws. Notwithstanding any contrary
-----------------------------
provision herein, the Saratoga Group may not Transfer or offer to Transfer any
shares of Capital Stock (or solicit any offers to Transfer any shares of Capital
Stock), except in compliance with the 1933 Act, as amended, and rules and
regulations promulgated thereunder and in compliance with any applicable state
securities laws and rules and regulations promulgated thereunder.
ARTICLE III
BOARD OF DIRECTORS; CORPORATE GOVERNANCE
----------------------------------------
SECTION 3.1. Board of Directors. (a) From and after the date hereof, the
------------------
Company and Baty shall take all such action as may be necessary to increase the
number of directors comprising the Company's Board of Directors so as to allow
for the nomination and election of the Saratoga Directors at the times and as
specified below:
-4-
<PAGE>
(i) as soon as practicable after the execution of this Agreement,
the Initial Saratoga Directors shall be added to the Company's Board of
Directors; and
(ii) from time to time, at Saratoga's request, additional Saratoga
Directors shall be added to the Company's Board of Directors so as to maintain
Saratoga's board representation at a percentage of the entire Board of Directors
(rounded up to the nearest whole director) that is not less than the percentage
of total voting power of the Company's equity securities attributable to the
Series B Preferred Stock owned by the Saratoga Group, provided, however,
-------- -------
the number of Saratoga Directors shall not be less than two, subject to Section
3.1(b).
(b) Saratoga's right to have one or more Saratoga Directors added to the
Company's Board of Directors will terminate if (i) (x) it has sold of record in
excess of 50% of its initial investment in the Capital Stock and (y) the
remaining shares of Capital Stock held by Saratoga represents less than 5% of
the outstanding Common Stock (on a fully diluted basis), or (ii) Saratoga is
unable to exercise independent voting control over the shares of Capital Stock
owned by it.
(c) The right of Saratoga to designate individuals to serve on the
Company's Board of Directors granted by this Section 3.1 shall be in addition to
the rights of holders of Series B Preferred Stock to designate and elect members
to the Company's Board of Directors in the event of certain failures to pay
accrued and unpaid dividends set forth in the Designation.
SECTION 3.2. Corporate Governance. For so long as Saratoga retains the
--------------------
power to vote the shares comprising at least 50% of its initial investment,
(a) approval by the Company's Board of Directors will be required for all
material decisions, including, but not limited to, the following:
(i) any financing, acquisition or development by the Company or its
Subsidiaries or the incurrence by the Company or any of its Subsidiaries of any
indebtedness in an amount in the aggregate exceeding $15 million for each
unrelated transaction.
(ii) the liquidation, dissolution, winding up or voluntary filing of
a petition for bankruptcy of the Company or any of its Subsidiaries;
(iii) a sale or other disposition of all or substantially all of the
assets of the Company, other than to any of its Subsidiaries;
-5-
<PAGE>
(iv) the merger or consolidation of the Company, other than any such
merger or consolidation between or among any of the Company (so long as the
Company shall be the surviving corporation) and any Subsidiary of the Company;
(v) the entry by the Company or a Subsidiary into any material
transaction with an Affiliate;
(vi) the issuance of any voting equity security of the Company,
other than upon conversion of any convertible securities of the Company
outstanding on the date hereof or issued pursuant to the Company's stock
compensation plans in effect on the date hereof; and
(vii) the declaration of any dividends with respect to the Common
Stock, or establishment of any Common Stock repurchase program.
(b) approval by Saratoga will be required to use the proceeds from the
sale of the Series B Preferred Stock for any purpose other than that specified
in Section 6.3 of the Purchase Agreement.
ARTICLE IV
STANDSTILL PROVISIONS
---------------------
SECTION 4.1. Restrictions of Certain Actions
-------------------------------
(a) Neither the Saratoga Group nor Baty will, nor will the Saratoga Group
or Baty permit their respective Affiliates to, singly or as part of a
partnership, limited partnership, syndicate or other group (as those terms are
defined in Section 13(d)(3) of the 1934 Act), directly or indirectly acquire,
offer to acquire, or agree to acquire, by purchase, gift or otherwise, any
voting securities of the Company, so that after such purchase Baty's or the
Saratoga Group's ownership of the Company would, (i) in the case of the Saratoga
Group, exceed 110% of the number of shares of Common Stock beneficially owned by
the Saratoga Group immediately following the consummation of the transactions
described in the Purchase Agreement plus the shares of Series B Preferred Stock
(or the underlying Common Stock once converted) issued to the Saratoga Group as
stock dividends (which aggregate number shall be appropriately adjusted pursuant
to the antidilution provisions of the Series B Preferred Stock) and (ii) in the
case of Baty, the greater of: (x) exceed 110% of the number of shares of Common
Stock beneficially owned by Baty immediately following execution of the Purchase
Agreement or (y) exceed 100% of the number of shares of Common Stock
beneficially owned by the Saratoga Group immediately following the consummation
of the transactions described in the Purchase Agreement plus the shares of
Series B Preferred Stock (or the underlying Common Stock once converted) issued
to the Saratoga Group as stock dividends (which
-6-
<PAGE>
aggregate number shall be appropriately adjusted pursuant to the antidilution
provisions of the Series B Preferred Stock). For purposes of this Section 4.1,
Saratoga's ownership of voting securities shall be determined as if the shares
of Preferred Stock were converted to Common Stock in accordance with their
terms. The acquisition by Baty of voting securities as contemplated by this
Section shall constitute an acquisition of securities for the purpose of making
any determination of whether a Change of Control (as defined in Section 8 of the
Certificate of Designation of the Series B Preferred Stock) has occurred
pursuant to the Certificate of Designation of the Series B Preferred Stock.
(b) If the Saratoga Group or Baty, as the case may be, or any of their
respective Affiliates owns or acquires any voting securities in violation of
this Agreement, such voting securities shall immediately be disposed of to
persons who are not Affiliates of the Saratoga Group or Baty, as the case may
be, but only in compliance with the provisions of this Agreement; provided, that
--------
the Company may also pursue any other available remedy to which it may be
entitled as a result of such violation.
