EXHIBIT 4.1
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
By and Among
EMERITUS CORPORATION,
as Seller,
and
SARATOGA PARTNERS IV, L.P.,
as Purchaser
__________________________________________
Dated as of December 10, 1999
__________________________________________
PREFERRED STOCK PURCHASE AGREEMENT
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PREFERRED STOCK PURCHASE AGREEMENT, dated as of December 10, 1999, by and
among EMERITUS CORPORATION, a Washington corporation (the "Company"), as seller,
and Saratoga Partners IV, L.P., a Delaware limited partnership ("Saratoga" and,
collectively with its successors and assigns, the "Purchaser"), as purchaser.
RECITALS:
A. The Company proposes to issue and sell to the Purchaser for cash 40,000
shares (the "Preferred Shares") of its Series B Convertible Preferred Stock, par
value $.0001 per share (the "Preferred Stock").
B. The Preferred Shares will be issued pursuant to and subject to the
terms and conditions of this Agreement (the term "this Agreement" as used herein
or in any Exhibit or Schedule hereto shall mean this Agreement and the Exhibits
and Schedules hereto individually and collectively as they may from time to time
be modified or amended).
AGREEMENT
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The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
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Section 1.1. Definitions. As used in this Agreement, unless the context
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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.
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"Business Day" means any day except Saturday, Sunday and any day that is a
legal holiday or on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Closing Dates" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Designation" means that certain statement of designation of rights and
preferences and other characteristics of the Series B Convertible Preferred
Stock of the Company, annexed hereto as Exhibit A, pursuant to which the
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Preferred Stock was authorized by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Initial Closing" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Losses" means all damages, losses, penalties, fines, settlement payments,
obligations to third parties, claims, costs or expenses actually suffered or
incurred by such Person excluding any consequential, special or punitive
damages.
"Partnership Agreement" means the partnership agreement of Purchaser, dated
as of September 17, 1998, pursuant to which the Purchaser is organized and
governed.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Shares" has the meaning set forth in the recitals of this
Agreement.
"Preferred Stock" has the meaning set forth in the recitals of this
Agreement.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Registration Rights Agreement" means the certain registration rights
agreement annexed hereto as Exhibit B.
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"SEC" means the Securities and Exchange Commission.
"SEC Documents" is defined in Section 3.1(1) of this Agreement.
"Second Closing" has the meaning provided therefor in Section 2.1 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholders' Agreement" means that certain shareholders' agreement
annexed hereto as Exhibit C.
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"Subsidiary" means, with respect to any Person, (i) a corporation, a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by a Subsidiary of such Person or by such Person and a Subsidiary thereof or
(ii) any other Person (other than a corporation) in which such Person, a
Subsidiary thereof or such Person and a Subsidiary thereof, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Transaction Documents" is defined in Section 3.1(d) of this Agreement.
Section 1.2. Construction. When used herein the words "herein",
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"hereunder", "hereby", "hereof" and similar words refer to this Agreement as a
whole. All references to a party's "knowledge" refer to actual knowledge and
not to any constructive or imputed knowledge.
ARTICLE II
PURCHASE OF SHARES
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Section 2.1. Purchase of Shares; the Closing.
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(a) On the terms and subject to the conditions herein set forth, the
Company shall sell to Purchaser and Purchaser shall purchase from the Company on
the Closing Dates the Preferred Shares for a purchase price of $40,000,000.
(b) The purchase and sale of (i) at least 30,000 of the Preferred Shares
shall take place at a closing (the "Initial Closing") to be held at the offices
of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (the
"Cahill Offices"), at 10:00 a.m. local time, on the date that is not more than
20 days from the date hereof, provided that all conditions set forth in Article
IV and Article V have been satisfied or waived, or at such other time or place
as the Company and the Purchaser mutually agree, but no later than
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January 31, 2000, and (ii) with respect to any Preferred Shares not purchased at
the Initial Closing, such remaining Preferred Shares shall take place at a
closing (the "Second Closing" and, together with the Initial Closing, the
"Closing Dates" at the Cahill Offices, at 10:00 a.m. local time, on the date
that is not more than 90 days from the date of the Initial Closing, provided
that all conditions set forth in Article IV and Article V have been satisfied or
waived, or at such other time or place as the Company and the Purchaser mutually
agree, but no later than April 30, 2000.
(c) Delivery of the Preferred Shares shall be made at the Closing by
delivery to Purchaser, against payment of the purchase price therefor provided
in Section 2.1(a), of a stock certificate representing the Preferred Shares duly
registered in the name of Purchaser.
(d) Payment of the purchase price to the Company for the Preferred Shares
shall be made by wire transfer of same day funds pursuant to the Company's
written instructions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Section 3.1. Representations and Warranties of the Company.
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In order to induce Purchaser to enter into this Agreement and to purchase
the Preferred Shares, the Company hereby represents and warrants to, and agrees
with, Purchaser and its successors, endorsees and assigns that:
(a) Statement of Designation. Before the Initial Closing, the Company will
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file the Designation with the Secretary of State of the State of Washington.
Upon filing the Designation and the resolutions of the Company's Board of
Directors contained therein will be in full force and effect.
(b) Organizational Documents. The Company has delivered to Purchaser an
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accurate and complete copy of (a) its Restated Articles of Incorporation and all
amendments thereto, certified by the Secretary of State of the State of
Washington, and (b) its Amended and Restated Bylaws and all amendments thereto,
certified by its Secretary or Assistant Secretary.
(c) Existence and Qualification. The Company is a corporation duly
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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
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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
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necessary to own, operate or lease its properties and assets and to conduct its
business as now conducted by it. The Company has all corporate power and
authority necessary to issue the Preferred Shares pursuant to the Designation,
and to execute, deliver, and perform its obligations under this Agreement, the
Registration Rights Agreement and the Shareholders' Agreement (collectively, the
"Transaction Documents").
(e) Corporate Action. The Company has taken all corporate action required
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to authorize the issuance of the Preferred Shares pursuant to the Designation
and the execution, delivery and performance of the Transaction Documents.
(f) Execution and Delivery. The Company has duly executed and delivered
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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
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person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any governmental authority is
required to be obtained or made by or on behalf of the Company in connection
with the offer, issuance and sale of the Preferred Shares, the issuance of the
Common Stock upon conversion of the Preferred Shares, the execution, delivery or
performance of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for (i) the filing of the Designation
in the state of Washington, and (ii) filings with the SEC, the American Stock
Exchange ("AMEX") and under state securities laws that may be required; each of
which shall have been obtained (subject to notice of issuance in the case of
clause (ii) above) or made prior to or simultaneously with the closing of the
sale of Preferred Shares on the Initial Closing.
