Document:

exv10w2

Exhibit 10.2

Execution Version

COMMON UNIT

REGISTRATION RIGHTS AGREEMENT

BY AND AMONG

PAA NATURAL GAS STORAGE, L.P.

AND.

THE PURCHASERS PARTY HERETO

DATED AS OF [•], 2011

 

 

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of
[•], 2011, by and among PAA NATURAL GAS STORAGE, L.P., a Delaware limited partnership
(“PNG”), and the purchasers listed on Schedule 1 hereto (each a “Purchaser” and
collectively, the “Purchasers”).

     This Agreement is made in connection with the Closing of the issuance and sale of common units
(“Purchased Units”) representing limited partnership interests in PNG (“Common
Units”) pursuant to (i) that certain Common Unit Purchase Agreement, dated as of December 23, 2010,
by and among PNG and the Purchasers named therein and (ii) that
certain Common Unit Purchase Agreement, dated as of January 19,
2011, by and among PNG and the Purchasers named therein
(collectively, the “Purchase Agreements”). PNG has agreed to provide
the registration and other rights set forth in this Agreement for the benefit of the Purchasers of
the Purchased Units pursuant to the Purchase Agreements. In consideration of the mutual covenants
and agreements set forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as
follows:

ARTICLE I.

DEFINITIONS

     Definitions. Capitalized terms used herein without definition shall have the meanings
given to them in the Purchase Agreements. The terms set forth below are used herein as so defined:

     “Effectiveness Period” has the meaning specified therefore in Section 2.01(a) of this
Agreement.

     “Holder” means the record holder of any Registrable Securities.

     “Losses” has the meaning specified therefor in Section 2.08(a) of this Agreement.

     “Managing Underwriter” means, with respect to any Underwritten Offering, the book
running lead manager of such Underwritten Offering.

     “Purchase Agreement” has the meaning specified therefor in the Recital of this
Agreement.

     “Purchasers” has the meaning specified therefor in the introductory paragraph of this
Agreement.

     “Registrable Securities” means the Purchased Units until such time as such securities
cease to be Registrable Securities pursuant to Section 1.01 hereof.

     “Registration Expenses” has the meaning specified therefor in Section 2.07(a) of this
Agreement.

     “Selling Expenses” has the meaning specified therefor in Section 2.07(a) of this
Agreement.

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     “Selling Holder” means a Holder who is selling Registrable Securities pursuant to a
registration statement.

     “Shelf Registration” has the meaning specified therefor in Section 2.01(a) of this
Agreement.

     “Shelf Registration Statement” has the meaning specified therefor in Section 2.01(a)
of this Agreement.

     “Underwritten Offering” means an offering (including an offering pursuant to a Shelf
Registration Statement) in which Common Units are sold to an underwriter on a firm commitment basis
for reoffering to the public or an offering that is a “bought deal” with one or more investment
banks.

     Section 1.01 Registrable Securities. Any Registrable Security will cease to be a
Registrable Security at the earliest of the following: when (a) a registration statement covering
such Registrable Security becomes or has been declared effective by the Commission and such
Registrable Security has been sold or disposed of pursuant to such effective registration
statement; (b) such Registrable Security has been disposed of pursuant to any section of Rule 144
under the Securities Act (or any similar provision then in force under the Securities Act); (c)
such Registrable Security is held by PNG or one of its subsidiaries; (d) when such Registrable
Security has been sold in a private transaction in which the transferor’s rights under this
Agreement are not assigned to the transferee of such securities pursuant to the terms of this
Agreement; or (e) the Effectiveness Period expires.

     Section 1.02 Aggregation of Stock. All securities held or acquired by Affiliated
Persons (including Affiliated funds) shall be aggregated together for purposes of determining the
availability of any rights under this Agreement.

ARTICLE II.

REGISTRATION RIGHTS

     Section 2.01 Shelf Registration.

