PREFERRED STOCK PURCHASE AGREEMENT
By and Among
EMERITUS CORPORATION
as Seller,
and
MERIT PARTNERS, LLC,
as Purchaser.
Dated as of October 24, 1997
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT,
dated as of October 24, 1997, by and among
EMERITUS CORPORATION, a Washington corporation
(the "Company"), as seller, and Merit Partners,
LLC, a New York limited liability company
("Purchaser"), as purchaser.
RECITALS:
A. The Company proposes to issue and
sell to the Purchaser for cash 25,000 shares (the
"Preferred Shares") of its 9% Cumulative
Convertible Exchangeable Redeemable 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
DEFINITION
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.
"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" has the meaning provided
therefor in Section 2.1 of this Agreement.
"Closing Date" means the date that the
Closing actually occurs.
"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 A
Convertible Exchangeable Redeemable Preferred
Stock of Seller, 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
2
amended, and the rules and regulations promulgated
thereunder.
"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.
"Operating Agreement" means the
operating agreement of Purchaser, dated as of
October 24, 1997, by and between Merit Operating,
LLC and Merit Investor, LLC.
"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 preamble of this Agreement.
"Preferred Stock" has the meaning set
forth in the preamble 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.
"SEC" means the Securities and Exchange
Commission.
"SEC Documents" is defined in Section
3.1(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 de
termination 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.
3
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 Date the Preferred
Shares for a purchase price of $25,000,000.
(b) The purchase and sale of the
Preferred Shares shall take place at a closing
(the "Closing") to be held at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. local time, on the
date hereof.
(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 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. The
Company has filed the Designation with the
Secretary of State of the State of Washington. The
Designation and the resolutions of the Company's
Board of Directors contained therein are 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 By
laws 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 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, de
liver, and perform its obligations under this
Agreement, the Registration Rights Agreement and
the Shareholders' Agreement (collectively, the
"Transaction
4
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 ) DUE 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 b F obtained or made by or on behalf
of the Company in connection with the offer,
issuance and sale 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 approval of the Board of Directors of the
Company, (ii) the filing of the Designation in the
state of Washington, and (iii) filings with the
SEC, the American Stock Exchange ("AMEX") and
under state securities laws that may be required;
in the cases of (i) and (ii) above, each of which
shall have been obtained or made prior to or
simultaneously with the closing of the sale of
Preferred Shares on the Closing Date.
(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 or result in a violation, breach or default
by the Company 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 govern
mental instrumentality, authority, bureau or
agency binding on it, or (y) any material
provision of any mortgage, indenture, lease or
other contract, agreement, instrument or
undertaking to which it is a party or will be a
party immediately after the Closing, or by which
or to which it or any of its property or assets is
now or immediately after the Closing will be bound
or subject, or (iii) result in the creation or
imposition of any lien, encumbrance or other
charge on any of its properties or assets.
(j) NO DEFAULTS. None of the Company or
its Subsidiaries is, or immediately after the
Closing will be, in default under or in violation
of (i) its Restated Articles of Incorporation or
Amended and Restated By-laws, (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 or the
Company's ability to perform its obligations under
any of the Transaction Documents.
5
(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 the Closing,
all outstanding shares of capital stock will be
duly and validly issued and after the 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 and (iii) that certain
shareholder agreement, dated as of April 17, 1995,
between Assisted Living of America, Inc. and
various other parties, 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 re
quirements 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 1995 and
1996 fiscal years, (ii) proxy statements,
information and solicitation materials filed by
the Company with the SEC since January 1, 1996,
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).
(n) NO MATERIAL ADVERSE CHANGE. Since
June 30, 1997, the date through which the most
recent quarterly report of the Company on Form 10-
Q 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 otherwise
disclosed in writing to the Purchasers on or
before the Closing Date.
6
(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 Closing Date.
(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.
(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.
(t) RESERVATION OF COMMON STOCK. As of
the 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 non-assessable.
(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
non-assessable.
(v) GOVERNMENT REGULATION. 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.
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:
7
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 Shares 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 Transac
tion Documents which impose such restrictions.
(c ) PURCHASER STATUS. Purchaser is an
" accredited investor" as defined in Rule 501(a)
under the Exchange 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 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 operating
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 based upon
such information as Purchaser deemed sufficient to
enter into this Agreement and not based on any
statements or representations by the Company.
(f) ORGANIZATION; ORGANIZATIONAL
DOCUMENTS. Purchaser is a limited liability
company duly organized, validly existing and in
good standing under the laws of the State of New
York. 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. Purchaser has delivered to
the Company an accurate and complete copy of (i)
its Articles of Organization, certified by the
Secretary of State of the State of New York and
(ii) the Operating Agreement.
(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 Transac
tion Documents or the completion of the
transactions contemplated thereby, except for the
approval of Merit Operating, LLC, a New York
limited liability company and the managing member
of Purchaser; such approval shall have been
obtained or made to or simultaneously with the
closing of the sale of Preferred Shares on the
Closing Date.
8
(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, ex
cept 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 the Closing Date
shall be subject to the satisfaction of each of
the following conditions precedent on the Closing
Date:
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.
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 Company's business, operations, prospects,
properties or condition (financial or otherwise),
or its ability to perform its obligations
hereunder.
Section 4.3. SUSPENSION OF TRADING.
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.
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 the executed
legal opinion of counsel to the Company, dated the
Closing Date, in form and substance reasonably
satisfactory to the Purchaser and their counsel.
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 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 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.