(h) Binding Effect. Each of the Transaction Documents is a legal, valid
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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
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execution, delivery and performance of the Transaction Documents by the Company
do not and will not (i) conflict with or violate any provision of the Restated
Articles of Incorporation or Amended and Restated By-laws of the Company, (ii)
conflict with that
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certain Shareholder Agreement, dated as of April 17, 1995, between Assisted
Living of America, Inc. and various other parties, that certain Shareholders'
Agreement dated as of October 24, 1997 between the Company, Daniel R. Baty, B.F.
Limited Partnership and Merit Partners, LLC or that certain Registration Rights
Agreement dated as of October 24, 1997 between the Company and Merit Partners,
LLC, (iii) conflict with or result in a violation, breach or default by the
Company or any of its Subsidiaries under (x) any provision of any existing
statute, law, rule or regulation binding on it or any order, judgment, award,
decree, license or authorization of any court or governmental instrumentality,
authority, bureau or agency binding on it or any of its Subsidiaries, or (y) any
material provision of any mortgage, indenture, lease or other contract,
agreement, instrument or undertaking to which it or any of its Subsidiaries is a
party or will be a party immediately after the Initial Closing, or by which or
to which it or any of its Subsidiaries or any of its or any of its Subsidiaries'
property or assets is now or immediately after the Initial Closing will be bound
or subject, or (iv) result in the creation or imposition of any lien,
encumbrance or other charge on any of its or any of its Subsidiaries' properties
or assets.
(j) No Defaults. None of the Company or its Subsidiaries is, or
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immediately after each of the Initial Closing and the Second Closing will be, in
default under or in violation of (i) its Restated Articles of Incorporation or
Amended and Restated Bylaws, (ii) any agreement or instrument to which it is a
party relating to its indebtedness for borrowed money, (iii) any other agreement
or instrument to which it is a party, (iv) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any court or governmental authority
having jurisdiction over it, or (v) any license, permit, certification or
approval requirement of any customer, supplier, governmental authority or other
person, in any way that could reasonably be expected to have a material adverse
effect on the business, operations, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole, or the
Company's ability to perform its obligations under any of the Transaction
Documents.
(k) Capitalization and Stockholders. The entire authorized, issued and
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outstanding capital stock of the Company was as set forth in the SEC Documents,
on and as of the dates indicated therein. Immediately after each of the Initial
Closing and the Second Closing, all outstanding shares of capital stock will be
duly and validly issued and after each of the Initial Closing and the Second
Closing, except as described in the SEC Documents and other public announcements
by the Company, and except for the Preferred Shares, there will be no options,
warrants or other rights outstanding or proposed involving the issuance of any
additional shares of capital stock of the Company, and except for (i) the
Registration Rights Agreement, (ii) that certain registration rights agreement,
dated as of February 8, 1996, between the Company and holders of its 6.25%
Convertible Subordinated Debentures due 2006, (iii) that certain Shareholder
Agreement, dated as of April 17, 1995, between Assisted Living of America, Inc.
and various other
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parties and (iii) Registration Rights Agreement dated as of October 24, 1997
between the Company and Merit Partners, LLC, there will be no agreements or
other instruments providing registration rights to stockholders or holders of
other securities of the Company.
(l) SEC Documents.
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(i) The Common Stock of the Company is registered pursuant to Section
12(b) of the Exchange Act and the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC. The Company has delivered or made available to the Purchaser true
and complete copies of (i) its annual reports on Form 10-K and quarterly reports
on Form 10-Q for its 1997 and 1998 fiscal years, (ii) proxy statements,
information and solicitation materials filed by the Company with the SEC since
January 1, 1997, and (iii) each other report, registration statement, proxy
statement and other document filed with the SEC since the filing of its most
recent Form 10-K (all of the foregoing, collectively, the "SEC Documents"). The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement.
(ii) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(m) Financial Statements. The financial statements of the Company included
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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).
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(n) No Material Adverse Changes. Since December 31, 1998, the date through
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which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or reflected in other SEC Documents
or other public announcements of the Company, or otherwise disclosed in writing
to the Purchasers on or before the date of this Agreement.
(o) No Undisclosed Events or Circumstances. No event or circumstance has
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occurred or exists with respect to the Company or its Subsidiaries, or their
respective businesses, properties, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company and which has not been so publicly disclosed or
announced, or otherwise disclosed in writing to the Purchasers on or before the
date of this Agreement.
(p) No General Solicitation. Neither the Company, nor any of its
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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
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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
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brokers, agents or finders in carrying on the negotiations relating to this
Agreement or to the transactions herein contemplated, except that the Company
has agreed to pay (i) Saratoga Management Company, LLC a fee of $750,000 as
provided in Section 8.11, (ii) Warburg Dillon Read a fee of $250,000 and (iii)
Richard Sontgerath a fee of $100,000, all in connection with the transactions
contemplated by this Agreement.
(s) Untrue or Misleading Statements. Neither this Agreement nor any other
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Transaction Document or other agreement, certificate, instrument or written
statement furnished by or on behalf of the Company to the Purchaser in
connection with the transactions contemplated by this Agreement, (including the
SEC Documents but excluding any financial forecasts or projections furnished to
or reviewed by the Purchaser), when taken together, contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which such statement were made. With respect to financial forecasts, estimates,
budgets and projections the Company has furnished to the Purchaser, such
materials have been reasonably prepared on a basis reflecting the best currently
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available estimates and judgments of the management of the Company as to the
future performance of the Company and its Subsidiaries.
(t) Reservation of Common Stock. As of the Initial Closing, the Company
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shall have reserved for issuance, and will at all times keep available, a
sufficient number of shares of Common Stock to permit the conversion of all
Preferred Shares into Common Stock. Such Common Stock when issued upon such
conversion will be duly authorized, fully paid and nonassessable.
(u) Status of Shares. The Preferred Shares, upon issuance by the Company
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following receipt of the consideration provided for herein and satisfaction of
the other conditions set forth herein, will be duly authorized, fully paid and
nonassessable.
(v) Government Regulations. The Company is not (i) an "investment company"
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as defined in or subject to regulation under the Investment Company Act of 1940,
as amended, or controlled by an "investment company", or (ii) subject to
regulation under the Public Utility Holding Company Act of 1935.
(w) Year 2000 Compliance. All computer applications (including to the
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knowledge of the Company after due inquiry, those of its suppliers and vendors)
that are material to the conduct of the business of the Company and any of its
Subsidiaries are able to perform properly date sensitive functions for all dates
before and after January 1, 2000 (i.e., "Year 2000 Compliant"), except as
described in the SEC Documents or except to the extent that a failure to do so
could not reasonably be expected to have material adverse effect on the business
operations, properties, assets or conditions (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole.