          (a) Shelf Registration. Within 60 (sixty) days of becoming eligible to file a
registration statement on Form S-3, PNG shall prepare and file a registration statement under the
Securities Act to permit the public resale of Registrable Securities then outstanding from time to
time as permitted by Rule 415 of the Securities Act (the “Shelf Registration Statement”).
PNG shall use its commercially reasonable efforts to cause the Shelf Registration Statement to
become effective no later than 120 (one-hundred twenty) days after the date of filing (the
“Shelf Registration”). The Shelf Registration Statement filed pursuant to this Section
2.01(a) shall be on such appropriate registration form of the Commission as shall be selected by
PNG; provided, however, that if a prospectus supplement will be used in connection with the
marketing of an Underwritten Offering from the Shelf Registration Statement and the Managing
Underwriter at any time shall notify PNG in writing that, in the sole judgment of such Managing
Underwriter, inclusion of detailed information to be used in such prospectus supplement is of
material importance to the success of the Underwritten Offering of such Registrable Securities, PNG
shall use its commercially reasonable efforts to include such information in the prospectus. PNG
will

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use its commercially reasonable efforts to cause the Shelf Registration Statement filed
pursuant to this Section 2.01(a) to be continuously effective under the Securities Act until the
earliest date on which any of the following occurs: (a) all Registrable Securities covered by the
Shelf Registration Statement have been sold by the Purchasers and distributed in the manner set
forth and as contemplated in the Shelf Registration Statement or (b) the later of (i) two (2) years
from the Closing Date or (ii) the date on which the Purchasers can sell the Registrable Securities
pursuant to any section of Rule 144 under the Securities Act (or any similar provision then in
force under the Securities Act) without affiliate-related restriction (the “Effectiveness
Period”). The Shelf Registration Statement when it becomes or is declared effective (including
the documents incorporated therein by reference) will comply as to form in all material respects
with all applicable requirements of the Securities Act and the Exchange Act and will not contain an
untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (and, in the case of any prospectus
contained in such Shelf Registration Statement, in the light of the circumstances under which such
statement were made).

          (b) Delay Rights. Notwithstanding anything to the contrary contained herein, PNG may,
upon written notice to any Selling Holder whose Registrable Securities are included in the Shelf
Registration Statement, suspend such Selling Holder’s use of any prospectus which is a part of such
Shelf Registration Statement (in which event the Selling Holder shall discontinue sales of the
Registrable Securities pursuant to the Shelf Registration Statement) if (i) PNG is pursuing an
acquisition, merger, reorganization, disposition or other similar transaction and PNG determines in
good faith that PNG’s ability to pursue or consummate such a transaction would be materially
adversely affected by any required disclosure of such transaction in the Shelf Registration
Statement or (ii) PNG has experienced some other material non-public event the disclosure of which
at such time, in the good faith judgment of PNG, would materially adversely affect PNG. Upon the
public disclosure of such information or the termination of the conditions described above, PNG
shall provide prompt notice to the Selling Holders whose Registrable Securities are included in the
Shelf Registration Statement, and shall promptly terminate any suspension of sales it has put into
effect and shall take such other actions to permit registered sales of Registrable Securities as
contemplated in this Agreement.

     Section 2.02 Piggyback Rights.

          (a) Underwritten Offering Piggyback Rights. If at any time during the Effectiveness
Period PNG proposes to file (i) a prospectus supplement to an effective shelf registration
statement, other than a Shelf Registration Statement contemplated by Section 2.01, or (ii) a
registration statement, other than a Shelf Registration Statement, in either case, for the sale of
Common Units in an Underwritten Offering for its own account, then, as soon as practicable but not
less than three (3) Business Days prior to the filing of (A) any preliminary prospectus supplement
relating to such Underwritten Offering pursuant to Rule 424(b) of the Securities Act or (B) the
prospectus supplement relating to such Underwritten Offering pursuant to Rule 424(b) of the
Securities Act (if no preliminary prospectus supplement is used), PNG shall give notice of such
proposed Underwritten Offering to each Holder that then owns more than $25 million in aggregate
principal amount of Purchased Units based on the Purchase Price and such notice shall offer the
Holders the opportunity to include in such Underwritten Offering such number of Registrable
Securities (the “Included Registrable Securities”) as each such Holder