(c) Saratoga and Baty, as the case may be, will cause any Person
(including its Affiliates) or group (as that term is defined in Section 13(d)(3)
of the 1934 Act) acquiring Capital Stock from the Saratoga Group or Baty, as the
case may be, representing more than 25% of their respective beneficial ownership
interests as of the date hereof to agree to be bound by provisions similar to
those contained in this Article IV; provided, however, that any Person or group
-------- -------
who acquires and beneficially owns less than 5% of the total outstanding shares
of Common Stock of Company shall not be required to enter into such agreement.
(d) The provisions of this Article IV will terminate 18 months after the
date on which the Saratoga Group ceases to hold Capital Stock representing 5% of
the outstanding Common Stock (on a fully diluted basis).
ARTICLE V
MISCELLANEOUS
-------------
SECTION 5.1. Legends. Each certificate evidencing any of the Series B
-------
Preferred Stock shall bear a legend substantially as follows:
The shares represented by this certificate are subject to the terms
and conditions of a certain Shareholders' Agreement dated as of
December 30, 1999, as at any time amended, which Shareholders'
Agreement contains, among other things, certain restrictions on the
transfer of such shares and restrictions on acquiring additional
securities of the Company. A copy of such Shareholders' Agreement is
on file at the principal executive office of the Company and will
-7-
<PAGE>
be furnished to the holder of this certificate upon request and
without charge.
SECTION 5.2. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given to such party at its address or facsimile number set forth on
the signature pages hereof or such other address or facsimile number as such
party may hereafter specify for the purpose by notice to the party sending the
communication. Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is transmitted to the
facsimile number specified in this Section and receipt is confirmed, (ii) if
given by mail, 72 hours after such communication is deposited in the mail
registered or certified, return receipt requested, with postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered at
the address specified in this Section.
SECTION 5.3. Amendments and Waivers. Any provision of this Agreement may
----------------------
be amended if, but only if, such amendment is in writing and is signed by all of
the parties hereto. Any provision of this Agreement may be waived if, but only
if, such waiver is in writing and is signed by each of the parties hereto.
SECTION 5.4. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no assignment of
-------- -------
rights under this Agreement will be valid unless made in connection with a
contemporaneous Transfer of Capital Stock which is not prohibited by this
Agreement; and provided further, that an assignee executes and delivers to the
-----------------
Company a joinder agreement substantially in the form of Exhibit A hereto
(whereupon such assignee shall be subject to the terms of, and be entitled to
the rights and benefits of, this Agreement without any further signature or
acknowledgment of the other parties to this Agreement). The Company may not
assign or otherwise transfer any of its rights or obligations under this
Agreement.
SECTION 5.5. Captions. The captions of this Agreement are included for
--------
convenience of reference only, do not constitute a part hereof and shall be
disregarded in the construction hereof.
SECTION 5.6. Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 5.7. GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS.
-8-
<PAGE>
(b) THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, Saratoga (or its agents) shall be entitled to protect and enforce
their rights at law, or in equity or by other appropriate proceedings for
specific performance of such obligation, or for an injunction against such
breach or default, or in aid of the exercise of any power or remedy granted
hereby or thereby or by law.
SECTION 5.8 Submission to Jurisdiction; Venue
---------------------------------
(a) Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Company hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Company further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to CT Corporation Systems at its address at 1633 Broadway, New York,
New York 10019, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 5.9. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement, or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
SECTION 5.10. Headings. The Article and Section headings used or
--------
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
-9-
<PAGE>
SECTION 5.11. No Reliance. Each party hereto acknowledges that it has
-----------
obtained separate advice with respect to the legal, tax and accounting
consequences of the transactions contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice from any other party hereto or
any such party's Affiliates.
SECTION 5.12. Entire Agreement. This Agreement and agreements executed in
----------------
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof, and, as of the date hereof, there are no
promises or undertakings with respect thereto relative to the subject matter
hereof not expressly set forth or referred to herein or therein.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EMERITUS CORPORATION
By: /s/ KELLY J. PRICE
-------------------------------------
Name: Kelly J. Price
Title: Vice President of Finance
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Kelly J. Price
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
DANIEL BATY
/s/ DANIEL R. BATY
-----------------------------------------
Daniel R. Baty
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
B.F., LIMITED PARTNERSHIP
By Columbia-Pacific Group, Inc. General
Partner
By: /s/ DANIEL R. BATY
-------------------------------------
Name: Daniel R. Baty
Title: Chairman
B.F., Limited Partnership
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Daniel R. Baty
Telephone: (206) 298-2909
-11-
<PAGE>
Telecopier: (206) 301-4500
SARATOGA PARTNERS IV, L.P.
By: SARATOGA ASSOCIATES IV LLC,
as General Partner
By: SARATOGA MANAGEMENT
COMPANY LLC, as Manager
By: /s/ DAVID NIEMIEC
-------------------------------
Name: David Niemiec
Title:
-12-
<PAGE>
EXHIBIT 4.4.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of December 30,
1999, is made and entered into by and among Emeritus Corporation, a Washington
corporation (the "Company"), and Saratoga Partners IV, L.P. ("Saratoga" and
collectively, together with its successors and assigns, the "Holders") of the
Series B Preferred Stock (as defined herein).
WHEREAS, concurrently with the issuance of the Series B Preferred Stock the
Company is entering into this Agreement to define the rights which exist among
the Holders, on the one hand, and the Company, on the other, with respect to the
Registrable Securities (as defined herein);
NOW, THEREFORE, in consideration of the mutual premises, agreements and
covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
For purposes of this Agreement, the following terms shall have the
following respective meanings (each such meaning to be equally applicable to the
singular and plural forms thereof):
"Agreement" means this Registration Rights Agreement.
"Commission" shall mean the Securities and Exchange Commission, and any
other similar or successor agency of the federal government at the time
administering the Securities Act or the Securities Exchange Act.
"Common Stock" means the Company's voting Common Stock, par value $.0001
per share.
"Company" has the meaning assigned such term in the preamble hereto.
"Counsel," with respect to any Registration Statement to be filed by the
Company pursuant to this Agreement, shall mean a single law firm selected by a
majority in interest of Holders of Registrable Securities to be included in such
Registration Statement to represent all of the Holders of Registrable Securities
with respect to such Registration Statement.
<PAGE>
"Holders" has the meaning assigned such term in the first paragraph hereof.
"Holders of Registrable Securities" shall mean a person who owns
Registrable Securities or has the right to acquire such Registrable Securities,
whether or not such acquisition has actually been effected and disregarding any
legal restrictions upon the exercise of such right.