(x) Environmental Laws. Except as would not, individually or in the
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aggregate, reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, (i) each of the Company and its
Subsidiaries, is in compliance with and not subject to liability under
applicable Environmental Laws (as defined below), (ii) each of the Company and
its Subsidiaries has made all filings and provided all notices required under
any applicable Environmental Law, and has, and is in compliance with, all
Permits required under any applicable Environmental Laws and each of them is in
full force and effect, (iii) there is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries under any Environmental Law, (iv) no lien, charge, encumbrance or
restriction has been recorded under any Environmental Law with respect to any
assets, facility or property owned, operated, leased or controlled by the
Company or its Subsidiaries, (v) none of the Company or its Subsidiaries has
received notice that it has been identified as a potentially responsible
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party under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERLA"), or any comparable state law, (vi) no property
or facility of the Company or any of its Subsidiaries is (A) listed or proposed
for listing on the National Priorities List under CERCLA or is (B) listed in the
Comprehensive Environmental Response, Compensation, Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list maintained by any
state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable federal, state and local laws or regulations, codes, orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder, relating to pollution or protection of public or employee health and
safety or the environment, including, without limitation, laws relating to (i)
emissions, discharges, releases or threatened releases of hazardous materials
into the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of hazardous materials, and (iii) underground and
aboveground storage tanks and related piping, and emissions, discharges,
releases or threatened released therefrom.
(y) Insurance. The Company and each of its Subsidiaries maintain insurance
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covering their properties, operations, personnel and businesses. Such insurance
insures against such losses and risks as are adequate in accordance with
customary industry practice to protect the Company and its Subsidiaries and
their respective businesses. All such insurance is outstanding and in force on
the date.
(z) Certain Representations as to Real Estate Matters. The most recent
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consolidated balance sheet and any notes thereto included in the financial
statements filed with the SEC by the Company reflect the real property owned
(the "Owned Property"), leased (the "Leased Property") or managed with an option
to purchase (the "Managed Property" and, collectively, with the Owned Property
and the Leased Property, the "Real Property") by the Company and its
Subsidiaries. The Company or a Subsidiary of the Company has good and
marketable title to the Owned Property, free and clear of any Liens, except for
(i) mortgage liens securing repayment of indebtedness of the Company or any of
its Subsidiaries, (ii) statutory liens for current taxes not yet delinquent,
(iii) mechanics', carriers', workers', repairers' and other similar liens
imposed by law arising or incurred in the ordinary course of business for
obligations not yet due and payable, (iv) Liens and other matters that will be
satisfied, discharged or removed at or prior to Closing and (v) easements,
rights-of-way, restrictions, minor defects or irregularities in title that do
not individually or in the aggregate interfere in any material respect with the
business of the Company (the matters described in clauses (i) through (v) are
together called the "Permitted Encumbrances").
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The Company or a Subsidiary of the Company has a valid and binding
leasehold interest in each Leased Property free and clear of any Liens created
by, through or under the Company or a Subsidiary of the Company except for
Permitted Encumbrances.
The Company or a Subsidiary of the Company has a valid, binding and
properly recorded management agreement with option to purchase for each Managed
Property.
There are no eminent domain proceedings pending or threatened against the
Real Property or any material portion thereof which proceedings (if resulting in
a taking) could be expected, individually or in the aggregate, to have a
material adverse effect on the use of such Real Property as currently used in
the operation of the business of the Company and its Subsidiaries. To the best
knowledge of the Company after due inquiry, (i) the Real Property and the
improvements thereon (including the roof and structural portions of each
building) are in good operating order and condition, subject to ordinary wear
and tear, (ii) there are no structural, mechanical or other defects of a
material nature in any improvements located on the Real Property, (iii) all
building systems in respect of the Real Property are in good condition and
working order, subject to ordinary wear and tear and (iv) the Real Property is
served by all utilities required or necessary for the present use thereof.
(aa) ERISA. The Company and its Subsidiaries have complied in all material
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respects with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), in connection with the Benefit Plans (as defined
below). No reportable event, as defined in Section 4043 of ERISA, has occurred
during the past five years with respect to any Benefit Plan that is subject to
Title IV of ERISA, except where notice for such reportable event is waived by
statutes or regulations. There have been no non-exempt prohibited transactions
under the Code or ERISA with respect to any Benefit Plan which could result in a
material liability to the Company or any Subsidiary. The present value of all
accrued benefits under each Benefit Plan subject to Title IV of ERISA (based on
the current liability, interest rate and other assumptions used in preparation
of the plan's Form 5500 Annual Report) did not, as of the last annual valuation
date, exceed the value of the assets of such plan allocable to such accrued
benefits, as of such date, by $100,000. Neither of the Company, any Subsidiary,
or any Commonly Controlled Entity (as defined below) has any material liability
with respect to any multiemployer plan (as defined in Section 4001(a)(3) of
ERISA). There are no material liabilities of the Company or any Subsidiary for
post-retirement benefits to be provided to their current and former employees
under Benefit Plans which are welfare benefit plans (as described in Section
3(1) of ERISA), other than with respect to benefits mandated by applicable law.
With respect to each Benefit Plan, no event has occurred and there exists no
conditions or set of circumstances in connection with which the Company or any
Subsidiary may, directly or indirectly (through a Commonly Controlled Entity or
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otherwise) be subject to material liability under the Code, ERISA or any other
applicable law, except for liability for benefit claims, funding obligations and
administrative expenses payable in the ordinary course. For purposes of this
paragraph, (i) "Commonly Controlled Entity" shall mean any person or entity
that, together with the Company, any Subsidiary or any Commonly Controlled
Entity, is treated as a single employer under Section 414(b) or (c), of the Code
(or, solely for purposes of Section 302 of ERISA and Section 412 of the Code,
Section 414(m) or (o) of ERISA), and (ii) "Benefit Plan" shall mean any
"employee benefit plan," as defined in Section 3(3) of ERISA, which is
maintained or contributed to by the Company, a Subsidiary or Commonly
Controlled Entity to which the Company, a Subsidiary or any Commonly Controlled
Entity may have liability.