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may request in writing (a “Piggyback Offering”); provided, however, that PNG shall not
be required to offer such opportunity to Holders if (aa) the Holders do not offer a minimum of $25
million of Registrable Securities, in the aggregate (determined by multiplying the number of
Registrable Securities held by the participating Holders by the average of the closing price on the
NYSE for Common Units for the ten (10) trading days preceding the date of such notice) or (bb) PNG
has been advised by the Managing Underwriter that the inclusion of Registrable Securities for sale
for the benefit of the Holders will have an adverse effect on the price, timing or distribution of
the Common Units, in which case the amount of Registrable Securities to be offered for the accounts
of participating Holders shall be determined based on the provisions of Section 2.02(b) of this
Agreement. Each Holder shall keep any information relating to any such Underwritten Offering
confidential and shall not disseminate or in any way disclose such information. Each Holder shall
then have twelve (12) hours from the date of such notice to request inclusion of its Registrable
Securities in the Piggyback Offering. If no request for inclusion from a Holder is received within
the specified time, such Holder shall have no further right to participate in such Piggyback
Offering. If, at any time after giving written notice of its intention to undertake an
Underwritten Offering and prior to the closing of such Underwritten Offering, PNG shall determine
for any reason not to undertake or to delay such Underwritten Offering, PNG shall give written
notice of such determination to the Selling Holders and, (x) in the case of a determination not to
undertake such Underwritten Offering, shall be relieved of its obligation to sell any Included
Registrable Securities in connection with such terminated Underwritten Offering, and (y) in the
case of a determination to delay such Underwritten Offering, shall be permitted to delay offering
any Included Registrable Securities for the same period as the delay of the Underwritten Offering.
Any Selling Holder shall have the right to withdraw such Selling Holder’s request for inclusion of
such Selling Holder’s Registrable Securities in such Underwritten Offering by giving written notice
to PNG of such withdrawal at least one (1) Business Day prior to the time of pricing of such
Underwritten Offering. Each Holder’s rights under this Section 2.02(a) shall terminate when such
Holder holds less than $25 million of Registrable Securities. Notwithstanding the foregoing, any
Holder may deliver written notice (an “Opt-Out Notice”) to PNG requesting that such Holder
not receive notice from PNG of any proposed Underwritten Offering; provided, however, that such
Holder may later revoke any such Opt-Out Notice in writing. The Holders listed on Schedule 2.02(a)
shall be deemed to have delivered an Opt-Out Notice as of the date hereof.

          (b) Priority of Piggyback Rights. In connection with an Underwritten Offering
contemplated by Section 2.02(a), if the Managing Underwriter or Underwriters of such Underwritten
Offering advises PNG that the total amount of Common Units that the Selling Holders and any other
Persons intend to include in such Underwritten Offering exceeds the number that can be sold in such
Underwritten Offering without being likely to have an adverse effect on the price, timing or
distribution of the Common Units offered or the market for the Common Units, then the Common Units
to be included in such Underwritten Offering shall include the number of Common Units that such
Managing Underwriter or Underwriters advises PNG can be sold without having such adverse effect,
with such number to be allocated (i) first to PNG, (ii) second pro rata among the Selling Holders
and any other Persons who have been or are granted registration rights on or after the date of this
Agreement who have requested participation in the Underwritten Offering (the “Other
Holders”) based, for each such Selling Holder or Other Holder, on the percentage derived by
dividing (A) the number of Common Units proposed to be sold by such Selling Holder(s) and such
Other Holders in such Underwritten

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Offering; by (B) the aggregate number of Common Units proposed to be sold by all Selling
Holders and all Other Holders in the Underwritten Offering.

     Section 2.03 Underwritten Offering.

          (a) Shelf Registration. In the event that a Selling Holder elects to dispose of
Registrable Securities under the Shelf Registration Statement pursuant to an Underwritten Offering,
PNG shall enter into an underwriting agreement in customary form with the Managing Underwriter or
Underwriters, which shall include, among other provisions, indemnities to the effect and to the
extent provided in Section 2.08, and shall take all such other reasonable actions as are requested
by the Managing Underwriter in order to expedite or facilitate the registration and disposition of
the Registrable Securities; provided, however, the participation of PNG management in connection
with an Underwritten Offering for the benefit of Selling Holders shall consist of not more than
sixteen hours of teleconferences for the benefit of each Purchaser annually; and provided further,
that these marketing obligations are not transferable to any other Holders other than Affiliates of
the Purchasers, notwithstanding the provisions of Section 2.10 hereof.