9
Section 4.9. NO GOVERNMENTAL PROCEEDING
OR LITIGATION. At the Closing Date, 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 pro
ceeding by any governmental body shall have been
instituted, or threatened in writing, which
questions the validity or legality of the
transactions contemplated hereby.
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 the Closing Date, 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 COVENANTS.
Purchaser shall have performed and complied, in
all material respects, with each and every
covenant, agreement and condition required by this
Agreement to be performed or complied with by it
prior to or on the Closing Date.
Section 5.3. NO GOVERNMENTAL PROCEEDING
OR LITIGATION. At the Closing Date, 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 pro
ceeding 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 the executed
legal opinion of counsel to Purchaser, dated the
Closing Date, in form and substance reasonably
satisfactory to the Company and their 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 reasonable 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 that:
10
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 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 STATEMENTS 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, and (ii) all press
releases other than press releases dealing
with the sale of its products in the usual
and ordinary course of its business.
Section 6.3. USE OF PROCEEDS. The
Company will use the proceeds received from the
sale of Preferred Shares (a) for general corporate
purposes and real estate and corporate acqui
sitions and (b) to fund the legal and other
reasonable expenses of the transactions
contemplated by this Agreement and all other
agreements delivered in connection herewith and
therewith.
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.
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.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. SURVIVAL OF AGREEMENTS. The
representations and warranties of the Company and
of Purchaser set forth in Article III hereof shall
survive the Closing until the second anniversary
of the date of this Agreement.
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
11
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 coun
sel of their 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.
Section 7. 3. INDEMNIFICATION OF
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. 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, tele
copy, courier service or personal delivery, and,
if to Purchaser, addressed to Purchaser at:
Merit Partners, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
12
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (212) 269 - 5420
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
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ & Coie
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
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,
13
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS 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. 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 8.7. 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.
Section 8.8. NO RELIANCE. Each party
hereto acknowledges that it has obtained separate
advice with respect to the legal, tax and
accounting consequences of the transactions con
templated by this Agreement, and that it has
neither sought nor relied upon any such advice
from any other party hereto or its Affiliates.
Section 8.9. 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 mat
ter hereof not expressly set forth or referred to
herein.
Section 8.10. 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.
14
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed as of
the date first above written.
EMERITUS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President of Finance
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Authorized Signatory
DESIGNATION
OF RIGHTS AND PREFERENCES
OF
SERIES A CONVERTIBLE EXCHANGEABLE REDEEMABLE
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.
l. DESIGNATION AND AMOUNT.
The shares of such series shall be
designated "Series A Convertible Exchangeable
Redeemable Preferred Stock" (the
"Series A Preferred Stock"), $.0001 par value,
with a stated value of $1,000 per share and the
number of shares constituting the Series A
Preferred Stock shall be 25,000.
2. DIVIDENDS.
(a) RATE AND PAYMENT. The holders of
record of shares of the Series A 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 Accrual
Rate (as defined below) of the stated value per
share of the Series A Preferred Stock. Such
dividends shall be payable quarterly in arrears on
January 1, April l, July 1 and October 1 of each
year ( "Dividend Payment Dates " ) commencing
January 1, 19 9 8, until the earlier to occur of
(i) the date of any conversion, exchange or
redemption of the Series A Preferred Stock (but
only with respect to those shares of Series A
Preferred Stock so converted, exchanged or
redeemed) or (ii) October 24, 2004 (the "Maturity
Date"). Dividends on outstanding Series A
Preferred Stock shall accrue from the date of
original issuance of such Series A Preferred
Stock. If the holders of record of shares of the
Series A Preferred Stock do not receive on a
Dividend Payment Date the full dividends provided
for above, such dividends shall cumulate, whether
or not earned or declared. Whenever, at any tire
or times, cash dividends shall be in arrears in an
amount equal to six (6) full consecutive quarterly
dividends, accrued and unpaid dividends shall be
compounded quarterly (retroactive to the date on
which dividends were last paid) commencing at the
time such sixth quarterly dividend is due and
payable and ending when the number of unpaid
dividends has been reduced below six by payment of
some or all of the dividends in arrears. The
amount of any dividends "accrued" on any share of
the Series A 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 made, compounded as set forth
above, whether or not earned or declared. "Accrual
Rate" means 9% per annum unless the Company shall
be in default in payment of dividends or
performance of its obligations hereunder, in which
case and for which periods such rate shall be 11%
per annum.
(b) RESTRICTED PAYMENT; DIVIDEND
ARREARAGES. So long as any of the shares of
Series A Preferred Stock are outstanding, no
dividends shall be paid or declared, nor any dis
tribution 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 A 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 A Preferred Stock shall have been paid
or declared and payment thereof provided for.
3. LIQUIDATION RIGHTS.
(a) In the event of any liquidation,
dissolution or winding up of the Company, either
voluntary or involuntary (a "Liquidation"), the
holders of the Series A Preferred Stock shall be
entitled to receive a preferential amount equal to
$1,000 for each
2
share of Series A 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 A Preferred
Stock; provided, however, that such rights shall
accrue to the holders of Series A Preferred Stock
only in the event that the Company's payments with
respect to the liquidation preferences of the
holders of capital stock of the Company, if any,
ranking senior as to liquidation rights to the
Series A Preferred Stock are fully met. Upon
receipt of such amount, the holders of the Series
A Preferred Stock shall have no further rights to
participate in any remaining assets of the
Company. If upon the occurrence of such event the
assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then
the entire assets of the Company legally available
for distribution shall be distributed among the
holders of the Series A 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) MANDATORY REDEMPTION. The Company
shall be obligated to redeem on the Maturity Date
(to the extent such redemption shall not violate
any applicable provisions of the laws of the State
of Washington), at a price per share equal to the
Liquidation Preference thereof, together with any
accrued but unpaid dividends, all of the shares of
Series A Preferred Stock. If the Company is unable
on the Maturity Date to redeem the Series A
Preferred Stock because such redemption would vio
late the applicable laws of the State of
Washington, then the Company shall redeem such
shares as soon thereafter as redemption would not
violate such laws.