(bb) Labor Relations. Neither the Company nor any of its Subsidiaries are
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a party to or bound by any labor agreement or collective bargaining agreement
respecting the employees of the Company or its Subsidiaries, nor is there
pending, or to the knowledge of the Company threatened, any strike, walkout,
slowdown or other work stoppage by the employees of the Company or its
Subsidiaries. No petition for certification has been filed and is pending
before the National Labor Relations Board with respect to any employee of the
Company or its Subsidiaries, the Company and its Subsidiaries are in compliance
with all applicable laws respecting employment practices, terms and conditions
of employment and wages and hours, except for those failures to comply that,
individually or in the aggregate, would not have a material adverse effect on
the business operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
(cc) Licenses. The Company and each of its Subsidiaries hold all material
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licenses, permits, approvals, certificates of inspection, other authorizations,
filings and registrations which are necessary for such entitles to operate their
businesses as presently conducted (collectively, the "Licenses"). The Licenses
are in good standing and the Company has no knowledge that any disciplinary
proceeding in respect thereof is pending. There is no proceeding pending, or to
the Company's knowledge, threatened or probable of assertion to revoke or limit
any such Licenses which would reasonably be expected to result in a material
adverse effect on the business operations, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole.
None of the transactions contemplated by the Transaction Documents will
terminate, violate or limit the effectiveness of any such Licenses. With
respect to renewal of Licenses, the Company and its Subsidiaries have taken, in
a timely manner, all action known or anticipated to be required to be taken by
the Company and its Subsidiaries reasonably necessary to secure the renewal of
the Licenses prior to the date of their respective expirations. The Company
believes that it or its Subsidiaries should be able to secure the renewals of
the Licenses prior to the date of their respective expirations.
-13-
(dd) Legal Compliance. The Company and each of its Subsidiaries have
----------------
complied and are in compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of Federal, state, local and foreign governments (and all
agencies thereof) and of any self-regulatory agencies that regulate the Company
and/or its Subsidiaries, except for any non-compliance therewith which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business operations, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole. Neither the Company nor any of its Subsidiaries has received any
notification of any asserted present or past failure by it to comply with such
laws, rules, regulations, codes, plans, injunctions, orders, decrees, rulings or
charges which, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the business operations, properties, assets or
conditions (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole.
(ee) Litigation; Proceedings. There are no actions, suits, proceedings,
-----------------------
investigations or claims (whether or not purportedly on behalf of the Company or
any Subsidiary) pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or the assets, business or goodwill of the
Company or any Subsidiary, in any court or before any arbitrator of any kind or
before or by any governmental or regulatory body or agency which could
reasonably be expected to have a material adverse effect on the business
operations, properties, assets or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or adversely affect or question
the transactions contemplated herein. There is no outstanding order, writ,
injunction or decree of or stipulation with any court, arbitrator or
governmental or regulatory body or agency against the Company or any Subsidiary,
or the assets, business or goodwill of the Company or any Subsidiary.
(ff) Tax Matters.
-----------
(i) All Federal, state and local income, and all other material federal,
state and local, tax returns and tax reports required as of the date hereof to
be filed by the Company or any of its Subsidiaries for taxable periods ending
prior to the date hereof and as of each of the Initial Closing and the Second
Closing, have been or will be duly and timely filed prior to the due date (as
such date may be lawfully extended) by the Company with the appropriate
governmental agencies, and all such returns and reports are true, correct and
complete in all material respects.
(ii) All Federal, state and local income, and all material federal, state
and local profits, franchise, sales, use, occupation, property, excise, payroll,
withholding, employment, estimated and other taxes of any nature, including
interest, penalties and other additions to such taxes ("Taxes"), payable by, or
due from, the Company or any of
-14-
its Subsidiaries for all periods prior to the date hereof and as of each of the
Initial Closing and the Second Closing, have been fully paid or adequately
reserved for by the Company or any of its Subsidiaries, as applicable, or, with
respect to Taxes required to be accrued, the Company has properly accrued or
will properly accrue such Taxes in the ordinary course of business consistent
with past practice of the Company.
(iii) The Federal income tax returns of the Company and its Subsidiaries
have not been audited by the Internal Revenue Service ("IRS") for the years
ended December 31, 1997 and 1998, respectively. To the knowledge of the
Company, (A) neither the Company nor any of its Subsidiaries has received any
notice of any assessed or proposed claim or deficiency against it in respect of,
or of any present dispute between it and any governmental agency concerning, any
Taxes which would reasonably be expected to have a material adverse effect on
the business operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, (B) no
examination or audit of any material tax return or report of the Company or any
of its Subsidiaries by any applicable taxing authority is currently in progress
and (C) there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return or report of the Company or
any of its Subsidiaries.
(gg) Intellectual Property. The Company and its Subsidiaries own or have
---------------------
the right to use pursuant to license, sublicense, agreement or permission all
material trademarks, patents, copyrights, trade names, service marks, software
and know-how ("Intellectual Property") necessary for the operation of its
businesses as presently conducted. To the knowledge of the Company, neither the
Company nor its Subsidiaries have interfered with or otherwise come into
conflict with any material Intellectual Property rights of third parties, nor
has any third party interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any material Intellectual Property rights of
the Company or its Subsidiaries, in any case which would reasonably be expected
to have a material adverse effect on the business operations, properties, assets
or conditions (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole. There is no existing claim or, to the knowledge of the
Company, any basis for any claim against the Company or its Subsidiaries (A)
that any of its or its Subsidiaries operations, activities or products infringe
the Intellectual Property or other property rights of others or (B) that the
Company or its Subsidiaries are wrongfully or otherwise using the property
rights of others, which would reasonably be expected to have a material adverse
effect on the business operations, properties, assets or conditions (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole.
(hh) Title to Assets; Related Matters. The Company and its Subsidiaries
--------------------------------
have good and marketable title to all of their respective material assets,
rights, interests and other properties, real, personal and mixed, tangible and
intangible, including, without limitation, capital leases and leasehold
interests and all of the assets in the unaudited
-15-
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1999, except those transferred in the ordinary course of business since
September 30, 1999 (including without limitation the sale of its investment in
Alert Care), free and clear of all encumbrances and liens except for taxes not
yet due and payable and except as otherwise described in the SEC Documents.
Section 3.2. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to the Company, as of the date hereof, as follows:
(a) Investment Intent. The Preferred Shares to be acquired hereunder
-----------------
are being acquired for its own account with no intention of distributing or
reselling such Preferred Shares or any part thereof or interest therein in any
transaction that would be in violation of the securities laws of the United
States or any State. It is understood that the certificates evidencing the
Preferred Shares may bear one or more legends, including a legend substantially
as follows:
The securities evidenced by this certificate have not been
registered under the Act, or applicable state securities
law, and no interest therein may be sold, distributed,
assigned, offered, pledged or otherwise transferred unless
(i) there is an effective registration statement under the
Act and applicable state securities laws covering any such
transaction involving said securities, (ii) this corporation
receives an opinion of legal counsel for the holder of these
securities reasonably satisfactory to this corporation
stating that such transaction is exempt from registration,
or (iii) this corporation otherwise satisfies itself that
such transaction is exempt from registration.
