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"),

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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:
 

 
(i)
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;

 

 
(ii)
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;

 

 
(iii)
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;

 

 
(iv)
such partner or member shall have furnished to the Company a certificate to the
effect that the statements contained in subparagraphs (i), (ii) and (iii) above
are true and correct;

 

 
(v)
if, in the opinion of the Company, the legal standards governing the resale of
securities received in a distribution by a partnership or limited liability
company have changed from those currently applicable or if the Company's
transfer agent independently requires a legal opinion to issue stock
certificates free of a restrictive legend, the Company shall have received an
opinion of its legal counsel to the effect that such shares may be sold by such
partner or member without restriction.

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(d) The Company hereby waives the application of Sections 2.1 and 4.1(c) of the
Shareholders Agreement dated December 30, 1999 as to the distribution of shares
by Saratoga Partners IV, L.P. to Tresser L.P.
 
3. Termination
 
If payment of the Unpaid Dividends does not occur on or before June 30, 2005,
then this Agreement and the Saratoga Entities obligations to convert shall
terminate.
 
4. General Provisions
 
(a) Amendment and Waiver. No waiver of or consent to any departure by any of the
parties 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 parties.
 
(b) 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 one of the Saratoga
Entities, addressed to Saratoga Management Company LLC at:
 
Saratoga Management Company LLC
535 Madison Avenue
New York, NY 10022
Attention: Charles P. Durkin
Telephone: (212) 906-7044
Fax: (212) 750-3343
 
or to such other address as a Saratoga Entity may designate in writing and, if
to the Company, addressed to the Company at:
 
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attention: Raymond R. Brandstrom
Telephone: (206) 298-2909
Fax: (206) 301-4500

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With a copy to:
 
Perkins Coie
1201 Third Avenue
Seattle, Washington 98101
Attention: Michael E. Stansbury, Esq.
Telephone: (206) 359-8771
Fax: (206) 359-9771
 
or to such other address as the Company may designate in writing. All such
notices and demands shall be deemed given when received.
 
(c) 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.
 
(d) Binding Effect; Assignment. The rights of the Saratoga Entities 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 the Saratoga
Entities, and their respective successors and permitted assigns.
 
(e) Governing Law. This Agreement shall be deemed to be a contract made under
the laws of the state of Washington, and for all purposes shall be construed in
accordance with the laws of said state, without regard to principles of
conflicts of laws.
 
(f) Severability. 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.
 
(g) 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.
 
(h) 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.
 
(i) Entire Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof, and, as of the date hereof,
there are no promises or undertakings with respect thereto relative to the
subject matter hereof not expressly set forth or referred to herein or therein.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
 
COMPANY
 
EMERITUS CORPORATION
/s/ Raymond R. Branstrom
By:  Raymond R. Brandstrom
 

 
SARATOGA ENTITIES
 
SARATOGA PARTNERS IV, L.P.
 
By:     SARATOGA ASSOCIATES IV LLC
 
By:     SARATOGA MANAGEMENT            COMPANY LLC, its Manager
 

                                /s/ Charles P. Durkin
           By  Charles P. Durkin
 
               
 

 
SARATOGA COINVESTMENT IV LLC
 
By:     SARATOGA MANAGEMENT            COMPANY LLC, its Manager
 

                                /s/ Charles P. Durkin
       By  Charles P. Durkin
          
               
 

 
SARATOGA MANAGEMENT COMPANY LLC
 

                              /s/ Charles P. Durkin
                                    By  Charles P. Durkin
 
    
 

 

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EXHIBIT A
 

 
OWNERSHIP OF PREFERRED STOCK
 

 
Holder
 
Shares
 
Dividends
 
Saratoga Partners IV, L.P.
 
34,659           
 
$ 10,098,554.02
 
Saratoga Coinvestment IV LLC
 
925           
 
269,516.21
 
Saratoga Management Company LLC
 
     1,386           
 
       403,837.27
 
     Total
 
36,970           
 
$ 10,771,907.50

 

 

 
 
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