          (b) General Procedures. In connection with any Underwritten Offering under this
Agreement, PNG shall be entitled to select the Managing Underwriter or Underwriters. In connection
with an Underwritten Offering contemplated by this Agreement in which a Selling Holder
participates, each Selling Holder and PNG shall be obligated to enter into an underwriting
agreement with the Managing Underwriter or Underwriters which contains such representations,
covenants, indemnities and other rights and obligations as are customary in underwriting agreements
for firm commitment offerings of equity securities. No Selling Holder may participate in an
Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the
basis provided in such underwriting agreement and completes and executes all questionnaires, powers
of attorney, indemnities and other documents reasonably required under the terms of such
underwriting agreement. Each Selling Holder may, at its option, require that any or all of the
representations and warranties by, and the other agreements on the part of, PNG to and for the
benefit of such underwriters also be made to and for such Selling Holder’s benefit and that any or
all of the conditions precedent to the obligations of such underwriters under such underwriting
agreement also be conditions precedent to its obligations. No Selling Holder shall be required to
make any representations or warranties to or agreements with PNG or the underwriters other than
representations, warranties or agreements regarding such Selling Holder and its ownership of the
securities being registered on its behalf and its intended method of distribution and any other
representation required by law. If any Selling Holder disapproves of the terms of an Underwritten
Offering, such Selling Holder may elect to withdraw therefrom by notice to PNG and the Managing
Underwriter; provided, however, that such withdrawal must be made at least one (1) Business Day
prior to the time of pricing of such Underwritten Offering to be effective. No such withdrawal or
abandonment shall affect PNG’s obligation to pay Registration Expenses.

     Section 2.04 Registration Procedures. In connection with its obligations under this
Article II, PNG will, as expeditiously as possible:

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          (a) prepare and file with the Commission such amendments and supplements to the Shelf
Registration Statement and the prospectus used in connection therewith as may be necessary to keep
the Shelf Registration Statement effective for the Effectiveness Period and as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition of all securities
covered by the Shelf Registration Statement;

          (b) furnish to each Selling Holder (i) as far in advance as reasonably practicable before
filing the Shelf Registration Statement or any supplement or amendment thereto, upon request,
copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits
and each document incorporated by reference therein to the extent then required by the rules and
regulations of the Commission), and provide each such Selling Holder the opportunity to object to
any information pertaining to such Selling Holder and its plan of distribution that is contained
therein and make the corrections reasonably requested by such Selling Holder with respect to such
information prior to filing the Shelf Registration Statement or supplement or amendment thereto,
and (ii) an electronic copy of the Shelf Registration Statement and the prospectus included therein
and any supplements and amendments thereto as such Selling Holder may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities covered by such
Shelf Registration Statement or other registration statement;

          (c) if applicable, use its commercially reasonable efforts to register or qualify the
Registrable Securities covered by the Shelf Registration Statement under the securities or “blue
sky” laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering,
the Managing Underwriter, shall reasonably request; provided, however, that PNG will not be
required to qualify generally to transact business in any jurisdiction where it is not then
required to so qualify or to take any action which would subject it to general service of process
in any such jurisdiction where it is not then so subject;

          (d) promptly notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the filing of the
Shelf Registration Statement or any prospectus or prospectus supplement to be used in connection
therewith, or any amendment or supplement thereto, and, with respect to such Shelf Registration
Statement, when the same has become effective; and (ii) the receipt of any written comments from
the Commission with respect to any filing referred to in clause (i) and any written request by the
Commission for amendments or supplements to the Shelf Registration Statement or any prospectus or
prospectus supplement thereto;

          (e) immediately notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the happening of any
event as a result of which the prospectus or prospectus supplement contained in the Shelf
Registration Statement, as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; (ii) the issuance or threat
of issuance by the Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement, or the initiation of any proceedings for that purpose; or (iii) the receipt
by PNG of any notification with respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws of any jurisdiction.