(b) Transfer Restrictions. Purchaser acknowledges that the Preferred
---------------------
Share are subject to restrictions on transfer and represents and warrants that
it has reviewed and is familiar with the provisions of the Designation and the
Transaction Documents which impose such restrictions.
(c) Purchaser Status. Purchaser is an "accredited investor" as
----------------
defined in Rule 501(a) under the Securities Act, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Preferred Shares to be acquired hereunder, has so evaluated the merits and risks
of such investment and is able to bear the economic risk of such investment and,
at the present time, is able to afford a complete loss of such investment.
(d) Authorization; Execution. The purchase of the Preferred Shares
------------------------
to be acquired hereunder has been duly and properly authorized by the Purchaser
by all
-16-
necessary action and the Transaction Documents have been duly executed and
delivered by it and neither the purchase of the Preferred Shares to be acquired
hereunder nor the execution and performance of the Transaction Documents
conflicts with or violates its Partnership Agreement or any law, regulation or
court order applicable to it or any other agreement to which it is subject.
(e) Purchaser's Investigation. Purchaser has made such examination,
-------------------------
review and investigation of facts and circumstances necessary to evaluate the
purchase of the Preferred Shares to be acquired hereunder as it has deemed
necessary or appropriate and has made its own investment determination and
analysis in concluding to purchase the Preferred Shares.
(f) Organization; Organizational Documents. Purchaser is a limited
--------------------------------------
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware. Purchaser has all requisite power and authority to own
and lease its properties and to carry on its business as presently conducted
except where a lack of such power would not reasonably be expected to have a
material adverse effect upon the financial condition, business, or results of
operations of Purchaser. Purchaser has all the power and authority necessary to
execute, deliver and perform its obligations under the Transaction Documents.
(g) Consents; Governmental Approvals. No consent or approval of any
--------------------------------
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any governmental authority is
required to be obtained or made by or on behalf of Purchaser in connection with
the purchase of the Preferred Shares, the execution, delivery or performance by
the Purchaser of any of the Transaction Documents or the completion of the
transactions contemplated thereby.
(h) Binding Effect. Each of the Transaction Documents is a legal,
--------------
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors, rights generally or limitations on the availability of
equitable remedies and except as rights to indemnification and contribution may
be limited under federal and state securities laws.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase Preferred Shares hereunder on each
of the Closing Dates shall be subject to the satisfaction of each of the
following conditions precedent on each of the Closing Dates:
-17-
Section 4.1. Representations. All representations and warranties made in
---------------
this Agreement, any other Transaction Document and in any other agreement,
certificate or instrument furnished to Purchaser in connection herewith shall be
true and correct in all material respects with the same force and effect as
though such representations and warranties had been made at the time of, and
immediately after giving effect to, the sale of Preferred Shares. Purchaser
shall have received on each of the Closing Dates a certificate dated the
applicable Closing Date signed by the Chief Executive Officer and Chief
Financial Officer of the Company to the effect set forth in this Section 4.1.
Section 4.2. No Material Adverse Change. Purchaser shall be satisfied
--------------------------
that no event, circumstance or condition shall have occurred and be continuing
that could reasonably be expected to have a material adverse effect on the
business, operations, prospects, properties or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or the
Company's ability to perform its obligations hereunder.
Section 4.3. Suspension of Trading. Prior to or on each of the Closing
---------------------
Dates, (i) trading in the Company's Common Stock shall not have been suspended
by the SEC or any exchange on which it is listed for trading (except for any
suspension of trading of limited duration agreed to by the Company solely to
permit dissemination of material information regarding the Company), and trading
in securities generally as reported by such exchange(s) shall not have been
suspended or limited, or (ii) there shall not have been declared a banking
moratorium either by the United States or New York State or Washington State
authorities, or if the United States shall have declared war in accordance with
its constitutional processes or there shall have occurred any material outbreak
or escalation of hostilities or other national or international calamity or
crisis of such magnitude in its effect on the financial markets of the United
States it is, in Purchaser's sole judgment, impracticable to purchase the
Preferred Shares.
Section 4.4. Registration Rights Agreement. The Company shall have
-----------------------------
executed and delivered to Purchaser a Registration Rights Agreement
substantially in the form of Exhibit B attached hereto.
---------
Section 4.5. Shareholders' Agreement. The Company shall have executed and
-----------------------
delivered to Purchaser a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
- ---------
Section 4.6. Legal Opinion. The Company shall have delivered to Purchaser
-------------
on each of the Closing Dates the executed legal opinion of counsel to the
Company, dated the applicable Closing Date, in form and substance reasonably
satisfactory to the Purchaser and its counsel.
-18-
Section 4.7. Additional Documents. Purchaser shall have received all such
--------------------
agreements, documents, instruments, approvals, certificates, legal opinions and
information as the Purchaser shall reasonably request in connection with the
Transaction Documents, the Preferred Shares and the transactions herein and
therein contemplated, all of which shall be in form and in substance reasonably
satisfactory to Purchaser and its counsel.
Section 4.8. Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to Purchaser.
Section 4.9. No Governmental Proceeding or Litigation. At each of the
----------------------------------------
Closing Dates, no order, injunction, decree or judgment of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated hereby, and no suit, action, investigation, inquiry or
proceeding by any governmental body, or legal or administrative proceeding by
any governmental body shall have been instituted, or threatened in writing,
which questions the validity or legality of the transactions contemplated
hereby.
Section 4.10. Appointment of Initial Saratoga Directors. The Initial
-----------------------------------------
Saratoga Directors, as defined in the Shareholders' Agreement, shall be
appointed as members of the Board of Directors of the Company effective upon the
Initial Closing. One of the Initial Saratoga Directors shall also be appointed
as a member of the Compensation Committee of the Board of Directors of the
Company effective upon the Initial Closing.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
The obligations of the Company under this Agreement to consummate the sale
of the Preferred Shares to be acquired by Purchaser hereunder and the other
transactions contemplated hereby shall be subject to the satisfaction, on or
before each of the Closing Dates, of the following conditions:
Section 5.1. Representations and Warranties True. The representations and
-----------------------------------
warranties contained in Section 3.2 hereof are true and accurate in all material
respects as of the date when made (or with respect to those representations
stated to be as of a different date, as of such date).
Section 5.2. Performance of Agreements. Purchaser shall have performed
-------------------------
and complied, in all material respects, with each and every agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on each of the Closing Dates.
