AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED
SHAREHOLDERS
AGREEMENT (“Agreement”), by and among
EMERITUS CORPORATION, a Washington corporation
(the “ Company ”), AP
SUMMERVILLE, LLC, a Delaware limited liability company
(“ AP Summerville ”), AP
SUMMERVILLE II, LLC , a Delaware limited liability company
(“ AP Summerville II ”),
APOLLO REAL ESTATE INVESTMENT FUND III, L.P. , a
Delaware limited partnership (“ AREIF III
”), and APOLLO REAL ESTATE INVESTMENT FUND IV,
L.P. , a Delaware limited partnership (“
AREIF IV ”, and together with AP
Summerville, AP Summerville II and AREIF III, the “
Apollo Shareholders ”) and DANIEL R.
BATY , an individual (“ Baty
”), CATALINA GENERAL PARTNERSHIP L.P. , a
Washington limited partnership (“ Catalina
”), COLUMBIA SELECT, L.P. , a Washington
limited partnership (“ Columbia ”),
and B.F. LIMITED PARTNERSHIP , a Washington
limited partnership (“ B.F. , and
collectively with Baty, Catalina and Columbia, the “
Baty Shareholders ”) and SARATOGA
PARTNERS IV, L.P . a Delaware limited partnership (“
Saratoga ”), SARATOGA COINVESTMENT
IV, LLC, a Delaware limited liability company (“
Saratoga IV ”), and SARATOGA
MANAGEMENT COMPANY, LLC, a Delaware limited liability
company (“ Saratoga Management ” and,
collectively with Saratoga, and Saratoga IV the “
Saratoga Shareholders ”) is entered into as
of March 29, 2007, to be effective as of the Effective Time (as
defined in the Merger Agreement) (the “Effective
Date”). The Apollo Shareholders, the Baty Shareholders and
the Saratoga Shareholders are collectively referred to herein as
the “ Shareholders ”. This Agreement
amends and restates the Shareholders’ Agreement dated
December 30, 1999 between the Company, Baty, B.F. and
Saratoga.
R E C I T A L
S
A. The Company, the Apollo Shareholders, Baty and
Saratoga have entered into that certain Agreement and Plan of
Merger dated of even date herewith (the "Merger Agreement") under
which the Apollo Shareholders will acquire shares of the capital
stock of the Company at the Effective Time.
B. The execution of this Agreement is a condition
precedent to the execution of the Merger Agreement.
C. The Company and the Shareholders now desire to
enter into this Agreement to set forth certain agreements regarding
the Shareholders’ ownership of the Company’s Capital
Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions
. The following terms used in this
Agreement shall have the following meanings (unless otherwise
expressly provided herein):
“Affiliate,”
with respect to any Person or
Shareholder, shall mean any other Person or Shareholder directly or
indirectly controlling, controlled by or under common control with,
such Person or Shareholder. For purposes of this Agreement,
“control” (including with correlative meanings, the
terms “controlling,” “controlled by” or
“under common control with”) as used with respect to
any Person or Shareholder, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person or Shareholder, whether
through the ownership of voting securities, by contract or
otherwise.
“Agreement”
shall mean this Shareholders
Agreement, as it may be amended, restated, modified or supplemented
from time to time in accordance with its terms.
“Apollo Limited
Partners” shall mean the limited partners of AREIF III and
AREIF IV, respectively.
“Board of Directors”
shall mean the Board of Directors of
the Company.
“Bylaws”
shall mean the Bylaws of the Company
in effect as of the Effective Date, as the same may hereafter be
amended from time to time.
“Capital Stock”
shall mean, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of
such Person’s capital stock or other equity interests,
including, without limitation, common stock, preferred stock,
partnership interests and limited liability company interests,
whether now outstanding or issued after the Effective
Date.
“Common Stock”
shall mean the common stock of the
Company, par value $.0001 per share.
“Common Stock
Equivalents” shall mean shares of Common Stock issued or
issuable upon exercise of vested (but not unvested) options,
warrants and other rights to purchase shares of Common Stock and/or
conversion and exchange of securities convertible into or
exchangeable for shares of Common Stock.