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Following the provision of such notice, PNG agrees to as promptly as practicable amend or
supplement the prospectus or prospectus supplement or take other appropriate action so that the
prospectus or prospectus supplement does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and to take such other action as is
necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;

          (f) upon request and subject to appropriate confidentiality obligations, furnish to each
Selling Holder copies of any and all transmittal letters or other correspondence with the
Commission or any other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to such offering of
Registrable Securities;

          (g) in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel
for PNG dated the date of the closing under the underwriting agreement, and (ii) a “cold comfort”
letter, dated the pricing date of such Underwritten Offering and a letter of like kind dated the
date of the closing under the underwriting agreement, in each case, signed by the independent
public accountants who have certified PNG’s financial statements included or incorporated by
reference into the applicable registration statement, and each of the opinion and the “cold
comfort” letter shall be in customary form and covering substantially the same matters with respect
to such registration statement (and the prospectus included therein and any prospectus supplement
thereto) and as are customarily covered in opinions of issuer’s counsel and in accountants’ letters
delivered to the underwriters in Underwritten Offerings of securities;

          (h) otherwise use its commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

          (i) make available to the appropriate representatives of the Managing Underwriter and Selling
Holders access to such information and PNG personnel as is reasonable and customary to enable such
parties to establish a due diligence defense under the Securities Act; provided, however, that PNG
need not disclose any information to any such representative unless and until such representative
has entered into a confidentiality agreement with PNG reasonably satisfactory to PNG;

          (j) cause all such Registrable Securities registered pursuant to this Agreement to be listed
on each securities exchange or nationally recognized quotation system, if any, on which similar
securities issued by PNG are then listed;

          (k) use its commercially reasonable efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of PNG to enable the Selling Holders to consummate the
disposition of such Registrable Securities;

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          (l) provide a transfer agent and registrar for all Registrable Securities covered by such
registration statement not later than the effective date of such registration statement; and

          (m) enter into customary agreements and take such other actions as are reasonably requested by
the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition
of such Registrable Securities.

     Each Selling Holder, upon receipt of notice from PNG of the happening of any event of the kind
described in Section 2.04(e), shall forthwith discontinue disposition of the Registrable Securities
pursuant to the Shelf Registration Statement until such Selling Holder’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 2.04(e) or until it is advised in
writing by PNG that the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings incorporated by reference in the prospectus, and, if so directed
by PNG, such Selling Holder will deliver, or will request the Managing Underwriter or underwriters,
if any, to deliver to PNG all copies in their possession or control, other than permanent file
copies then in such Selling Holder’s possession, of the prospectus and any prospectus supplement
covering such Registrable Securities current at the time of receipt of such notice.

     Section 2.05 Cooperation by Holders. PNG shall have no obligation to include in the
Shelf Registration Statement or in an Underwritten Offering under Article II of this Agreement,
Registrable Securities of a Holder who has failed to timely furnish such information which, in the
opinion of counsel to PNG, is reasonably required in order for the Shelf Registration Statement or
any prospectus or prospectus supplement thereto, as applicable, to comply with the Securities Act.

     Section 2.06 Restrictions on Public Sale by Holders of Registrable Securities. Each
Holder of Registrable Securities who is included in the Shelf Registration Statement agrees not to
effect any public sale or distribution of the Registrable Securities during the sixty (60) calendar
day period beginning on the date that a prospectus supplement or other prospectus (including any
free writing prospectus) is filed with the Commission with respect to the pricing of an
Underwritten Offering, provided, however, that the duration of the foregoing restrictions shall be
no longer than the duration of the shortest restriction generally imposed by the underwriters on
the officers or directors or any other unitholder of PNG on whom a restriction is imposed in
connection with such Underwritten Offering, provided, further, that the foregoing restrictions
shall not apply to any Holder that does not then own more than $25 million in aggregate principal
amount of Purchased Units based on the Purchase Price or any Holder that has delivered and not
revoked an Opt-Out Notice.

     Section 2.07 Expenses.

          (a) Certain Definitions. “Registration Expenses” means all expenses incident
to PNG’s performance under or compliance with this Agreement to effect the registration of
Registrable Securities in a Shelf Registration, an Underwritten Offering or a Piggy Back Offering,
and the disposition of such securities, including, without limitation, all customary registration,
filing, securities exchange listing and NYSE fees, all customary registration, filing,
qualification and other fees and expenses of complying with securities or “blue sky” laws, fees of

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the Financial Industry Regulatory Authority, Inc., transfer taxes and fees of transfer agents
and registrars, all word processing, duplicating and printing expenses, the fees and disbursements
of counsel to PNG and independent public accountants for PNG, including the expenses of any special
audits or “cold comfort” letters required by or incident to such performance and compliance.
Except as otherwise provided in Section 2.08 hereof, PNG shall not be responsible for legal fees
incurred by Holders in connection with the exercise of such Holders’ rights hereunder. In
addition, PNG shall not be responsible for any “Selling Expenses,” which means all
underwriting fees, discounts and selling commissions (and similar fees or arrangements associated
with) and transfer taxes allocable to the sale of the Registrable Securities.