-19-
Section 5.3. No Governmental Proceeding or Litigation. At each of the
----------------------------------------
Closing Dates, no order, injunction, decree or judgment of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated hereby, and no suit, action, investigation, inquiry or
proceeding by any governmental body, or legal or administrative proceeding by
any governmental body shall have been instituted, or threatened in writing,
which questions the validity or legality of the transactions contemplated
hereby.
Section 5.4. Shareholders' Agreement. Purchaser shall have executed and
-----------------------
delivered to the Company a Shareholders' Agreement substantially in the form of
Exhibit C attached hereto.
- ---------
Section 5.5. Legal Opinion. Purchaser shall have delivered to the Company
-------------
on each of the Closing Dates the executed legal opinion of counsel to Purchaser,
dated the applicable Closing Date, in form and substance reasonably satisfactory
to the Company and its counsel.
Section 5.6. Additional Documents. The Company shall have received all
--------------------
such agreements, documents, instruments, approvals, certificates, legal opinions
and information as the Company shall reasonably request in connection with this
Agreement, the Preferred Shares and the transactions herein and therein
contemplated, all of which shall be in form and in substance reasonably
satisfactory to the Company and its counsel.
Section 5.7. Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Company.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
-----------------------------------
The Company covenants and agrees so long as the Preferred Shares remain
outstanding, unless expressly stated otherwise that:
Section 6.1. Registration and Listing. The Company will use its best
------------------------
efforts to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement and will not take any action or file any document (whether or not
permitted by the Securities Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under such Acts. The Company will use its best efforts to
continue the listing or trading of its Common Stock on the AMEX or NASDAQ
National
-20-
Market and comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange or NASDAQ, as the case
may be.
Section 6.2. Financial Statement and Information. The Company will furnish
-----------------------------------
or cause to be furnished to the Purchaser the following financial statements and
information:
(a) All reports and other written communications delivered by the Company
to its stockholders as such, and all registration statements (when available to
the public) and periodic reports filed by the Company with the SEC or any
securities exchange, pursuant to the Securities Act, the Exchange Act, or the
rules of such securities exchange.
(b) With reasonable promptness, (i) all financial statements or reports
(including comment letters to management) furnished to the Company by its
independent certified public accountants, (ii) information disclosing occupancy
rates, unit prices and margins at individual Company facilities, such
information to be set forth in reasonable detail, and (iii) budgets, business
plans and projections when available.
(c) The Company will permit the Purchaser or its representatives to
discuss such financial statements, plans and projections with such officers of
the Company as the Purchaser or its representatives may reasonably designate.
Section 6.3. Use of Proceeds.
---------------
(a) Within 6 months of the date of the Initial Closing, the Company shall
use the proceeds received from the sale of Preferred Shares as follows:
(i) (A) $23.1-26.8 million in the aggregate to finance the equity
portion of the acquisition prices of the facilities indicated in the table below
(with the debt portion of such acquisition prices not being outside the range of
the amounts in the table below):
Previously Contributed
----------------------
Facilities Acquisition Price Debt Portion Equity Portion New Equity Portion
---------- ----------------- ------------- --------------------- ------------------
(In Millions)
Northeast $ 21.3- 22.7 $15.8-$16.5 $1.3 $ 4.2- 4.9
Hearthside Facilities $ 8.5-$ 8.7 $ 6.8-$ 7.8 $0.5 $ 0.4- 1.4
Emeritrust II Facilities $ 86.0-$89.0 $67.5-$68.5 $0.0 $18.5-$20.5
and (B) $13.2-16.9 million of the proceeds to be used for general
corporate purposes, or
(ii) for such other business purpose of the Company as may be approved
by the Purchasers.
-21-
(b) The Company shall confirm the uses of the proceeds from the issuance of
the Preferred Shares, as well as the amounts of the debt portion and acquisition
price with respect to the facilities in the table above, to the Purchasers by
delivery, from time to time as such proceeds are utilized, of an officers'
certificate executed by the chief executive officer and the chief financial
officer of the Company which sets forth in reasonable detail the equity, debt
and acquisition price information relevant to each acquisition through the date
of each such certificate. Such officers' certificate shall be delivered to the
Purchasers promptly following the application of the proceeds to one or more of
the uses specified in this Section 6.3, but in any event, at least one such
certificate shall be delivered to the Purchasers describing the use of all
proceeds from the issuance of the Preferred Shares no later than the fifth
business day following the end of the 6-month period following the Closing Date.
(c) If the Company fails to spend at least $23 million of the proceeds to
finance the equity portion of the acquisitions as set forth in the above table
and notwithstanding Section (b) above, the Company shall (i) place until
approval is obtained pursuant to clause (ii) below, an amount of cash equal to
(x) $35 million minus (y) the amount of proceeds actually spent by the Company
in accordance with the above table, in an interest bearing bank account and (ii)
obtain the written consent of Saratoga prior to the use of any proceeds held in
such account.
Section 6.4. Expenses. The Company will pay all reasonable out-of-pocket
--------
expenses of Purchaser in connection with this Agreement and the transactions
contemplated hereby; provided, however, that if the Initial Closing does not
occur, such reimbursement shall be limited to $50,000.
Section 6.5. Public Announcements; Confidentiality. Except as agreed by
-------------------------------------
the Company and the Purchaser and except for such disclosures as may be required
by law, legal process or regulatory authority, neither party hereto shall issue
any press release or otherwise make any announcement or disclosure concerning
the transactions herein contemplated unless such information is already in the
public domain.
Section 6.6. Sales and Transfer Taxes. All transfer taxes incurred in
------------------------
connection with this Agreement and the transactions contemplated hereby shall be
borne by the Company.