(b ) OPTIONAL REDEMPTION.
(i) At any time on or after October 24,
2001, the Company may redeem all, or any portion,
of the Series A Preferred Stock then outstanding,
if the Sale Price (as defined below) of the Common
Stock in its principal trading market is at least
130% of the then effective Conversion Price (as de
fined below) in effect for any 20 Trading Days out
of any 40 consecutive Trading Days ending not more
than five Trading Days prior to the date the
notice of redemption is mailed at the redemption
price per share equal to 105% 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 A Preferred Stock held
by each holder thereof.
(ii) For purposes of this statement of
designation, the date of any redemption pursuant
to subsection 4(b)(i) is hereinafter referred to
as an "Optional 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
3
NASDAQ, or, in case no such 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).
(c) REDEMPTION PROCEDURES.
(i) For purposes of this statement of
designation,
"Redemption Date" shall refer to the Maturity Date
or any Optional Redemption Date, and the
applicable redemption price per share as at such
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 A
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 certifi
▇▇▇▇▇ 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 A
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,
together with any accrued but unpaid dividends on
such shares to the Redemption Date, 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. In the event less than all the
shares represented by any such certificate are
redeemed, a new certificate shall be issued
representing the unredeemed shares. 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 A Preferred
Stock designated for redemption in the Redemption
Notice as holders of Series A 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 A 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
of any or all of the shares to be redeemed held by
the holder, then the redemption shall not become
effective as to the 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.
(d) NO OTHER PERMITTED REDEMPTIONS; NO
DEFAULTS; RETIREMENT.
(i) Except as expressly provided in
paragraphs (a) and (b) of this Section 4 and in
Section 5(a), the Company shall have no right to
redeem or exchange the shares of Series A
Preferred Stock.
(ii) No redemption, purchase or exchange
shall be effected pursuant to
4
Sections 4 or 5 if the effect of same would 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 indebted
ness for money borrowed of the Company or
evidenced by notes, bonds, debentures or similar
evidences of indebtedness of the Company.
5. EXCHANGE.
(a) Subject to the restrictions in
Section 5(e) below, shares of the Series A
Preferred Stock shall be exchangeable at the
option of the Company, in whole only, at any time,
in redemption of and in exchange for the shares of
the Series A Preferred Stock, for the Company's 9%
Convertible Debentures (the "Debentures") in the
manner provided in this Section 5. The Debentures
will be subject to the terms and conditions of an
indenture (the "Indenture") with an independent
institutional trustee meeting the qualification
requirements under the Trust Indenture Act of
1939, as amended, in customary form with terms and
conditions substantially equivalent to those of
the Series A Preferred Stock. The Debentures shall
be convertible into Common Stock at the Conversion
Price (as defined below).
(b) The Debentures will be issued solely
in redemption of and in exchange for shares of the
Series A Preferred Stock at the rate of $1,000
principal amount of Debentures for each share of
Series A Preferred Stock on the Debenture Exchange
Date (as defined below).
(c) Not less than 30 nor more than 60
days prior to each date fixed for the issue of
Debentures in redemption of and in exchange for
shares of the Series A Preferred Stock pursuant to
this Section 5, a notice shall be given by first-
class mail, postage prepaid, to the holders of
record of the shares of Series A Preferred Stock
to be exchanged for Debentures at their respective
addresses as the same shall appear on the books of
the transfer agent for the Series A Preferred
Stock, specifying the effective date of the
exchange for the Debentures (the "Debenture
Exchange Date") and the place where certificates
for such shares are to be surrendered for
Debentures and stating that dividends on such
shares will cease to accrue on the Debenture
Exchange Date. Neither failure to mail such
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 and exchange with
respect to any other holder. Any notice mailed in
the manner herein provided shall be conclusively
presumed to have been duly given whether or not
the holder receives the notice.
(d) If notice of redemption and
exchange has been given pursuant to this Section 5
then (unless the Company shall default in issuing
the Debentures in redemption of and in exchange
for shares of the Series A Preferred Stock or
shall fail to pay or set aside accrued and unpaid
dividends on shares of the Series A Preferred
Stock as provided in Section 5(e) and
notwithstanding that any certificates for shares
of the Series A Preferred Stock have not been
surrendered for exchange), on the Debenture
Exchange Date, the holders of such shares shall
cease to be shareholders with respect to the
shares and shall have no interest in or claims
against the Company by virtue thereof (except the
right to receive Debentures in exchange therefor
and such accrued and unpaid dividends thereon to
the Debenture Exchange Date), shall have no
voting, conversion or other rights with respect to
such shares, and such shares shall no longer be
outstanding. Upon the surrender (and endorsement,
if required by the Company) of the certificates
for shares of the Series A Preferred Stock in
accordance with such notice, such certificates
shall be exchanged for Debentures and such accrued
and unpaid dividends in accordance with this
Section 5. If notice of redemption and exchange
has been given pursuant to this Section 5 and any
holder of shares of Series A Preferred Stock to be
exchanged for Debentures shall, prior to the close
of business on the Debenture Exchange Date, give
written notice to the Company pursuant to Section
7(c) of the conversion of any or all of the shares
to be redeemed and exchanged held by the holder,
then the redemption and
5
exchange shall not become effective as to the
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 and exchange 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.