          (b) Expenses. PNG will pay all reasonable Registration Expenses in connection with
the Shelf Registration Statement filed pursuant to Section 2.01(a) of this Agreement or any
Underwritten Offering or Piggyback Offering, whether or not the Shelf Registration Statement
becomes effective or any sale is made pursuant to the Shelf Registration Statement. Each Selling
Holder shall pay all Selling Expenses in connection with any sale of its Registrable Securities
hereunder.

     Section 2.08 Indemnification.

          (a) By PNG. In the event of a registration of any Registrable Securities under the
Securities Act pursuant to this Agreement, PNG will indemnify and hold harmless each Selling Holder
thereunder, its directors and officers, and each underwriter, pursuant to the applicable
underwriting agreement with such underwriter, of Registrable Securities thereunder and each Person,
if any, who controls such Selling Holder or underwriter within the meaning of the Securities Act
and the Exchange Act, against any losses, claims, damages, expenses or liabilities (including
reasonable attorneys’ fees and expenses) (collectively, “Losses”), joint or several, to
which such Selling Holder or underwriter or controlling Person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact (in the case of any prospectus, in the
light of the circumstances under which such statement was made) contained in the Shelf Registration
Statement, any prospectus contained therein, or any free writing prospectus related thereto, or any
amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which they were made) not
misleading, and will reimburse each such Selling Holder, its directors and officers, each such
underwriter and each such controlling Person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Loss or actions or proceedings;
provided, however, that PNG will not be liable in any such case if and to the extent that any such
Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such Selling Holder, such
underwriter or such controlling Person in writing specifically for use in the Shelf Registration
Statement, any prospectus contained therein, or any free writing prospectus related thereto, or any
amendment or supplement thereof. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Selling Holder or any such director, officer or
controlling Person, and shall survive the transfer of such securities by such Selling Holder.

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          (b) By Each Selling Holder. Each Selling Holder agrees severally and not jointly to
indemnify and hold harmless PNG, its directors and officers, and each Person, if any, who controls
PNG within the meaning of the Securities Act or of the Exchange Act to the same extent as the
foregoing indemnity from PNG to the Selling Holders, but only with respect to information regarding
such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for
inclusion in the Shelf Registration Statement, any prospectus contained therein, or any free
writing prospectus related thereto, or any amendment or supplement thereof relating to the
Registrable Securities; provided, however, that the liability of each Selling Holder shall not be
greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by
such Selling Holder from the sale of the Registrable Securities giving rise to such
indemnification.

          (c) Notice. Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to any indemnified party other than under this Section 2.08. In
any action brought against any indemnified party, it shall notify the indemnifying party of the
commencement thereof. The indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 2.08 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected; provided, however, that,
(i) if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the
defendants in any such action include both the indemnified party and the indemnifying party and
counsel to the indemnified party shall have concluded that there may be reasonable defenses
available to the indemnified party that are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified party shall have the
right to select a separate counsel and to assume such legal defense and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such separate counsel and
other reasonable expenses related to such participation to be reimbursed by the indemnifying party
as incurred. Notwithstanding any other provision of this Agreement, no indemnified party shall
settle any action brought against it with respect to which it is entitled to indemnification
hereunder without the consent of the indemnifying party, unless the settlement thereof imposes no
liability or obligation on, and includes a complete and unconditional release from all liability
of, the indemnifying party.

          (d) Contribution. If the indemnification provided for in this Section 2.08 is held by
a court or government agency of competent jurisdiction to be unavailable to PNG or any Selling
Holder or is insufficient to hold them harmless in respect of any Losses, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such Losses as between PNG on the one hand
and such Selling Holder on the other, in such proportion as is appropriate to reflect the relative
fault of PNG on the one hand and of such Selling Holder on the other in connection

11

 

with the statements or omissions which resulted in such Losses, as well as any other relevant
equitable considerations; provided, however, that in no event shall such Selling Holder be required
to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling
Expenses) received by such Selling Holder from the sale of Registrable Securities giving rise to
such indemnification. The relative fault of PNG on the one hand and each Selling Holder on the
other shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact has been
made by, or relates to, information supplied by such party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if contributions pursuant to this
paragraph were to be determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the first sentence of this
paragraph. The amount paid by an indemnified party as a result of the Losses referred to in the
first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably
incurred by such indemnified party in connection with investigating or defending any Loss which is
the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is
not guilty of such fraudulent misrepresentation.