Section 6.7. Conduct of Business. During the period from the date hereof
-------------------
to the Second Closing, except as otherwise expressly contemplated by this
Agreement or as the Purchaser shall otherwise consent to in writing (which
consent shall not be unreasonably withheld), the Company covenants and agrees
that it shall conduct, and will cause it Subsidiaries to conduct its business in
the ordinary and usual course consistent in all material respects with past
practice, and neither the Company nor its Subsidiaries shall
-22-
take any action except in the ordinary and usual course consistent in all
material respects with past practice. By way of amplification and not
limitation, during the period from the date hereof to the Second Closing, except
as otherwise expressly contemplated by this Agreement, or as the Purchaser shall
otherwise consent to in writing (which consent shall not be unreasonably
withheld), the Company covenants and agrees that it shall not, and it shall not
permit its Subsidiaries to, do or propose to do any of the following:
(a) make any dividend or distribution in respect of the Company's
capital stock or repurchase, redeem or otherwise acquire any of the Company's
capital stock;
(b) sell, lease, transfer or dispose of all or substantially all of
its assets;
(c) intentionally do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect;
(d) amend the Company's Restated Articles of Incorporation or Amended
and Restated Bylaws in a manner that would adversely affect the Purchaser or the
transactions contemplated hereby;
(e) authorize for issuance, issue, sell, deliver, grant or issue any
options, warrants, calls, subscriptions or other rights for, or otherwise agree
or commit to issue, sell or deliver, any of the Company's capital stock or any
securities convertible into or exchangeable or exercisable for its capital
stock, except for options granted in the ordinary course of business consistent
with past practice under the Company's 1995 Stock Incentive Compensation Plan;
(f) increase in any manner the compensation of any of the Company's
directors or employees, except in the ordinary course of business and consistent
with past practice; (ii) pay or agree to pay any pension, retirement allowance
or other employee benefit, or enter into any Contract with any of the Company's
past or present employees relating to any such pension, retirement allowance or
other employee benefit, except as required under agreements, plans or
arrangements existing as of the date hereof; (iii) grant any severance or
termination pay to, or enter into any employment, consulting (except in the
ordinary course of business and consistent with past practice), or severance
agreement with, any person; (iv) enter into any material contract with any of
the Company's past or present employees; and (v) except in the ordinary course
of business and consistent with past practice, or as may be required to comply
with applicable law, become obligated under any new pension plan, welfare plan,
multiemployer plan, employee benefit plan, benefit arrangement, or similar plan
or arrangement for the benefit of the Company's or its Subsidiaries' employees
that was not in existence on or prior to the date hereof, including any bonus,
incentive, deferred compensation, stock purchase, stock option,
-23-
stock appreciation right, group insurance, severance pay, retirement or other
benefit plan, contract, agreement or understanding, or amend any such plans or
contracts in existence on or prior to the date hereof;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement in principle or an
agreement with any other person with respect to, any plan of liquidation or
dissolution, any disposition of a material amount of assets or securities or any
material change in the capitalization of the Company;
(h) authorize or commit to make capital expenditures on the part of
Company in excess of $1,000,000;
(i) maintain the Company's books and records in a manner not in the
ordinary course of business and consistent with past practice;
(j) institute any change in the Company's accounting methods,
principles or practices or revalue any of its assets, including without
limitation, writing off notes or, except in the ordinary course of business
consistent with past practice, writing down the value of property, plant and
equipment;
(k) solicit any offers for, respond to any offers for, enter into or
conduct any negotiations with any other person or entity in respect of, or
consummate or enter into any agreement, arrangement or understanding in respect
of (i) a sale of any voting securities of the Company or (ii) a material
recapitalization, restructuring, merger, consolidation or other business
combination involving the Company other than those disclosed to the Purchaser
prior to the execution of this Agreement;
(l) disclose any non-public information relating to the businesses,
operations or affairs of the Company to any person or entity, afford any such
other person or entity access to the books, records, information or assets of
the Company, or otherwise assist or encourage any such other person or entity in
connection with any proposed (i) acquisition of any securities of the Company or
(ii) material recapitalization, restructuring, merger, consolidation or other
business combination involving the Company other than those disclosed to the
Purchaser prior to the execution of this Agreement; and
(m) agree to do any of the foregoing.
Section 6.8. Year 2000. The Company and its Subsidiaries shall not
---------
experience a material adverse effect on the business, operations, properties,
assets or conditions (financial or otherwise) of the Company or of the Company
and its Subsidiaries, taken as a whole, attributable to computer applications
(including, without limitation, those of its
-24-
suppliers and vendors) being unable to properly perform date sensitive functions
for all dates before and after January 1, 2000.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 7.1. Survival of Representation and Warranties. The
-----------------------------------------
representations and warranties of the Company and of Purchaser set forth in
Article III hereof shall survive the Closing until the third anniversary of the
date of this Agreement, provided that the representations and warranties set
forth in Sections 3.1(a), (b), (c), (d), (e), (g), (k), (s), (t), (u), (x), (ff)
and (gg) shall survive without respect to such limitation.
Section 7.2. Indemnification by the Company. The Company shall indemnify
------------------------------
and hold harmless Purchaser from and against any and all Losses suffered or
incurred by Purchaser as a result of the breach or incorrectness of any
representation and warranty of the Company set forth in Section 3.1 of this
Agreement. Purchaser shall promptly notify the Company in writing of the
occurrence of any event, or of its discovery of any facts, which in Purchaser's
opinion entitle or may entitle it to indemnification hereunder. Purchaser's
failure to do so shall not preclude it from seeking indemnification hereunder
from the Company unless such failure has materially prejudiced the Company's
ability to defend as provided herein. With respect to any threatened or
asserted claims of third parties, the Company shall have the right to defend
such claims by counsel of its choosing and to direct or control the defense and
settlement thereof. Purchaser shall cooperate in all reasonable respects with
such counsel. In no event shall the indemnification obligations of the Company
exceed the aggregate sale price of the Preferred Shares sold by the Company
pursuant to this Agreement, plus reasonable legal fees and expenses.
Notwithstanding the Company's election to assume the defense of a claim,
the Purchaser shall have the right to employ separate counsel and to participate
in the defense of such claim, and the Company shall bear the reasonable fees,
costs and expenses of such separate counsel if: (i) the use of counsel chosen by
the Company to represent the Purchaser would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or targets of,
any such claim include both the Company and the Purchaser, and the Purchaser
shall have reasonably concluded that there may be legal defenses available to it
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of such
claim on the Purchaser's behalf), (iii) the Company shall not have employed
counsel reasonably satisfactory to the Purchaser to represent the Purchaser
within a reasonable time after notice of the institution of such claim, or (iv)
the Company shall authorize the Purchaser to employ separate counsel at the
Company's expense. If the Company assumes the defense of a claim, no compromise
or settlement thereof may be effected by
-25-
the Company without the Purchaser's written consent unless (a) there is no
finding or admission of any violation of law and no effect on any other claims
that may be made against the Purchaser and (b) the sole relief provided is
monetary damages that are to be paid in full by the Company. For purposes of
this Section 7.2, the term "Purchaser" shall include the Purchaser, any of its
affiliates, each person, if any, controlling the Purchaser or any of its
affiliates, their respective officers, current and former directors, employees,
partners, members and agents, and the successors and assigns of all of the
foregoing persons. The foregoing indemnity agreement shall be in addition to any
rights that any indemnified party may have at common law or otherwise.