(e) Prior to giving notice of intention
to exchange, the Company and the Trustee shall
execute and deliver the Indenture, with such
changes therein as may be required by law, or the
rules of any securities exchange on which the
Debentures are to be listed, if any. The Company
will cause the Debentures to be authenticated on
or before the first Debenture Exchange Date.
Additionally, prior to giving the first notice of
intention to exchange, the Company shall (i)
register the Debentures for trading through The
Depository Trust Company, (ii) list the Debentures
for inclusion in the principal trading market in
which the shares of the Series A Preferred Stock
were trading, if any, immediately prior to such
exchange, and (iii) arrange for the qualification
of the Debentures under applicable securities and
blue sky laws, to the extent necessary under such
laws. If on the Debenture exchange Date the
Company has failed to pay or set aside, separate
and apart from its other funds, in trust for the
pro rata benefit of the holders of shares of the
Series A Preferred Stock, all dividends accrued
and unpaid on the shares of the Series A Preferred
Stock to such Debenture Exchange Date then no
shares of the Series A Preferred Stock shall be
redeemed or exchanged for Debentures.
(f) Prior to or upon the consummation of
any exchange pursuant to this Section 5, the
holders shall have received an opinion from
Company counsel, in form and substance reasonably
satisfactory to the holders, that the Indenture
(i) has been duly authorized, executed and
delivered by the Company and (ii) constitutes a
valid and binding agreement of the Company,
enforceable against the Company in accordance with
its terms.
(g) The Company agrees to indemnify and
hold harmless each holder of Preferred Stock
against any tax liabilities or other tax
detriments occasioned by an exchange of the Series
A Preferred Stock for Debentures.
6. VOTING RIGHTS.
(a) Each issued and outstanding share
of Series A 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) $500,
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 subsections (b) and
(c) below, holders of Series A 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 A 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; provided, that if the number of di
rectors on the Board of Directors shall be
increased, such number of directors of the Company
which the holders of Series A Preferred Stock
shall have the right to elect shall be that number
of directors (rounded downward, in the case of a
non-integer result, to the then existing integer),
and the replacements and any successors thereto,
to the Board of Directors of the Company so that
at all times the number of directors so elected
shall be equal to the product obtained by
multiplying (x) the number of directors
constituting the Board of Directors of the Company
at such time by (y) 1/7. Upon the vesting of such
right of the holders of the Series A Preferred
Stock, any applicable number of directors of
6
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 one and the vacancy
so created shall be filled immediately by vote of
the holders of the outstanding Series A Preferred
Stock as hereinabove set forth. Such right of the
holders of the Series A 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 dividends
accumulated on the Series A 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 A 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 A Preferred Stock
voting pursuant to this Section 6 as a class shall
terminate immediately.
(iii) If the office of any director
elected by the holders of the Series A Preferred
Stock voting as a class becomes vacant by reason
of death, resignation, retirement, dis
qualification, removal from office or otherwise,
the holders of the Series A 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 A Preferred Stock voting as
a class shall end and the special voting powers
vested in the holders of the Series A 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.
(c) The Company shall not amend, alter
or repeal the preferences, special rights or other
powers of the Series A Preferred Stock so as to
affect adversely the Series A Preferred Stock,
without the written consent or affirmative vote of
the holders of a least a majority of the then
outstanding aggregate number of shares of Series A
Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be)
separately as a voting group.
7. CONVERSION. The holders of the Series
A Preferred Stock shall have conversion rights as
follows (the
"Conversion Rights " ) :
(a) OPTIONAL CONVERSION. Each share of
Series A Preferred Stock may be converted at
any time, and from time to time, at or prior
to the Maturity Date, at the option of the
holder thereof, in the manner hereinafter pro
vided, into such number of shares of fully-
paid and non-assessable shares of Common
Stock as shall equal (i) the Liquidation
Preference per share of Series A Preferred
Stock divided by (ii) the then effective
Conversion Price (as defined below);
provided, however, that upon any redemption
of any Series A 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 A Preferred Stock;
provided, further, that if the initial sale
and issuance by the Company of the Series A
Preferred Stock shall be subject to the
provisions of the HSR Act, no shares of ▇▇
▇▇▇▇ A Preferred Stock may be converted at
the option of the holder thereof until the
required approval or waiver of waiting
periods under the HSR Act shall have been ob
tained.
(b) CONVERSION PRICE. The initial
conversion price (the "Conversion Price")
shall be equal to $18.20 per share, subject
to adjustment as provided in Section 8.
7
(c) CONVERSION MECHANICS.
(i) In order to exercise the conversion
privilege, the holder of any Series A
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 A
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 A
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 A
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 A Preferred Stock
as aforesaid, the Company shall cause to be
issued and delivered at such office 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 7(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 A 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 A
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) From and after the Initial Issuance
Date, the Company shall at all times when the
Series A 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 A 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 A Preferred Stock. For the purposes of
this statement, "Initial Issuance Date" shall
mean October 24, 1997.
(iv) All shares of Series A 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.
8. ANTI-DILUTION PROVISIONS. The
Conversion Price shall be subject to adjustment
from time to time as follows:
8
(a) 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 out
standing 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 con
stituting such dividend or other
distribution.
(b) 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.