"NASD" means the National Association of Securities Dealers, Inc.
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement with respect to the
terms of the offering, registering for sale any of the Registrable Securities
and all other amendments and supplements to the Prospectus, including post-
effective amendments, and all material incorporated by reference in such
Prospectus.
"Registrable Securities" means each share of Common Stock issuable upon
conversion of the Series B Preferred Stock; provided, that any security's status
--------
as a Registrable Security shall cease when the registration rights with respect
to such security shall have terminated pursuant to Section 2.6.
"Registration Statement" means any registration statement of the Company
which registers for sale any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"Rule 144" means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, $.0001 par value per share, issued to the Holders pursuant to a
Series B Preferred Stock Purchase Agreement, dated as of December 10, 1999,
between the Company, as seller, and the Holders, as purchaser.
-2-
<PAGE>
ARTICLE II
Registration Rights
-------------------
SECTION 2.1 Registration on Demand
2.1.1 Demand. At any time following December 31, 2000, upon the written
------
request (each, a "Demand"; collectively, "Demands") of Saratoga (the "Demand
Holder") that the Company effect the registration under the Securities Act of
the number of Registrable Securities specified by the Demand Holders, the
Company shall, subject to the provisions hereof, use its best efforts to effect,
as soon as practicable and in any event within 120 days after the Demand is
received from the Demand Holder, the registration under the Securities Act of
the Registrable Securities which the Company has been so requested to register
by the Demand Holder; provided, however, that no more than two (2) Demands may
-------- -------
be made pursuant to this Section 2.1.1.
2.1.2 Shelf Registration. At any time that the Company is eligible to use
------------------
a short-form registration statement for registering securities for sale to the
public at large, the Demand Holder may, at their option, request (the "Shelf
Demand") that a registration statement effected pursuant to a Demand pursuant to
Section 2.1.1 be effected on a delayed or continuous basis, pursuant to Rule 415
under the Securities Act (the "Shelf Registration"). The Company agrees to keep
effective such registration statement (the "Shelf Registration Statement") until
the earlier of (i) such date as of which all the Registrable Securities under
the Shelf Registration Statement have been disposed of in the manner described
in such registration statement, and (ii) one year after the date on which such
Shelf Registration Statement is declared effective; provided, however, that no
-------- -------
more than one (1) Shelf Demand may be made pursuant to this Section 2.1.2.
2.1.3 Registration Statement Form. Registrations under this Section 2.1
---------------------------
shall be on such appropriate registration form of the Commission as shall be
selected by the Company. The Company shall include in any such registration
statement all information which, in the opinion of counsel to the Company, is
required to be included.
2.1.4 Effective Registration Statement. A registration requested pursuant
--------------------------------
to this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, (ii) if after
it has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Holders and has not
thereafter become effective, or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in
-3-
<PAGE>
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Holders, or (iv) if a Shelf Registration
Statement, if such registration statement has not been kept effective until the
earlier of (i) such date as of which all of the Registrable Securities under
such Shelf Registration Statement have been disposed of in the manner described
in such registration statement and (ii) one year after the date on which such
Shelf Registration Statement is declared effective.
2.1.5 Limitations on Registration on Demand, Shelf Registrations. The
----------------------------------------------------------
Company shall not be required to prepare and file a registration statement
pursuant to this Section 2.1 which would become effective within 120 days (or
such shorter period as may be acceptable to the Company) following the effective
date of a registration statement (other than pursuant to registrations on Form
S-4 or Form S-8 or any successor form or forms) filed by the Company with the
Commission pertaining to an underwritten public offering of convertible debt
securities or equity securities for cash for the account of the Company or
another holder of securities of the Company. Notwithstanding anything in this
Section 2.1 to the contrary, in no event shall the Company be required to effect
in the aggregate, more than two registrations pursuant to this Section 2.1.
2.1.6 Holders, Ability to Withdraw Registration Statement. The Demand
---------------------------------------------------
Holder shall have the right to request that the Company not have a registration
statement filed pursuant to a Demand declared effective. If the Demand Holders
elect to pay or reimburse the Company for the Company's out-of-pocket expenses
incurred in connection with such registration, such withdrawn registration
statement shall not be counted for purposes of the requests for registration to
which such Demanding Holder is entitled pursuant to Section 2.1.5 hereof.
2.1.7 Selection of Underwriter. If a registration under this Section 2.1
------------------------
is an underwritten offering, the Demand Holder shall select a managing
underwriter or underwriters of recognized national standing reasonably
acceptable to the Company to administer the offering. The Company will
cooperate in the customary manner in such underwritten offering.
2.1.8 Registration of Other Securities. A registration statement filed
--------------------------------
pursuant to the request of the Demand Holder may, subject to the provisions of
Section 2.5 hereof, include (i) Registrable Securities of Holders not making a
demand pursuant to this Section 2.1 and (ii) other securities of the Company
with respect to which registration rights have been granted and may include
securities of the Company being sold for the account of the Company.
2.1.9 Suspension. The Company may delay, suspend or withdraw the
----------
registration of the Registrable Securities required pursuant to this Section 2.1
or the
-4-
<PAGE>
preparation or furnishing of a supplemental or amended prospectus pursuant to
Section 2.3(i) for a period not exceeding 90 days if the Company shall in good
faith determine that any such registration would require the Company to include
disclosure that would reasonably be expected to have a detrimental effect on any
proposal, negotiations or plan by the Company or any of its subsidiaries to
engage in any acquisition or disposition of assets or any merger, consolidation,
tender offer, reorganization or similar transaction, or any other material
corporate event contemplated by the Company.
SECTION 2.2 Incidental Registration
If the Company, at any time or any one or more occasions after the date of
this Agreement, proposes to register (other than pursuant to Section 2.1) any
shares of Common Stock under the Securities Act for sale to the public, whether
for its own account or for the account of other security holders or both (other
than pursuant to registrations on Form S-4 or Form S-8 or any successor form or
forms) the Company shall give not less than 15 days' nor more than 90 days'
prior written notice to each Holder of Registrable Securities of its intention
to do so. Upon the written request of any Holder of Registrable Securities
given within 10 days after receipt of such notice from the Company, the Company
will use its best efforts to cause the Registrable Securities requested to be
registered to be so registered under the Securities Act. A request pursuant to
this Section 2.2 shall state the number of Registrable Securities requested to
be registered and the intended method of distribution thereof. In connection
with any registration subject to this Section 2.2, the Holders shall enter into
such underwriting, lock-up and other agreements, and shall execute and complete
such questionnaires and other documents, as are reasonably requested by the
representative of the underwriters. The Company shall have the right to delay,
suspend, terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration for any reason
whether or not any Holder has elected to include any securities in such
registration. Notwithstanding any other provision of this Agreement, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
number of shares to be included in the underwriting or registration shall be
allocated as set forth in Section 2.5 hereof.