Section 7.3. Indemnification by Purchaser. Purchaser shall indemnify and
----------------------------
hold harmless the Company from and against any and all Losses suffered or
incurred by the Company as a result of the breach or incorrectness of any
representation and warranty of the Company set forth in Section 3.2 of this
Agreement. The Company shall promptly notify Purchaser in writing of the
occurrence of any event, or of its discovery of any facts, which in the
Company's opinion entitle or may entitle it to indemnification hereunder. The
Company's failure to do so shall not preclude it from seeking indemnification
hereunder from Purchaser unless such failure has materially prejudiced
Purchaser's ability to defend as provided herein. With respect to any
threatened or asserted claims of third parties, Purchaser shall have the right
to defend such claims by counsel of its choosing and to direct or control the
defense and settlement thereof. Notwithstanding the Purchaser's election to
assume the defense of a claim, the Company shall have the right to employ
separate counsel and to participate in the defense of such claim, and the
Purchaser shall bear the reasonable fees, costs and expenses of such separate
counsel if: (i) the use of counsel chosen by the Purchaser to represent the
Company would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such claim include both the
Purchaser and the Company, and the Company shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the Purchaser (in which case the Purchaser
shall not have the right to assume the defense of such claim on the Company's
behalf), (iii) the Purchaser shall not have employed counsel reasonably
satisfactory to the Company to represent the Purchaser within a reasonable time
after notice of the institution of such claim, or (iv) the Purchaser shall
authorize the Company to employ separate counsel at the Purchaser's expense. If
the Purchaser assumes the defense of a claim, no compromise or settlement
thereof may be effected by the Purchaser without the Company's written consent
unless (a) there is no finding or admission of any violation of law and no
effect on any other claims that may be made against the Company and (b) the sole
relief provided is monetary damages that are to be paid in full by the
Purchaser. For purposes of this Section 7.3, the term "Company" shall include
the Company, any of its affiliates, each person, if any, controlling the Company
or any of its affiliates, their respective officers, current and former
directors, employees, partners, members and agents, and the
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successors and assigns of all of the foregoing persons. The foregoing indemnity
agreement shall be in addition to any rights that any indemnified party may have
at common law or otherwise. The Company shall cooperate in all reasonable
respects with such counsel. In no event shall the indemnification obligations of
the Purchaser exceed the aggregate purchase price of the Preferred Shares
purchased by the Purchaser pursuant to this Agreement. Notwithstanding the
foregoing, no representation, warranty, covenant or acknowledgment made herein
by the Purchaser shall in any manner be deemed to constitute a waiver of any
rights granted to it under the Exchange Act or state securities laws.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. No Waiver; Modifications in Writing. (a) No failure or delay
-----------------------------------
on the part of the Company or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity.
No waiver of or consent to any departure by the Company or Purchaser from any
provision of this Agreement shall be effective unless in writing and signed by
the party entitled to the benefit thereof. No amendment, modification or
termination of any provision of this Agreement shall be effective unless in
writing and signed by or on behalf of the Company and Purchaser. Any amendment,
supplement or modification of or to any of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given.
Section 8.2. Notices. All notices and demands provided for hereunder
-------
shall be in writing, and shall be given by registered or certified mail, return
receipt requested, telecopy, courier service or personal delivery, and, if to
Purchaser, addressed to Purchaser at:
Saratoga Partners IV, L.P.
c/o Saratoga Management Company LLC
535 Madison Avenue
New York, NY 10022
Attention: David W. Niemiec
Telephone: (212) 906-7044
Telecopy: (212) 750-3343
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or to such other address as Purchaser may designate to the Company in writing
and, if to the Company, addressed to the Company at:
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attention: Kelly J. Price
Telephone: (206) 298-2909
Telecopy: (206) 301-4500
With a copy to:
Perkins Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Michael E. Stansbury, Esq.
Telephone: (206) 583-8771
Telecopy: (206) 583-8500
or to such other address as the Company may designate in writing. All such
notices and demands shall be deemed given when received.
Section 8.3. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 8.4. Binding Effect; Assignment. The rights of Purchaser or the
--------------------------
Company under this Agreement may not be assigned to any other Person except with
the prior written consent of the other parties hereto. This Agreement shall not
be construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and permitted
assigns. This Agreement shall be binding upon the Company and Purchaser, and
their respective successors and permitted assigns.
Section 8.5. Governing Law.
-------------
(a) This Agreement shall be deemed to be a contract made under the laws of
the state of New York, and for all purposes shall be construed in accordance
with the laws of said state, without regard to principles of conflicts of laws.
(b) The Company hereby expressly waives any right it may have now or
hereafter to a jury trial in any suit, action or proceeding arising out of or
relating to this
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Agreement or any of the preferred shares or the securities into which they may
be converted or for which they may be exchanged.
(c) Upon breach or default by the Company with respect to any obligation
hereunder, under the Preferred Shares or the Securities into which they may be
converted or for which they may be exchanged, the Purchaser (or its agents)
shall be entitled to protect and enforce their rights at law, or in equity or by
other appropriate proceedings for specific performance of such obligation, or
for an injunction against such breach or default, or in aid of the exercise of
any power or remedy granted hereby or thereby or by law.
Section 8.6 Submission to Jurisdiction; Venue
---------------------------------
(a) Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Company hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Company further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to CT Corporation Systems at its address at 1633 Broadway, New York,
New York 10019, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of any Holder to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 8.7. Severability of Provisions. Any provision of this Agreement
--------------------------
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.8. Headings. The Article and Section headings used or contained
--------
in this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
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Section 8.9. No Reliance. Each party hereto acknowledges that it has
-----------
obtained separate advice with respect to the legal, tax and accounting
consequences of the transactions contemplated by this Agreement, and that it has
neither sought nor relied upon any such advice from any other party hereto or
its Affiliates.
Section 8.10. Entire Agreement. This Agreement and agreements executed
----------------
contemporaneously herewith constitute the entire agreement among the parties
with respect to the purchase and sale of the Preferred Shares to be acquired by
Purchaser hereunder, and, as of the date hereof, there are no promises or
undertakings with respect thereto relative to the subject matter hereof not
expressly set forth or referred to herein or therein.
Section 8.11. Further Assurances. Each of the Company and the Purchaser
------------------
will execute and deliver or cause to be executed and delivered such further
instruments and do or cause to be done such further acts as may be reasonably
necessary to carry out its obligations under this Agreement.
Section 8.12 Advisory Fee. At the Initial Closing, the Company shall pay
------------
to Saratoga Management Company, LLC an advisory fee of $750,000.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EMERITUS CORPORATION
By:/s/ KELLY J. PRICE
------------------------------------
Name: Kelly J. Price
Title: Vice President of Finance
SARATOGA PARTNERS IV, L.P.
By: SARATOGA ASSOCIATES IV LLC, as
General Partner
By: SARATOGA MANAGEMENT
COMPANY LLC, as Manager
By:/s/ DAVID NIEMIEC
------------------------------------
Name: David Niemiec
Title:
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