(c) 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(b) hereof and
excluding regular quarterly cash dividends on
the Common Stock not in excess of $1.64 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 denomina
tor shall be the Fair Market Value per share
of the Common Stock.
As used in this Section 8, "Fair Market
Value" means:
(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 regular way 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 ex
change, 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 Com
pany (irrespective of the accounting
treatment thereof).
(d) 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 A Preferred
Stuck shall thereafter be convertible into
the number of shares of stock or other
9
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 A
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 in the application of the provisions
herein set forth with respect to rights and
interests thereafter of the holders of the
Series A Preferred Stock, to the end that the
provisions set forth herein (including the
specified changes 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 A Preferred Stock.
(e) NOTICE OF ADJUSTMENTS. Whenever the
Conversion Price is adjusted as provided in
this Section 8, 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 8. Such
statement shall include a statement of the
then current total amount of Fully Diluted
Common Shares and the total amount of Fully
Diluted 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 A
Preferred Stock within 30 days of such
adjustment.
(f) 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 hold
ers 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 A 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.
9. SPECIAL RIGHT OF REDEMPTION UPON
CHANGE IN CONTROL.
(a) If a Change in Control (as defined
below) should occur with
10
respect to the Company, each holder of shares of
the Series A 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 A Preferred Stock
for a price per share equal to 101% of the
Liquidation Preference thereof (the
"Repurchase Price"), together with any accrued and
unpaid dividends on such shares.
(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 A Preferred
Stock a notice setting forth details regarding the
special right of the holders to have their shares
of Series A Preferred Stock repurchased as a
result of such Change in Control ( the " Special
Right Notice"). A holder of a share of Series A
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 ▇▇
▇▇▇▇ A 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 A Preferred Stock for
repurchase, (iii) the Repurchase Price, (iv) the
Conversion Price then in effect under Section 7
and the continuing conversion rights, if any,
under Section 7, (v) the name and address of any
paying agent and conversion agent, (vi) that ex
ercise of such conversion right shall be
irrevocable and no dividends on shares of Series A
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 A
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")
(excluding, for this purpose, ▇▇▇▇▇▇ ▇. ▇▇▇▇ or
any person or entity controlled by ▇▇▇▇▇▇ ▇. ▇▇▇▇)
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.
10. NO REISSUANCE OF SERIES A PREFERRED
STOCK. All shares of Series Preferred Stock
acquired by the Company by reason of redemption,
exchange, conversion, purchase or other wise shall
be retired as Series A Preferred Stock (and the
number of authorized shares of Series A 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 A Preferred Stock.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the
"Agreement"), dated as of October 24, 1997, is
made and entered into by and among Emeritus
Corporation, a Washington corporation (the
"Company"), and the holders (collectively,
together with their assigns, the "Holders") of the
Preferred Stock (as defined herein).
WHEREAS, concurrently with the issuance
of the 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 Secu
rities 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.
"Convertible Debentures" means the
Company's 9% Convertible Debentures due 2004.
"Holders" has the meaning assigned such
term in the preamble hereto.
"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.
"Preferred Stock" means the Company's
Series A Convertible Exchangeable Redeemable
Preferred Stock, $.0001 par value per share,
issued to the Holders pursuant to a Preferred
Stock Purchase Agreement, dated as of the
date hereof, between the Company, as seller,
and the Holders as purchaser.
,
"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 Preferred Stock or if the Preferred
Stock has been exchanged for Convertible
Debentures, each
2
Convertible Debenture, each share of Common
Stock issuable upon conversion of such
Preferred Stock or Convertible Debenture
and, if such Preferred Stock or Convertible
Debenture has been converted, each share of
Common Stock issued in connection with such
conversion; 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.
"Requisite Holders" means the holders,
at any time, of the outstanding Registrable
Securities representing more than 50% of the
aggregate of Registrable Securities at the
time outstanding.
"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 Com
mission.
"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.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1 REGISTRATION ON DEMAND.
2.1.1 DEMAND. At any time following
October 24, 1998, upon the written request (each,
a "Demand"; collectively, "Demands") of the
Requisite Holders (the "Demand Holders") 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 Holders,
the registration under the Securities Act of the
Registrable Securities which the Company has been
so requested to register by the Demand Holders;
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
Holders may, at their option, request (the "Shelf
Demand") that any registration statement effected
pursuant to a Demand pursuant to Section to 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 i Ii
such registration statement, and (ii) one year
after the date on which such Shelf Registration
Statement is declared effective.
2.1.3 REGISTRATION STATEMENT FORM.
Registrations under this Section 2.1 shall be on
such appropriate registration form of the
Commission as shall
3
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 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 following the ef
fective date of a registration statement (other
than pursuant to registrations on Form S-4 or Form
S-8 or any successor form or other forms not
available for registering securities for sale to
the public at large) 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 Holders of a majority
of the Registrable Securities to be included in
such registration 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 Holders of a majority
of the Registrable Securities to be included in
such registration shall select a managing
underwriter or underwriters of recognized national
standing reasonably acceptable to the Company to
administer the offering.
2.1.8 REGISTRATION OF OTHER SECURITIES.
A registration statement filed pursuant to the
request of the Demand Holders may, subject to the
provisions of Section 2.5 hereof, include (i)
Registrable Securities of Holders not making a de
mand 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 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 pro
posal, negotiations or plan by the Company or any
of its subsidiaries to engage in any acquisition
or disposition of
4
assets or any merger, consolidation, tender offer,
reorganization or similar transaction, or any
other material corporate event contemplated by the
Company. In addition, the Company shall not be
required to register Registrable Securities on a
date on which, under the general rules and
regulations of the Commission as advised by
counsel, the inclusion therein, by incorporation
or by reference, of financial statements of the
Company contained in the annual or quarterly
report of the Company most recently filed with the
Commission would not be permitted, provided that
this exception shall not permit delay or
suspension of registration beyond the filing of
the next required annual or quarterly filing under
the Securities Exchange Act.