“Company Confidential
Information” shall mean any Intellectual Property and any and
all other trade secrets and other confidential proprietary
information, data or know-how of the Company or any direct or
indirect subsidiary of the Company, or of other Persons (including,
without limitation, any Shareholder) that is in the possession of
the Company, including, without limitation, any Intellectual
Property, software, system, technology, tools, list of customers,
list of advertisers and/or advertising pricing, business plans,
marketing plans, financial information, source codes, programs,
inventions, techniques, budgets, projections, licenses, prices,
costs, or compilations of
information or
databases used in the Company’s or any subsidiary’s
business or operations or any other information of the Company or
any subsidiary or concerning their respective business and
operations that is not publicly available.
“Entity”
shall mean any corporation
(including any non-profit corporation), general partnership,
limited partnership, limited liability partnership, joint venture,
estate, trust, cooperative, foundation, society, political party,
union, company (including any limited liability company or joint
stock company), firm or other enterprise, association, organization
or entity.
“Exchange Act”
shall mean the Securities Exchange
Act of 1934, as amended.
“Governmental Body”
shall mean any: (a) nation,
principality, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction; (b) federal,
state, local, municipal or foreign government (including any
agency, department, bureau, division, or other administrative body
thereof); or (c) governmental or quasi-governmental authority
of any nature.
“Intellectual
Property” shall mean any and all worldwide (a) rights
associated with works of authorship, including copyrights, moral
rights, and mask works; (b) trademark and trade name rights
and similar rights; (c) trade secret rights; (d) patents
and patent rights; (e) other proprietary rights in know-how,
inventions, ideas, algorithms, formula, methods, processes,
techniques, proprietary information, software, semiconductor
devices, and other types of technology; and (f) all
registrations, applications, renewals, extensions, combinations,
divisions, or reissues of the foregoing.
“Legal Requirement”
shall mean any federal, state,
foreign, local or municipal law, statute, legislation,
constitution, ordinance, code, edict, rule, regulation, ruling,
directive, pronouncement, or interpretation issued, enacted,
adopted, passed, approved, promulgated, made, implemented or
otherwise put into effect by or under the authority of any
Governmental Body.
“Percentage
Interest” shall mean, as to a Shareholder, the percentage
determined based on the ratio that the then outstanding Common
Stock Equivalents held by such Shareholder bears to the total
number of outstanding Common Stock Equivalents.
“Person”
shall mean any individual, Entity or
Governmental Body.
“ Requisite Ownership
Amount ” shall mean ownership of either (i) a Percentage
Interest of 5%, or (ii) one half (1/2) the number of Common Stock
Equivalents owned by the relevant Shareholder immediately following
the Closing, as defined in the Merger Agreement.
“Securities Act”
shall mean the Securities Act of
1933 as amended.
“Shares”
shall mean the shares of Common
Stock held by any Shareholder.
“Shareholder”
shall mean each of (i) the Apollo
Shareholders (considered as a single Shareholder for purposes of
this Agreement), (ii) the Baty Shareholders (considered as a single
Shareholder for purposes of this Agreement), (iii) the Saratoga
Shareholders (considered as a single Shareholder for purposes of
this Agreement), and (iv) each other Person who may hereafter
become a holder of Capital Stock of the Company and a party to this
Agreement in accordance with the terms hereof.
“Shareholder
Representatives” shall mean those natural Persons designated to
serve as a member of the Board of Directors by the Apollo
Shareholders, the Saratoga Shareholders and the Baty
Shareholders.
“Transfer”
shall mean a sale, exchange,
transfer, assignment, lease, encumbrance, hypothecation, pledge or
other transfer or disposition of any kind, with or without
consideration, including, but not limited to, transfers to
receivers, levying creditors, trustees or receivers in bankruptcy
proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly,
of all or any portion of a Shareholder’s Shares.
ARTICLE 2
BOARD OF DIRECTORS
REPRESENTATION
2.1
Appointment to the Board of
Directors .