          (e) Other Indemnification. The provisions of this Section 2.08 shall be in addition
to any other rights to indemnification or contribution which an indemnified party may have pursuant
to law, equity, contract or otherwise.

     Section 2.09 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the Registrable
Securities to the public without registration, PNG agrees to use its commercially reasonable
efforts to:

          (a) Make and keep public information regarding PNG available, as those terms are understood
and defined in Rule 144 of the Securities Act, at all times from and after the date hereof;

          (b) File with the Commission in a timely manner all reports and other documents required of
PNG under the Securities Act and the Exchange Act at all times from and after the date hereof; and

          (c) So long as a Holder owns any Registrable Securities, furnish, unless otherwise available
at no charge by access electronically to the Commission’s EDGAR filing system, to such Holder
forthwith upon request a copy of the most recent annual or quarterly report of PNG, and such other
reports and documents so filed with the Commission as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.

     Section 2.10 Transfer or Assignment of Registration Rights. The rights to cause PNG
to register Registrable Securities granted to the Purchasers by PNG under this Article II may be
transferred or assigned by the Purchasers to one or more transferee(s) or assignee(s) of such
Registrable Securities, provided that (a) unless such transferee or assignee is an Affiliate of the

12

 

transferring Purchaser, each such transferee or assignee holds Registrable Securities
representing at least 1,000,000 of the Purchased Units sold pursuant to the terms of the Purchase
Agreement, (b) PNG is given written notice prior to any said transfer or assignment, stating the
name and address of each such transferee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and (c) each such transferee shall agree in
writing to be subject to all of the terms and conditions of this Agreement and to assume
responsibility for its portion of the obligations of the Purchasers under this Agreement.

ARTICLE III.

MISCELLANEOUS

     Section 3.01 Communications. All notices and other communications provided for or
permitted hereunder shall be made in writing by facsimile, courier service or personal delivery:

          (a) if to the Purchasers, at the most current addresses given by the Purchasers to PNG in
accordance with the provisions of this Section 3.01, which addresses initially are, with respect to
the Purchasers, the addresses set forth in the Purchase Agreement,

          (b) if to a transferee of the Purchaser, to such Holder at the address provided pursuant to
Section 2.10 above, and

          (c) if to PNG, at 333 Clay Street, Suite 1500, Houston, Texas, 77002, notice of which is given
in accordance with the provisions of this Section 3.01.

     All such notices and communications shall be deemed to have been received at the time
delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or
sent via Internet electronic mail; and when actually received, if sent by any other means.

     Section 3.02 Successor and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including subsequent Holders of
Registrable Securities to the extent permitted herein.

     Section 3.03 Assignment of Rights. All or any portion of the rights and obligations
of the Purchasers under this Agreement may be transferred or assigned by the Purchasers in
accordance with Section 2.10 hereof.

     Section 3.04 Recapitalization, Exchanges, etc. Affecting the Common Units. The
provisions of this Agreement shall apply to the full extent set forth herein with respect to any
and all units of PNG or any successor or assign of PNG (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the
Registrable Securities, and shall be appropriately adjusted for combinations, splits,
recapitalizations and the like occurring after the date of this Agreement.

     Section 3.05 Specific Performance. Damages in the event of breach of this Agreement
by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed
that each such Person, in addition to and without limiting any other remedy or right it may have,
will have the right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions
hereof, and each

13

 

of the parties hereto hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or other equitable relief. The
existence of this right will not preclude any such Person from pursuing any other rights and
remedies at law or in equity which such Person may have.