No registration effected under this Section 2.2 shall relieve the Company
of its obligation to effect a registration required under Section 2.1.
SECTION 2.3 Registration Procedures
In connection with the registration of any Registrable Securities in
accordance with this Section 2, the Company shall effect such registrations to
permit the sale of
-5-
<PAGE>
such Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) prepare and file with the Commission within the time limits prescribed
herein a Registration Statement with respect to such securities and use its best
efforts to cause such Registration Statement to become effective and remain
effective as provided herein;
(b) prepare and file with the Commission such amendments and post-effective
amendments to each Registration Statement as may be necessary and use its best
efforts to keep such Registration Statement continuously effective; cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) under the Securities Act; and comply with the provisions of the
Securities Act, the Securities Exchange Act and the rules and regulations of the
Commission promulgated thereunder applicable to it with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented; the Company shall not be
deemed to have used its best efforts to keep a registration statement effective
during a period if it voluntarily takes any action that results in participating
Holders not being able to sell such Registrable Securities during such period,
unless such action (i) is required under applicable law or (ii) is determined in
good faith by the Board of Directors of the Company to be in the Company's best
interest;
(c) notify the Holders of Registrable Securities and underwriters, if any,
promptly (but in any event within two business days), and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of the
issuance (or, to the Company's best knowledge, the threat or contemplation) by
the Commission of any stop order suspending the effectiveness of such
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
and (iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Securities for offer or sale in
any jurisdiction, or the initiation or threatening of any proceeding for such
purpose;
(d) use every reasonable effort to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, and, if any
-6-
<PAGE>
such order is issued, to obtain the withdrawal of any such order at the earliest
possible moment;
(e) furnish to each seller and to each duly authorized broker or
underwriter of each seller such number of authorized copies of a Prospectus,
including copies of a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other customary documents as such
seller, broker or underwriter may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities owned by such
seller;
(f) use its best efforts to register or qualify (and to keep each such
registration and qualification effective, including through new filings,
renewals or amendments, during the period such registration statement is
required to be kept effective) the securities covered by such Registration
Statement under such securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other reasonable acts and
things which may be necessary under such securities or blue sky laws to enable
such seller to consummate the public sale or other disposition in such
jurisdictions of the Registrable Securities to be sold by such seller, except
that the Company shall not for any such purpose be required to qualify to do
business as a foreign corporation, or to consent to the jurisdiction of any
court or subject itself to suit in any jurisdiction wherein it is not qualified;
(g) before filing the Registration Statement or Prospectus or amendments or
supplements thereto, furnish to Counsel for the Holders of Registrable
Securities included in such Registration Statement copies of all such documents
proposed to be filed, all of which shall be subject to the review and comment of
such Counsel in the exercise of their reasonable judgment;
(h) use its best efforts to cause such Registrable Securities covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or authorities exercising jurisdiction over the Company as
may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(i) notify each seller of any such Registrable Securities covered by such
Registration Statement, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the Prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and, at the written request of any such seller, promptly prepare and
furnish to such seller and each underwriter a reasonable
-7-
<PAGE>
number of copies of a Prospectus supplemented or amended (whereupon all previous
versions of the Prospectus shall not be used by such seller or underwriter and
shall be promptly returned to the Company or destroyed) so that, as thereafter
delivered to the purchasers of such Registrable Securities, such Prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(j) comply with all applicable rules and regulations of the Commission, and
make generally available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
consecutive months beginning with the first day of the Company's first calendar
quarter after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(k) use its best efforts to cause all such Registrable Securities covered
by such Registration Statement to be listed or quoted on the principal
securities exchange (including the Nasdaq National Market) on which similar
securities issued by the Company are then listed or quoted, if the listing or
quoting of such Registrable Securities is then permitted under the rules of such
exchange;
(l) provide a transfer agent, registrar and/or trustee, as applicable, for
all such Registrable Securities covered by such Registration Statement not later
than the effective date of such Registration Statement;
(m) cooperate with the selling holders of Registrable Securities and the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends; and enable such Registrable Securities
to be in such denominations and registered in such names as the underwriters, if
any, or holders may reasonably request at least two business days prior to any
sale of Registrable Securities in a firm commitment underwritten public
offering, or at least ten business days prior to any other such sale;
(n) enter into such reasonable and customary agreements (including an
underwriting agreement in customary form) and take such other reasonable and
customary actions as the Demand Holder shall reasonably request in order to
expedite or facilitate the registration and disposition of such Registrable
Securities;
(o) provide copies of any opinions from the Company's counsel and "cold
comfort" letters from the Company's independent public accountants delivered to
the underwriters, if any;
-8-
<PAGE>
(p) upon execution and delivery of such confidentiality agreements as the
Company shall reasonably request (which agreement shall not restrict any such
person's obligations under applicable securities laws), make available for
inspection by any seller of such Registrable Securities covered by such
Registration Statement, by any underwriter participating in any disposition to
be effected pursuant to such Registration Statement and by any attorney,
accountant or other agent retained by the sellers or any such underwriter,
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement, all as necessary to conduct a reasonable investigation within the
meaning of Section 11 of the Securities Act; and
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require the insertion therein of language, in form and
substance satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company; provided, that in the event that
--------
such reference to such Holder by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky" or securities law then in force, the
Company may delete the reference to such Holder rather than include such
language.
SECTION 2.4 Expenses
All expenses incurred in effecting the registrations (whether or not such
registrations are consummated) provided for in this Article II, including
without limitation all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits incident to or
required by any such registration (including the costs of any comfort letters)
and expenses of complying with the securities or blue sky laws of any
jurisdictions pursuant to Subsection 2.3(f) hereof, transfer taxes, fees of
transfer agents, registrars and trustees, costs of insurance, duplicating fees,
delivery expenses, expenses incurred with the listing of the securities on any
securities exchange, shall be paid by the Company; provided, however, that such
-------- -------
the Company shall not bear any underwriting discounts and commissions relating
to Registrable Securities.