2.1.1 From and after the Effective Date, and until the
provisions of this Section 2 cease to be effective, each
Shareholder shall vote all Shares held by such Shareholder, and
take all such steps as may be necessary, including through the
exercise of their respective voting power, so that the following
persons shall be elected to the Board of Directors of the
Company:
(a) So long as the Apollo Shareholders collectively
are the beneficial owners of at least the Requisite Ownership
Amount, one individual designated by the Apollo Shareholders (the
“Apollo Director”), who initially shall be Stuart
Koenig, and who shall initially have a three (3) year
term;
(b) So long as the Saratoga Shareholders
collectively are the beneficial owners of at least the Requisite
Ownership Amount, one individual designated by the Saratoga
Shareholders (the “Saratoga Director”), who initially
shall be Charles P. Durkin, Jr.;
(c) So long as the Baty Shareholders collectively
are the beneficial owners of at least the Requisite Ownership
Amount, one individual designated by the Baty Shareholders (the
“Baty Director”), who shall initially be Stan
Baty.
2.1.2 From and after the Effective Date, and until the
provisions of this Article 2 cease to be effective, each of the
Company, the Baty Shareholders, the
Saratoga
Shareholders and the Apollo Shareholders shall take all necessary
and desirable actions within its control as may be required under
applicable law:
(a) to include the Apollo Director, the Saratoga
Director and the Baty Director in the slate of nominees recommended
by the Board of Directors for election by the shareholders of the
Company at its Annual Meeting of Shareholders; and
(b) to use its best efforts to cause the election of
the Apollo Director, the Saratoga Director and the Baty Director,
and the Chief Executive Officer or each co-Chief Executive Officer
of the Company, to the Company’s Board of Directors,
including nominating such individuals to be elected as a Director.
As co-Chief Executive Officer, Granger Cobb shall initially have a
term of one (1) year.
2.2.1 From and after the Effective Date, and until the
provisions of this Article 2 cease to be effective, each of the
Company, the Baty Shareholders, the Saratoga Shareholders and the
Apollo Shareholders shall use its best efforts to take all
necessary and desirable actions within its control as may be
required under applicable law to cause the removal (with or without
cause) of (a) the Saratoga Director if the Saratoga Shareholders
request such director’s removal for any reason, (b) the
Apollo Director if the Apollo Shareholders request such
director’s removal for any reason, and (c) the Baty Director
if the Baty Shareholders request such director’s removal for
any reason. The resulting vacancy on the Board of Directors shall
be filled by a representative designated by the person or persons
entitled to designate such director pursuant to Section 2.1
above, and the Company, the Baty Shareholders, the Saratoga
Shareholders and the Apollo Shareholders hereby agree to take, or
cause to be taken, at any time and from time to time, all actions
necessary to accomplish the same.
2.2.2 Except as provided in this Section 2.2, each
party hereto agrees that, at any time that it is then entitled to
vote for the election or removal of directors, it will not vote in
favor of the removal of the Saratoga Director, the Apollo Director
or the Baty Director unless (a) such removal shall be at the
request of the party who designated such director pursuant to the
provisions of Section 2.1 above or (b) the right of the
party who nominated such director to do so has terminated in
accordance with Section 2.1.
2.2.3 The Company shall not, without the consent of
holders of a majority of the Shares held by the Baty Shareholders,
the Saratoga Shareholders or the Apollo Shareholders, as the case
may be, take any action that requires the approval of the Saratoga
Director, the Apollo Director or the Baty Director, if the Saratoga
Director, the Apollo Director or the Baty Director is a Person
whose removal from the Board of Directors has been requested at or
prior to the time of such action by the Shareholder who designated
such director pursuant to Section 2.1 above. Each party hereto
shall use reasonable efforts to prevent any action from being taken
by the Board of Directors, during the pendency of any vacancy due
to death, resignation or removal of a director,
unless the
Person entitled to designate a director to fill such vacancy shall
have failed, for a period of ten (10) days after notice of such
vacancy, to designate a replacement.
2.3
Vacancies
. In the event that a vacancy is
created on the Company’s Board of Directors at any time by
the death, disability, retirement, resignation or removal (with or
without cause) of any Shareholder Representative the resulting
vacancy on the Board of Directors shall be filled by a
representative designated by the person or persons entitled to
designate such director pursuant to Section 2.1 above, and the
Company, the Baty Shareholders, the Saratoga Shareholders and the
Apollo Shareholders hereby agree to take, or cause to be taken, at
any time and from time to time, all actions necessary to accomplish
the same.