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 of its equity securities 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 other forms not available for
registering securities for sale to the public at
large), 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
15 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 terminate or
withdraw any registration initiated by it under
this Section 2.2 prior to the effectiveness of
such registration 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 the 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 regis
trations to permit the sale of 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
5
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 initia
tion 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 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 require
ments 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 re
quired 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;
6
(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 mate
rial 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 number of copies of
a Prospectus supplemented or amended
(whereupon all previous versions of the Pro
spectus 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 NASDAQ) 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 Requisite Holders 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;
(p) upon execution and delivery of such
confidentiality agreements as the Company
shall reasonably request (which agreement
shall not restrict any such person's ob
ligations 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
7
effected pursuant to such Registration
Statement and by any attorney, accountant or
other agent retained by any such seller 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 inves
tigation 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 (i) 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 rec
ommendation 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, or (ii) 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 deletion of the reference to such
Holder.
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, the costs and expenses
associated with the filing required to be made by
the NASD, transfer taxes, fees of transfer agents,
registrars and trustees, costs of insurance (but
excluding underwriting discounts and commissions
to the extent they relate to Registrable
Securities), 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
expenses shall be paid by the Company with respect
to only one (1) of the two (2) registrations
provided for in Section 2.1.1 and shall otherwise
be paid by the Holders of Registrable Securities
whose Registrable Securities are included, pro
rata in proportion to such shares included.
SECTION 2.5 MARKETING RESTRICTIONS. If
(i) any Holder of Registrable Securities requests
registration of Registrable Securities under
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
such securities in such registration 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 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 Holders of 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 held by each) first; and (ii) then
the Company and other security holders of the
Company
8
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 al
locations 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 shall be entitled to participate
in such registration (pro rata based on the
number of shares of Common Stock held by each
Holder, the Company and 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 al
locations 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 other
forms not available for registering capital
stock for sale to the public at large) 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 Se
curities 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, or (c) such Registrable Securities
have been sold through a broker, dealer or
underwriter in a public distribution or a public
securities transaction in which the transferee
receives a certificate without a restrictive
legend.
SECTION 2.7 RULE L44. 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 other
information so long as such information is nec
▇▇▇▇▇▇ 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
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
9
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 un
derwriter 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 under
writer 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 regis
tered 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 any such
seller or any such director, officer, general or
limited partner, underwriter, independent under
writer, 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
10
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 in writing 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.
(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 in
demnification 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 regis
tration) 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
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
11
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 writ
ing 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 con
tract and shall remain in full force and effect
following the transfer of the Registrable
Securities by any such party.
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.
12
(c) If so directed by the Company in
connection with a notice under Section 2.3(i),
each Holder will deliver to the Company (at the
Company's expense) all copies, other than per
manent file copies then in such Holder's
possession, of the Prospectus covering such
Registrable Securities that was current
immediately prior to the time of receipt of such
notice. 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.
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 Commis
sion and under state securities laws, no
13
action or approval by, or filing or
registration with, any court or governmental
agency or body is required for the consumma
tion of the transactions contemplated by this
Agreement by the Company.
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, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ , ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇; with a copy
to ▇▇▇▇▇▇▇ & Coie, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, 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 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.
14
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.
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, writ
ten 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
non-exclusive 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 ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, 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.
15
IN WITNESS WHEREOF, the parties hereto have
entered into this Agreement as of the date first
set forth above.
EMERITUS CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President of Finance
HOLDERS:
MERIT PARTNERS, LLC
By: MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Authorized Signatory
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of
October 24, 1997, by and among Emeritus
Corporation, a Washington corporation (the
"Company"), ▇▇▇▇▇▇ ▇. ▇▇▇▇ and B.F., Limited
Partnership (collectively, "▇▇▇▇") and Merit
Partners, LLC, a New York limited liability
company ( "Northstar" ).
RECITALS:
A. The Company and Northstar are parties
to a Preferred Stock Purchase Agreement, dated as
of the date hereof, between the Company, as
seller, and Northstar, as purchaser (the "Purchase
Agreement"), pursuant to which the Company is
issuing and Northstar is acquiring 25,000 shares
of the Company's Series A Convertible Exchangeable
Redeemable Preferred Stock, par value $.0001 per
share (the "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 Preferred Stock and the rights
and remedies of Northstar.
AGREEMENT:
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.
Agreement.
"▇▇▇▇" is defined in the first paragraph
of this
"Capital Stock" means the Preferred
Stock and any Common Stock into which the
Preferred Stock or Convertible Debentures are
convertible.
"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.
"Convertible Debenture" means the
Company ' s 9% Convertible Debentures due 2004.
"Designation" means that certain
statement of rights and preferences
2
and other characteristics of the Preferred Stock
pursuant to which the Preferred Stock was
authorized by the Company.
"Initial Northstar Director" shall mean
▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"1933 Act" means the Securities Act of
1993, as amended.
"1934 Act" means the Securities Exchange
Act of 1934, as amended.
Agreement.
"Northstar" is defined in the first
paragraph of this
"Northstar Director" shall mean the
Initial Northstar
Director and any person chosen by Northstar and
reasonably acceptable to the Company to be added
to the Company's Board of Directors as provided
for herein.