-9-
<PAGE>
SECTION 2.5 Marketing Restrictions
If (i) a Holder of Registrable Securities requests registration of
Registrable Securities as contemplated by Section 2.1 or 2.2, (ii) the offering
proposed to be made is to be an underwritten public offering, and (iii) the
managing underwriters of such public offering furnish a written opinion that the
total amount of securities to be included in such offering would exceed the
maximum amount of securities (the "Maximum Amount") (as specified in such
opinion) which can be marketed at a price reasonably related to the then current
market value of such securities and without materially and adversely affecting
such offering, then the rights of the Company, the Holders of Registrable
Securities and the holders of other securities having the right to include such
securities in such registration to participate in such offering shall be as
follows:
If such registration shall have been proposed by the Company, (i) the
Company shall be entitled to participate in such registration first; and
(ii) then Holders of Registrable Securities and other holders of securities
of the Company entitled to participate shall be entitled to participate in
such registration (pro rata based on the number of shares of Common Stock
held by each Holder and other holders of securities (on an as converted
basis) and in accordance with other relative priorities, if any, as shall
exist among them). If such registration shall have been requested by the
Demand Holderof Registrable Securities pursuant to Section 2.1 hereof, (i)
the Holders of Registrable Securities shall be entitled to participate in
such registration (pro rata based on the number of Registrable Securities
(on an as converted basis) held by each) first; and (ii) then the Company
and other security holders of the Company entitled to participate will be
entitled to participate in such registration (with the holders of such
securities being entitled to participate in accordance with the relative
priorities, if any, as shall exist among them), in each case with further
pro rata allocations to the extent any such person has requested
registration of fewer securities than such person is entitled to have
registered so that the number of securities to be included in such
registration will not exceed the Maximum Amount. If such registration
shall have been requested by the holders of other securities pursuant to a
right granted by the Company to request such registration, (i) the holders
requesting such registration shall be entitled to participate in such
registration (with such holders being entitled to participate in accordance
with the relative priorities, if any, as shall exist among them) first; and
(ii) then the Holders of Registrable Securities, the Company and other
holders of securities of the Company entitled to participate shall be
entitled to participate in such registration (pro rata based on the number
of shares of Common Stock held by each Holder, the number of shares
proposed to be registered by the Company
-10-
<PAGE>
and the number of shares held by other holders of securities (on an as
converted basis) and in accordance with the other relative priorities, if
any, as shall exist among them), in each case with further pro rata
allocations to the extent any such person has requested registration of
fewer securities than such person is entitled to have registered so that
the number of securities to be included in such registration will not
exceed the Maximum Amount;
and no securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act (but
excluding any issuance of shares pursuant to registrations on Form S-4 or Form
S-8 or any successor form or forms) until the expiration of 90 days after the
effective date of the Registration Statement in which Registrable Securities
were included pursuant to Section 2.2 or such shorter period as may be
acceptable to the Company and the Holders of a majority of the Registrable
Securities who may be participating in such offering.
SECTION 2.6 Termination of Rights
Notwithstanding the foregoing provisions of this Article II, the rights to
registration shall terminate as to any particular Registrable Securities when
(a) a Registration Statement covering such Registrable Securities has been
declared effective and such Registrable Securities have been disposed of in
accordance with such effective Registration Statement, (b) written opinion(s),
to the effect that such Registrable Securities may be sold without registration
under the Securities Act or applicable state law and without restriction as to
the volume and timing of such sale, shall have been received from counsel for
the Company reasonably acceptable to the Holders of a majority of such
Registrable Securities sought to be sold, or (c) such Registrable Securities
have been sold in a transaction in which the transferee receives a certificate
without a restrictive legend.
SECTION 2.7 Rule 144
The Company shall file the reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
promulgated thereunder (or, if the Company is not required to file such reports,
it will, upon the written request of any Holder of Registrable Securities as
soon as practicable, make publicly available such information as is necessary to
permit sales under Rule 144), and will take such further actions as any Holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144. Upon the request of any Holder of Registrable
-11-
<PAGE>
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 2.8 Indemnification
(a) In the event of any registration of any Registrable Securities under
the Securities Act pursuant to this Agreement, the Company will, and hereby
does, indemnify and hold harmless, to the fullest extent permitted by law, the
seller of any Registrable Securities covered by such Registration Statement, its
directors and officers or general and limited partners (and the directors and
officers thereof) (each, a "Person"), each person who participates as an
underwriter or qualified independent underwriter/pricer ("independent
underwriter"), if any, in the offering or sale of such securities, each officer,
director or partner of such underwriter or independent underwriter, and each
other Person, if any, who controls such seller or any such underwriter within
the meaning of the Securities Act, against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including fees of counsel and
any amounts paid in any settlement approved by the Company (which such approval
shall not be unreasonably withheld or delayed)) to which such seller, any such
director or officer or general or limited partner or any such underwriter or
independent underwriter, such officer, director or partner of such underwriter
or independent underwriter or controlling person may become subject under the
Securities Act, common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof), or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such securities were registered under the
Securities Act or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary Prospectus
(together with the documents incorporated by reference or filed with the
Commission) and any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) any violation
by the Company of any federal or state rule or regulation applicable to the
Company and relating to action required of or inaction by the Company in
connection with any such registration, and the Company will reimburse as
incurred such seller and each such director, officer, general or limited
partner, underwriter, independent underwriter, director, or officer or partner
of such underwriter or independent underwriter and controlling person for any
legal or any other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, that the Company shall not be liable to
--------
-12-
<PAGE>
any such seller or any such director, officer, general or limited partner,
underwriter, independent underwriter, director or officer or partner of such
underwriter or independent underwriter or controlling person in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened, in respect thereof) or expense
arises out of or is based upon (a) any untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement or
amendment thereof or supplement thereto or in any such preliminary, final or
summary Prospectus in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any such seller or any such
director, officer, general or limited partner, underwriter, independent
underwriter, director or officer or partner of such underwriter or independent
underwriter or controlling person, expressly for use in the preparation thereof
or (b) the failure of any such seller or any such director, officer, general or
limited partner, underwriter, independent underwriter or controlling person, to
comply with any legal requirement applicable to him to deliver a copy of a
Prospectus or any supplements or amendments thereto after the Company has made
such documents available to such Persons. Such indemnity and reimbursement of
expenses shall remain in full force and effect following the transfer of such
securities by such seller.
