EMERITUS
CORPORATION
AGREEMENT REGARDING SERIES B
CONVERTIBLE PREFERRED STOCK
This Agreement entered into as of May __,
2005 is between Emeritus Corporation (the "Company"), Saratoga
Partners IV, L.P., Saratoga Management Company LLC and Saratoga
Coinvestment IV LLC (collectively, the "Saratoga
Entities").
RECITALS
A. The Company has outstanding 36,970 shares of
Series B Convertible Preferred Stock (the "Preferred Stock"),
which is governed by the Designation of Rights and Preferences of
Series B Convertible Preferred Stock filed with the Secretary of
State of Washington on December 29 1999 (the
"Designations").
B. The Saratoga Entities own all of the
outstanding Preferred Stock as set forth on Exhibit A to this
Agreement.
C. The outstanding Preferred Stock has accrued and
unpaid cash dividends in the aggregate amount of $10,771,907.50 as
set forth in Exhibit A (the "Unpaid Dividends").
D. The Company intends to declare and pay the
Unpaid Dividends and simultaneously with such payment the Saratoga
Entities have agreed to convert all of the outstanding Preferred
Stock into shares of the Company's Common Stock (the "Common
Stock") in accordance with the terms and conditions of the
Declaration.
AGREEMENT
As parties hereto, the Company and each of the
Saratoga Entities agree:
1.
Conversion Price of
Preferred Stock
The Company and the Saratoga Entities (subject
to the accuracy of the information provided by the Company) agree
and confirm that the Series B Conversion Price (as defined in
6(b) of the Declaration) is $6.89 after taking into account
adjustments contemplated by Section 7 of the
Declaration.
2.
Agreement to
Convert
Each of the Saratoga Entities shall convert all
of its Preferred Stock into Common Stock on the following terms and
conditions:
(a) The Company shall give the Saratoga Entities
written notice that it intends to pay the Unpaid Dividends and
setting the date of payment (the "Payment Date"),
which shall be
not less than five business days after the date of the notice.
Payment shall be wire transfered in immediately available
funds.
(b) Simultaneously with the payment of the Unpaid
Dividends, each of the Saratoga Entities shall deliver to the
Company (i) stock certificates representing all of the Preferred
Stock owned by such entity and (ii) a notice of conversion in the
form attached to this Agreement as Exhibit B.
(c) The Company will treat shares of Common Stock
received by any of the Saratoga Entities upon conversion of the
Preferred Stock and distributed by such Saratoga Entity to its
partners or members as transferable by each such partner or member
under Rule 144(k) under the Securities Act of 1933, as
amended, (the "1933 Act") and the Company shall instruct its
transfer agent to issue and deliver to such partner or member stock
certificates representing such shares of Common Stock free of any
legend or notation relating to restrictions under the 1933 Act,
subject to the following terms and conditions:
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(i)
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in such
distribution of Common Stock to partners or members of the Saratoga
Entities, such partner or member shall have received only its
portion of the Common Stock so distributed, determined in
accordance with the provisions of governing instrument of the
relevant Saratoga Entity, and such partner or member shall not have
furnished any consideration in return for such
distribution;
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(ii)
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such partner or
member is not acting in concert with any other partner or member in
connection with the sale of such shares of Common Stock;
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(iii)
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at the time of
such distribution or during the 90 days prior thereto, such partner
or member shall not have been an "affiliate" of the Company as that
term is defined in the rules and regulations under the
Act;
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(iv)
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such partner or
member shall have furnished to the Company a certificate to the
effect that
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