"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.
"Preferred Stock" is defined in Recital
A of this
Agreement.
"Restricted Period"' is defined in
Section 2.1 (b) of this Agreement.
"Restricted Person" is defined in
Section 2.1 (c) of this Agreement.
"Right of First Refusal" is defined in
Section 2. l (c) of this Agreement.
"Right of First Refusal Notice" is
defined in Section 2.1(d) of this Agreement.
"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
SECTION 2.1. TRANSFERS BY NORTHSTAR. (a)
Northstar shall not Transfer any Capital Stock
owned by it except as expressly permitted in this
Section 2.1.
(b) Northstar agrees that for a period
of twelve (12) months from the date hereof (the
"Restricted Period"), it will not Transfer any or
all of the Capital Stock.
(c) After the Restricted Period,
Northstar may Transfer any or all of the Capital
Stock to any Person and on any terms without the
consent of the Company; provided, however, that in
the event of any Transfer to any Person that at
the time of the Transfer is, or would become upon
acquisition of any Capital Stock, required to file
under Section 13(d) of the 1934 Act (such Person,
a "Restricted Person"), the Company shall have a
right of first refusal ("Right of First Refusal"')
in respect of any such Transfer as provided in
paragraph (d) below.
(d) In the event Northstar at any time
after the Restricted Period receives and
determines to accept an offer from a Restricted
Person to purchase any or all
3
of the Capital Stock held by Northstar, Northstar
shall deliver a written notice to the Company (a
"Right of First Refusal Notice") of such offer
which sets forth the number of shares of Capital
Stock to be sold, the price at which they are to
be sold and any other terms and conditions of the
offer. The Company shall have seven (7) days
following its receipt of the Right of First Re
fusal Notice to elect to exercise its Right of
First Refusal to purchase the Capital Stock on the
same terms, conditions and provisions set forth in
the Right of First Refusal Notice (the actual date
of exercise, the "Exercise Date"). If the Company
shall so elect to exercise its Right of First
Refusal, the Company shall, within 21 days of the
Exercise Date, (i) enter into a binding agreement
with Northstar to consummate the purchase upon
substantially the same terms and conditions as set
forth in the Right of First Refusal Notice and
(ii) pay to Northstar an amount equal to 25% of
the aggregate purchase price, it being understood
that the balance of the purchase price shall be
paid by the Company to Northstar, with interest at
a rate of 9%, within 90 days of the Exercise Date.
(e) Failure by the Company so to
exercise its Right of First Refusal shall
constitute a waiver of the Company's Right of
First Refusal as to that offer, and Northstar
shall have the right to consummate the transaction
set forth in the Right of First Refusal Notice on
substantially the terms and at a purchase price
equal to or greater than the purchase price
therein set forth, and, upon closing of such
transaction, the Company's Right of First Refusal
shall terminate with respect to such Right of
First Refusal Notice. If (A) the closing under the
Right of First Refusal Notice shall not occur
within 45 days of the earlier of (x) the
expiration of the seven-day period specified in
paragraph (d) above for the exercise of the Right
of First Refusal and (y) the date upon which the
Company shall notify Northstar in writing that the
Company does not elect to purchase the Capital
Stock pursuant to the terms set forth in the Right
of First Refusal Notice or (B) Northstar intends
to sell the Capital Stock to a Restricted Person
with terms, conditions or provisions not
substantially as set forth in the Right of First
Refusal Notice or at a purchase price less than
the purchase price set forth in the Right of First
Refusal Notice, then in any such event, Northstar
shall again comply with the provisions set forth
in Section 2(d).
(f) In the event that such Restricted
Person acquires Capital Stock from Northstar, such
Restricted Person, as a condition to closing such
acquisition, shall enter into an agreement
reasonably satisfactory to the Company to be bound
by the provisions of Section 2.1 (excluding,
however, Section 2.1(b) hereof) and Article IV of
this Agreement.
SECTION 2.2. TAG-ALONG PROVISIONS. (a)
If at any time ▇▇▇▇ 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 related transactions, shares of
Common Stock representing 50% or more of the
Common Stock owned by ▇▇▇▇ (a "Tag-Along Sale"),
then ▇▇▇▇ shall afford Northstar the opportunity
to participate in such Tag-Along Sale in the
manner set forth in this Section 2.2.
(b) ▇▇▇▇ shall provide Northstar with
written notice of the proposed Tag-Along Sale
which 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
30 days before the proposed date of the Tag-Along
Sale (the "Tag-Along Sale Date " ).
(c) Northstar shall have the right to
cause ▇▇▇▇ to condition the Tag-Along Sale on the
simultaneous purchase by the purchaser of such
number of shares of Common Stock owned by
Northstar as Northstar shall designate in a
written notice to ▇▇▇▇ no less than 20 days after
the notice given in accordance with Section
2.2(b); provided, however, that Northstar may not
so designate for purchase a number of shares of
Common Stock greater than the number owned by
Northstar, multiplied by a fraction the numerator
of which is the number of shares of Common Stock
then outstanding and owned by ▇▇▇▇ which are
subject to the Tag-Along Sale and the denominator
of which is
4
the total number of shares of Common Stock then
outstanding and owned by ▇▇▇▇. The purchase price
for each share of the Company's Common Stock to be
sold by Northstar at the Tag-Along Sale and the
terms of such purchase shall be the same as those
applicable to ▇▇▇▇.