(b) The Company, as a condition to including any Registrable Securities in
any Registration Statement filed in accordance with this Agreement, shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such Registrable Securities and any underwriter or independent
underwriter, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in paragraph (a) of this Section 2.8) the Company and its
directors and officers and all other prospective sellers and their directors,
officers, general and limited partners and respective controlling Persons
(within the meaning of the Securities Act) with respect to any statement or
alleged statement in or omission or alleged omission from such Registration
Statement, any preliminary, final or summary Prospectus contained therein, or
any amendment or supplement thereto, if such statement or alleged statement or
omission or information has been furnished to the Company or its representative
by or on behalf of such seller or underwriter expressly for use in the
preparation of such Registration Statement, preliminary, final or summary
Prospectus or amendment or supplement; provided, however, that the aggregate
-------- -------
amount which any such seller or prospective seller shall be required to pay
pursuant to such undertaking shall be limited to the amount of the net proceeds
received by such Person upon the sale of the Registrable Securities pursuant to
the Registration Statement giving rise to such claim. Such indemnity shall
remain in full force and effect following the transfer of such securities by
such seller.
-13-
<PAGE>
(c) As soon as possible after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 2.8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, that the failure of any indemnified party to give notice
--------
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 2.8, except to the extent that
the indemnifying party is actually and materially prejudiced by such failure to
give notice. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to such indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 2.8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof unless the indemnifying
party has failed to assume the defense of such claim or to employ counsel
reasonably satisfactory to such indemnified party; provided that the indemnified
--------
parties shall have the right to employ one counsel (in each case together with
appropriate local counsel) (such counsel to be selected by the Holders of a
majority of the Registrable Securities included in such registration) to
represent such indemnified parties if, in such indemnified parties' reasonable
judgment, a conflict of interest between the indemnified parties and the
indemnifying parties exists or may exist in respect of such claim, and in that
event the fees and expenses of such separate counsel shall be paid as incurred
by the indemnifying party. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimants or plaintiffs to such indemnified party
of an unconditional release from all liability in respect to such claim or
litigation. No indemnifying party will be liable for any settlement effected
without its prior written consent, which consent will not be unreasonably
withheld or delayed.
(d) Indemnification similar to that specified in the preceding paragraphs
of this Section 2.8 (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities and
"blue sky" laws.
(e) If the indemnification provided for in this Section 2.8 is unavailable
or insufficient to hold harmless an indemnified party under Section 2.8(a) or
(b) of this Agreement, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or
-14-
<PAGE>
liabilities referred to in Section 2.8(a) or (b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other hand in connection with statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or other omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statements or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 2.8(e) were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the first sentence of this Section
2.8(e). The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this Section
2.8(e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim (which shall be limited as provided in Section 2.8(c) if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) which is the subject of this Section 2.8(e). No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Promptly after receipt by an
indemnified party under this Section 2.8(e) of notice of the commencement of any
action against such party in respect of which a claim for contribution may be
made against an indemnifying party under this Section 2.8(e), such indemnified
party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in Section 2.8(c) has not been given with respect to
such action; provided that the omission so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
any indemnified party otherwise under this Section 2.8(e), except to the extent
that the indemnifying party is actually and materially prejudiced by such
failure to give notice. Notwithstanding anything in this Section 2.8(e) to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section 2.8(e) to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages or liabilities
of the indemnified parties relate.
(f) The provisions of this Section 2.8 shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain in full force and effect following
the transfer of the Registrable Securities by any such party.
-15-
<PAGE>
SECTION 2.9 Agreements of Holders
(a) Each Holder of Registrable Securities shall advise the Company of the
dates on which any disposition of Registrable Securities hereunder is expected
to commence and terminate, the number of Registrable Securities expected to be
sold, the method of disposition, and such other information as the Company may
reasonably request in order to supplement the Prospectus in accordance with the
rules and regulations of the Commission.
(b) Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of a notice from the Company under
Section 2.3(i) of the Company's becoming aware that the Prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, such Holder shall not dispose of,
sell or offer for sale Registrable Securities under the Registration Statement
until such Holder receives (i) copies of the supplemented or amended Prospectus
or until counsel for the Company shall have determined that such disclosure is
not required due to subsequent events, (ii) notice in writing (the "Advice")
from the Company that the use of the Prospectus may be resumed, and (iii) copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus.
(c) In the event the Company shall give any such notice, the time period
regarding the effectiveness of the Registration Statement set forth in this
Article II shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each selling Holder covered by the Registration Statement shall have received
the copies of the supplemented or amended Prospectus, the Advice and any
additional or supplemental filings that are incorporated by reference in the
Prospectus.
ARTICLE III
Changes in Registrable Securities
---------------------------------
If, and as often as, there is any change in the Registrable Securities by
way of a combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Registrable
Securities as so changed.
-16-
<PAGE>
ARTICLE IV
Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Holders of the Registrable
Securities as of the date of this Agreement as follows:
(a) Due Authorization. The execution, delivery and performance of this
-----------------
Agreement by the Company has been duly authorized by all requisite action.
(b) Binding Obligation. This Agreement has been duly executed and
------------------
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company.
(c) No Violation. The execution, delivery and performance of this
------------
Agreement, and the consummation of the transactions contemplated herein, by the
Company does not violate any provision of law, any order of any court or other
agency of government, any organizational document of the Company or any
provision of any material indenture, agreement or other instrument to which the
Company or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company which violation,
conflict, breach or default or lien, charge, restriction or encumbrance would
have a material adverse effect on the business, condition (financial or
otherwise) of the Company taken as a whole.
(d) Government Action. No action has been taken and no statute, rule or
-----------------
regulation or order has been enacted, no injunction, restraining order or order
of any nature has been issued by a federal or state court of competent
jurisdiction and no action, suit or proceeding is pending against or affecting
or threatened against, the Company before any court or arbitrator or any
governmental body, agency or official which, if adversely determined, would in
any manner draw into question the validity of this Agreement. Other than
filings required with the Commission and under state securities laws, no action
or approval by, or filing or registration with, any court or governmental agency
or body is required for the consummation of the transactions contemplated by
this Agreement by the Company.