2.4
Nomination
Process . The Apollo
Shareholders, the Saratoga Shareholders and the Baty Shareholders
shall each nominate their designated Shareholder Representative by
providing written notice to the Company of the name of its
designated Shareholder Representative as required by Section 3.3 of
the Company’s Bylaws, and by providing to the Company the
information about each Shareholder Representative as is required by
Section 3.3 of the Company’s Bylaws.
2.5
Confidentiality . Each Shareholder shall cause its designated
Shareholder Representative to use Company Confidential Information
disclosed to him or her at Board of Directors meetings or otherwise
only in a manner and solely for purposes that are consistent in all
respects with such Shareholder Representative’s fiduciary
duties to the Company and its shareholders.
2.6
Director
Fees . The Company
shall reimburse each Apollo Director, Saratoga Director and Baty
Director that is a non-employee director for his or her reasonable
out-of-pocket expenses incurred for the purpose of attending
meetings of the Company Board of Directors or committees thereof.
Each Apollo Director, Saratoga Director and Baty Director shall
also be entitled to the same benefits (including coverage under
insurance policies) as other Directors of the Company.
ARTICLE 3
RESTRICTION ON
DISPOSITION
3.1
Disposition
Prohibited. A
Shareholder shall not Transfer any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition
shall be void and shall not be recognized or registered upon the
books of the Company.
3.2
Notice of Involuntary
Transfer . The
Shareholder, or his or her personal representative, shall notify
the Company immediately upon the occurrence of an involuntary
Transfer of his or her Shares. The Company shall notify the other
Shareholders of any such involuntary Transfer.
3.3
Permitted
Transfers .
Notwithstanding the foregoing restrictions in this Article 3, the
Shareholders may Transfer, from time to time, any of their
Shares:
3.3.1 if there is then in effect a registration
statement under the Securities Act covering such proposed Transfer
and such Transfer is made in accordance with such registration
statement;
3.3.2 pursuant to the safe harbor provided by Rule 144
of the Securities Act, provided, however, that such a sale shall be
subject to the co-sale rights provided for in Section
3.5;
3.3.3 as distributions to the Apollo Limited Partners;
provided, however, that (i) the Apollo Shareholders shall have
notified the Company of the proposed Transfer and shall have
furnished the Company with a statement describing in reasonable
detail the circumstances surrounding the proposed Transfer, and
(ii) if requested by the Company, the Apollo Shareholders shall
have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such Transfer is either exempt
from the registration requirements of the Securities Act and the
applicable securities laws of any state or that such registration
requirements have been complied with;
3.3.4 as distributions to the Saratoga
Shareholders’ partners and/or members; provided, however,
that (i) the Saratoga Shareholders shall have notified the Company
of the proposed Transfer and shall have furnished the Company with
a statement describing in reasonable detail the circumstances
surrounding the proposed Transfer, and (ii) if requested by the
Company, the Saratoga Shareholders shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company,
that such Transfer is either exempt from the registration
requirements of the Securities Act and the applicable securities
laws of any state or that such registration requirements have been
complied with;
3.3.5 to that Shareholder's spouse, parents, or
children or other members of the Shareholder's family (including
relatives by marriage), or to a custodian, trustee or other
fiduciary for the account of the Shareholder or members of his or
her family or to a family limited partnership, limited liability
company or other Person in connection with a bona fide estate
planning transaction;
3.3.6 by way of bequest or inheritance upon
death;
3.3.7 to the Company or to any other
Shareholder;
3.3.8 by way of a bona fide gift; or
3.3.9 by way of any pledge of Shares made by the
Shareholder pursuant to a bona fide loan transaction with an
established financial institution that creates a mere security
interest;
provided, that in Sections 3.3.5 - 3.3.8 above
such transferee holds such transferring Shareholder's Shares
subject to the terms of this Agreement and executes an supplemental
agreement hereto in form and substance reasonably satisfactory to
the Company evidencing his or her consent to become a party to, and
be bound by the
terms of, this
Agreement, and provided further, that in Section 3.3.9, any pledge
shall be made pursuant to a pledge agreement that requires the
pledgee to be bound by all terms and conditions of this
Agreement.
3.4
Legends.
Each certificate representing Shares
shall (unless otherwise permitted by the provisions of