SECTION 2. 3. TRANSFERS TO COMPLY
WITH LAWS. Notwithstanding any contrary provision herein, Northstar 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
▇▇▇▇ 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
Northstar Directors at the times and as specified
below:
(i) as soon as practicable after
the execution of this Agreement, the Initial
Northstar Director shall be added to the
Company's Board of Directors;
(ii) at such time as Northstar
invests at least an additional $25,000,000
(whether in the form of indebtedness or
equity) into the Company or any Affiliate of
the Company, an additional Northstar Director
shall be added to the Company's Board of
Directors.
(iii) if at any time after the date
hereof the number of members of the Board of
Directors of the Company is increased,
additional Northstar Directors shall be added
to the Company's Board of Directors so as to
maintain Northstar's representation at a
fraction not less than one-seventh (1/7) of
entire Board of Directors.
(b) Northstar's right to have one or
more Northstar Directors added to the Company's
Board of Directors will terminate if (i) (x) it
has sold of record any of its initial investment
in the Capital Stock (or the Convertible
Debentures for which it has been exchanged) and
(y) the remaining shares of Capital Stock held by
Northstar represents less than 5% of the
outstanding Common Stock (on a fully diluted
basis), (ii) there is a Change of Control of
Northstar or (iii) Northstar is unable to exercise
independent voting control over the shares of
Capital Stock owned by it.
(c) For so long as Northstar shall be
entitled to the benefits of Section 3.1(a) of this
Agreement, Northstar agrees not to exercise its
rights as provided for in Section 6(b) of the
Designation. At such time as Northstar or any
holder of the Preferred Stock is no longer
entitled to the benefits of Section 3.1(a) of this
Agreement, Northstar or such holder, as the case
may be, shall be entitled to exercise the rights
set forth in Section 6(b) of the Designation.
SECTION 3.2. CORPORATE GOVERNANCE. (a)
For so long as there has been no Change of Control
of Northstar and Northstar retains the power to
vote the shares comprising at least 50% of its
initial investment, approval by the Company's
Board of Directors will be required for all
material decisions, including, but not limited to,
the following:
(i) the incurrence by the Company
or any Subsidiary of any indebtedness in an
amount exceeding that which is permitted by
the resolutions of the Board of Directors of
the Company adopted on February 20,
5
1997;
(ii) any investment by the Company or
any Subsidiary
in an amount exceeding that which is
permitted by the resolutions of the Board of
Directors of the Company adopted on February
20, 1997;
(iii) the liquidation, dissolution or
winding up of the Company or any Subsidiary;
(iv) a sale or other disposition of
all or substantially all of the assets of the
Company, other than to any Subsidiary;
(v) 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;
(vi) any affirmative action that
would result in a fundamental change in the
nature of the business conducted by the
Company or any Subsidiary, other than actions
compelled by law, rule, regulation, order or
decree;
(vii) the entry by the Company or a
Subsidiary into any material transaction with
an Affiliate; and
(viii) any amendment to the restated
articles of incorporation or restated by-laws
of the Company which adversely affects the
rights of Northstar under this Agreement.
(b) Until October 24, 2001, the Company
shall not, without the approval of the Northstar
Directors (i) issue shares of any equity security
that are senior or pari pasu to the Preferred
Stock as to dividends or liquidation rights or
(ii) declare or pay any dividends on any of the
Company's Common Stock. Section 8(c) of the
Designation shall apply to any dividends paid
pursuant to such consent.
ARTICLE IV
STANDSTILL PROVISIONS
SECTION 4.1. RESTRICTIONS OF CERTAIN
ACTIONS BY NORTHSTAR. (a) Unless consented to in
advance by the Company, Northstar will not, and
will cause each of its Affiliates not 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
other than the Preferred Stock and the Common
Stock into which the Preferred Stock and
Convertible Debentures are convertible, except
pursuant to a stock split, stock dividend, rights
offering, recapitalization, reclassification or
similar transaction.
(b) If Northstar or any of its
Affiliates owns or acquires any voting securities
in violation of this Agreement, such voting
securities shall immediately be disposed of to per
sons who are not Affiliates thereof 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) Northstar will cause (i) any Person
acquiring Capital Stock from Northstar
representing more than 25% of Northstar's initial
investment or (ii) any Restricted Person acquiring
an interest in the Company from Northstar to agree
to be bound by provisions similar to those
contained in this Article IV and in Section 2.1 of
6
this Agreement (excluding however, Section 2.1 (b)
hereof ).
(d) The provisions of this Article IV
will terminate as follows:
(i) if the Company commits a material
breach of its
obligations under this Agreement, 30
days after written notice by Northstar to the
Company of such breach unless the Company
cures such breach within such 30-day period;
and
(ii) 18 months after the date on
which Northstar 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 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
October 24, 1997, 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 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, ad
dressed as aforesaid, or (iii) if given by any
other means, where 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 each 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. The
Company may not assign or otherwise transfer any
of its rights 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
7
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.
(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,
Northstar (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. 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 ▇▇▇
▇▇▇▇▇▇ 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 5.9. 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.
SECTION 5.10. 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 5.11. ENTIRE AGREEMENT. This
Agreement and agreements executed
contemporaneously 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.
8
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President of Finance
Emeritus Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------
▇▇▇▇▇▇. ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
B.F., LIMITED PARTNERSHIP
By: Columbia-Pacific Group,
Inc., General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chairman
B.F., Limited Partnership
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
9
MERIT PARTNERS, LLC
By : MERIT OPERATING, LLC
By: NORTHSTAR OPERATING, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Authorized Signatory
Merit Partners, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