-17-
<PAGE>
ARTICLE V
Benefits of Agreement
---------------------
The obligations of the Company under this Agreement shall inure to the
benefit of, and be enforceable by, the initial Holders and their successors and
assigns without any further action on the part of any party hereto.
ARTICLE VI
Miscellaneous
-------------
SECTION 6.1 Notices
All notices, requests, consents and other communications provided for
herein shall be in writing and shall be effective upon delivery in person, faxed
or telecopied, or mailed by certified or registered mail, return receipt
requested, postage pre-paid, addressed as follows:
(i) if to the Company, 3131 Elliot Avenue, Suite 500, Seattle, Washington
98121, Attention: Kelly J. Price; with a copy to Perkins Coie LLP, 1201 Third
Avenue, Seattle, Washington 98101, Attention: Michael E. Stansbury, Esq.;
(ii) if to an initial Holder of Registrable Securities, at such address as
may have been furnished to the Company in writing by such Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Registrable Securities) or
to the Holders of Registrable Securities (in the case of the Company) in
accordance with the provisions of this paragraph.
SECTION 6.2 Waivers: Amendments
No failure or delay of any Holder of Registrable Securities or the Company
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of such Holder and the Company are
cumulative and not exclusive of any rights or remedies which it would otherwise
have. The provisions of this Agreement may be amended, modified or waived with
(and only with) the written consent of the Company and a majority of the Holders
of Registrable Securities outstanding (exclusive of Registrable Securities then
owned by the Company or any subsidiary thereof). No
-18-
<PAGE>
notice or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
SECTION 6.3 Governing Law
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York without regard to principles of conflicts of law.
SECTION 6.4 Survival of Agreements; Representations and Warranties, etc.
All warranties, representations and covenants made by the Company herein or
in any certificate or other instrument delivered by it or on its behalf in
connection with this Agreement shall be considered to have been relied upon by
the Holders of Registrable Securities and shall continue in full force and
effect so long as this Agreement is in effect regardless of any investigation
made by such Holders. All statements in any such certificate or other
instrument shall constitute representations and warranties hereunder.
SECTION 6.5 Covenants to Bind Successors and Assigns
All the covenants, stipulations, promises and agreements in this Agreement
contained by or on behalf of the parties hereto shall bind their successors and
assigns, whether so expressed or not.
SECTION 6.6 Severability
In case any one or more of the provisions contained in this Agreement shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 6.7 Section Headings
The section headings used herein are for convenience of reference only, are
not part of this Agreement and are not to affect the construction of or be taken
into consideration in interpreting this Agreement.
-19-
<PAGE>
SECTION 6.8 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
SECTION 6.9 Termination
The obligations of the Company to register the Registrable Securities
hereunder shall terminate in accordance with the terms of this Agreement.
SECTION 6.10 Complete Agreement
This document and the documents referred to herein contain the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way, and any other agreements or
understandings as to securities registration or similar rights among the parties
hereto are hereby terminated.
SECTION 6.11 No More Favorable Agreements
The Company has not previously, and will not hereafter, enter into any
agreement with respect to its securities with any person which grants such
person rights that are, taken as a whole, more favorable than the rights granted
to the Holders in this Agreement.
SECTION 6.12 Submission to Jurisdiction; Venue
(a) Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Company hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Company further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to CT Corporation Systems at its address at 1633 Broadway, New York,
New York 10019, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any Holder to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings
-20-
<PAGE>
arising out of or in connection with this Agreement brought in the courts
referred to in clause (a) above and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first set forth above.
EMERITUS CORPORATION
By: /s/ KELLY J. PRICE
--------------------------------------
Name: Kelly J. Price
Title: Vice President of Finance
SARATOGA PARTNERS IV, L.P.
By: SARATOGA ASSOCIATES IV LLC,
as General Partner
By: SARATOGA MANAGEMENT COMPANY LLC,
as Manager
By: /s/ DAVID NIEMIEC
--------------------------------------
Name: David Niemiec
Title:
-22-
<PAGE>
EXHIBIT 4.5
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of December 30, 1999 (the "Agreement"), by
and among Emeritus Corporation, a Washington corporation (the "Company"), Daniel
R. Baty and B.F., Limited Partnership (collectively, "Baty"), Saratoga Partners
IV, L.P., a Delaware limited partnership ("Saratoga") and Saratoga Management
Company LLC.
R E C I T A L S:
- - - - - - - -
A. The Company and Saratoga are parties to a Series B Preferred Stock
Purchase Agreement, dated as of December 10, 1999, between the Company, as
seller, and Saratoga, as purchaser (the "Purchase Agreement"), pursuant to which
the Company is issuing and Saratoga is acquiring 40,000 shares of the Company's
Series B Convertible Preferred Stock, par value $.0001 per share (the "Series B
Preferred Stock"), pursuant to which Saratoga may assign all of its rights and
obligations under the Purchase Agreement to certain Saratoga co-investors with
respect to up to 10,000 shares of Series B Preferred Stock.
B. The parties hereto are parties to a Shareholders' Agreement to be
entered into upon the closing of the sale of the Series B Preferred Stock (the
"Shareholders' Agreement") which provides for, among other things, certain
matters relating to the management of the Company, the ownership and transfer of
the Series B Preferred Stock and the rights and remedies of Saratoga.
C. The parties hereto desire to provide for, among other things, certain
matters relating to the management of the Company.
A G R E E M E N T:
- - - - - - - - -
The parties agree as follows:
ARTICLE I
SECTION 1.1 Board Change.
------------
(a) Commencing on January 1, 2007 and continuing until the date of
conversion of the Series B Preferred Stock, the holders of the outstanding
Series B Preferred Stock shall have the exclusive right but not the obligation,
voting separately as a class, to elect a number of directors of the Company at
any meeting of shareholders of the Company called for the purpose of electing
directors such that the directors elected (including any directors previously
elected by the Series B Preferred Stock shareholders
<PAGE>
and currently a member of the board of directors) are one director less than a
majority of the board. Upon the vesting of such right of the holders of the
Series B Preferred Stock, any applicable number of directors of the Company set
forth in the Restated Articles of Incorporation or Restated By-Laws of the
Company, as determined pursuant thereto, shall automatically be increased by the
appropriate number and the vacancy so created shall be filled promptly by vote
of the holders of the outstanding Series B Preferred Stock as hereinabove set
forth.
(b) Upon any conversion or redemption of the Series B Preferred Stock such
that the Series B Preferred Stock is no longer outstanding, the term of office
of any director then in office elected by the holders of Series B Preferred
Stock voting pursuant to this Section 5(c) as a class shall terminate
immediately.
(c) If the office of any director elected by the holders of the Series B
Preferred Stock voting as a class becomes vacant by reason of death,
resignation, retirement, disqualification, removal from office or otherwise, the
holders of the Series B Preferred Stock voting separately as a class may elect a
successor who shall hold office for the unexpired term in respect of which such
vacancy occurred. Whenever the term of office of the Director elected by the
holders of the Series B Preferred Stock voting as a class shall end and the
special voting powers vested in the holders of the Series B Preferred Stock as
herein provided shall have expired, the number of directors shall be such a
number as may be provided for in the Restated Articles of Incorporation or
Restated By-Laws of the company, or determined pursuant thereto, irrespective of
any increase made pursuant to the foregoing provisions.
SECTION 1.2. Management and Advisory Services Fee. Commencing on January
-------------------------------------
1, 2007 and continuing until the date of conversion or redemption of the Series
B Preferred Stock such that the Series B Preferred Stock is no longer
outstanding, Saratoga may, at its option, require the Company to retain Saratoga
Management Company LLC to provide management and advisory services for which
Saratoga Management Company LLC would receive fees of no less than $3.2 million
per annum payable in advance quarterly. Such services shall include, but shall
not be limited to, evaluation of the Company's strategy related to enhancing
shareholder value, real estate and corporate financing, and other strategic
initiatives related to the Company's business.
ARTICLE II
MISCELLANEOUS
-------------
SECTION 2.1. Amendments and Waivers. Any provision of this Agreement may
----------------------
be amended if, but only if, such amendment is in writing and is signed by all of
the parties hereto. Any provision of this Agreement may be waived if, but only
if, such waiver is in writing and is signed by each of the parties hereto.
-2-
<PAGE>
SECTION 2.2. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no assignment of
-------- -------
rights under this Agreement will be valid unless made in connection with a
contemporaneous transfer of Capital Stock (as defined in the Shareholders'
Agreement) which is not prohibited by the Shareholders' Agreement. The Company
may not assign or otherwise transfer any of its rights or obligations under this
Agreement.
SECTION 2.3. Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 2.4. GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, Saratoga (or its agents) shall be entitled to protect and enforce
their rights at law, or in equity or by other appropriate proceedings for
specific performance of such obligation, or for an injunction against such
breach or default, or in aid of the exercise of any power or remedy granted
hereby or thereby or by law.
SECTION 2.5 Submission to Jurisdiction; Venue
(a) Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Company hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Company further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to CT Corporation Systems at its address at 1633 Broadway, New York,
New York 10019, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction.
-3-
<PAGE>
(b) The Company hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 2.6. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement, or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EMERITUS CORPORATION
By: /s/ KELLY J. PRICE
--------------------------------------------
Name: Kelly J. Price
Title: Vice President of Finance
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Kelly J. Price
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
DANIEL BATY
/s/ DANIEL BATY
-----------------------------------------------
Daniel R. Baty
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Telephone: (206) 298-2909
Telecopier: (206) 301-4500
B.F., LIMITED PARTNERSHIP
By Columbia-Pacific Group, Inc. General Partner
By: /s/ DANIEL BATY
--------------------------------------------
Name: Daniel R. Baty
Title: Chairman
B.F., Limited Partnership
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attn: Daniel R. Baty
Telephone: (206) 298-2909
-5-
<PAGE>
Telecopier: (206) 301-4500
SARATOGA PARTNERS IV, L.P.
By: SARATOGA ASSOCIATES IV LLC,
as General Partner
By: SARATOGA MANAGEMENT COMPANY LLC, as Manager
By: /s/ DAVID NIEMIEC
--------------------------------------------
Name: David Niemiec
Title:
SARATOGA MANAGEMENT COMPANY LLC
By: /s/ DAVID NIEMIEC
--------------------------------------------
Name: David Niemiec
Title:
-6-
<PAGE>
Exhibit 99.1
For Immediate Release Contact: Kelly J. Price
January 5, 2000 Chief Financial Officer
(206) 298-2909
EMERITUS CLOSES $40 MILLION EQUITY INVESTMENT
SEATTLE, WA, January 5, 2000--Emeritus Assisted Living (AMEX: ESC-Emeritus
Corporation), a national provider of assisted living and related services to the
elderly, today announced the closing of the $40 million investment by Saratoga
Partners IV, L.P. and the funding of the first $30 million of the investment.
The remainder of the investment is expected to be funded in the first quarter of
2000. The company had previously announced the signing of a letter of intent on
December 13, 1999.
Saratoga's $40 million investment in Emeritus is in the form of convertible
preferred stock with a conversion price of $7.22 per share and a 6% initial
dividend. Under the agreement, Saratoga may convert to common stock anytime,
and Emeritus may call the preferred stock after three years under certain
circumstances relating to the price of its common stock. Charles P. Durkin, Jr.
and David W. Niemiec, both Managing Directors of Saratoga, will join the
company's board of directors.
The company expects to use a portion of the net proceeds of the equity to
purchase the fee interest in 20 assisted living facilities, 16 of which are
managed, three are currently leased and one is being acquired from a third
party. The 20 assisted living facilities to be purchased represent 1,450 units
and currently generate approximately $35 million of annual revenue and $14
million of earnings before interest, depreciation and amortization. These
facilities maintain average occupancy levels in excess of 95% and operating
margins of 40%.
ABOUT THE COMPANY
Emeritus Assisted Living is a national provider of assisted living and related
services to the elderly. The company is one of the largest developers and
operators of freestanding assisted living communities throughout the United
States and has commenced development of assisted living facilities in Japan.
These communities provide a residential housing alternative for senior citizens
that need help with the activities of daily living with an emphasis on assisted
living and personal care services to provide residents with an opportunity to
age in place. The Company currently holds interests in 128 communities
representing capacity for approximately 13,100 residents in 29 states. The
Company's common stock is traded on the American Stock Exchange under the symbol
ESC and can be found on the Internet at www.emeritus.com.