     Section 3.06 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in 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 3.07 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     Section 3.08 Governing Law, Submission to Jurisdiction. This Agreement, and all
claims or causes of action (whether in contract or tort) that may be based upon, arise out of or
relate to this Agreement or the negotiation, execution or performance of this Agreement (including
any claim or cause of action based upon, arising out of or related to any representation or
warranty made in or in connection with this Agreement), will be construed in accordance with and
governed by the Laws of the State of Delaware without regard to principles of conflicts of laws.
Any action against any party relating to the foregoing shall be brought in any federal or state
court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby
irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within
the State of Delaware over any such action. The parties hereby irrevocably waive, to the fullest
extent permitted by applicable Law, any objection which they may now or hereafter have to the
laying of venue of any such dispute brought in such court or any defense of inconvenient forum for
the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such
dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by Law.

     Section 3.09 Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVE,
AND AGREE TO CAUSE THEIR AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
(ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO
THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     Section 3.010 Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to
the

14

 

extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting or impairing the validity or enforceability of such provision in any other
jurisdiction.

     Section 3.11 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the rights granted by PNG set forth herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.

     Section 3.12 Amendment. This Agreement may be amended only by means of a written
amendment signed by PNG and the Holders of a majority of the then outstanding Registrable
Securities; provided, however, that no such amendment shall materially and
adversely affect the rights of any Holder hereunder without the consent of such Holder.

     Section 3.13 No Presumption. In the event any claim is made by a party relating to
any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or
persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the
request of a particular party or its counsel.

     Section 3.14 Obligations Limited to Parties to this Agreement. Each of the parties
hereto covenants, agrees and acknowledges that no Person other than the Purchasers, their
respective permitted assignees and PNG shall have any obligation hereunder and that,
notwithstanding that one or more of PNG and the Purchasers may be a corporation, partnership,
limited liability company or other entity, no recourse under this Agreement or under any documents
or instruments delivered in connection herewith or therewith shall be had against any former,
current or future director, officer, employee, agent, general or limited partner, manager, member,
stockholder or Affiliate of any of PNG, the Purchasers or their respective permitted assignees, or
any former, current or future director, officer, employee, agent, general or limited partner,
manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of
any assessment or by any legal or equitable proceeding, or by virtue of any applicable Law, it
being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be
imposed on or otherwise by incurred by any former, current or future director, officer, employee,
agent, general or limited partner, manager, member, stockholder or Affiliate of any of PNG, the
Purchasers or any of their respective assignees, or any former, current or future director,
officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of
any of the foregoing, as such, for any obligations of PNG, the Purchasers or their respective
permitted assignees under this Agreement or any documents or instruments delivered in connection
herewith or therewith or for any claim based on, in respect of or by reason of such obligation or
its creation, except in each case for any assignee of a Holder.

     Section 3.15 Interpretation. Article and Section references in this Agreement are
references to the corresponding Article and Section to this Agreement, unless otherwise specified.
All references to instruments, documents, contracts and agreements are references to

15

 

such instruments, documents, contracts and agreements as the same may be amended, supplemented
and otherwise modified from time to time, unless otherwise specified. The word “including” shall
mean “including but not limited to.” Whenever any determination, consent or approval is to be made
or given by PNG under this Agreement, such action shall be in the PNG’s sole discretion unless
otherwise specified.

[The remainder of this page is intentionally left blank.]

16

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.

	 	 	 	 	 	 	 

	 	 	PAA NATURAL GAS STORAGE, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	PNGS GP LLC, its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name: Richard K. McGee
	 	 
	 

	 	 	 	Title: Vice President — Legal and Business Development
	 	 

Signature Page to Registration Rights Agreement

 

 

[PURCHASERS — to come]

Signature Page to Registration Rights Agreement

 

 

SCHEDULE 1

	 

	Kayne Anderson MLP Investment Company

	Kayne Anderson Energy Total Return Fund, Inc.

	Kayne Anderson Midstream/Energy Fund, Inc.

	KA First Reserve, LLC

	Tortoise Energy Infrastructure Corporation

	Tortoise Energy Capital Corporation

	Tortoise North American Energy Corporation

	Tortoise MLP Fund, Inc.

	AT MLP Fund, LLC

	Tetrad Corporation

	Fiduciary/Claymore MLP Opportunity Fund

	FAMCO MLP & Energy Infrastructure Fund

	Eagle Income Appreciation Partners L.P.

	Eagle Income Appreciation II L.P.

	Tallgrass MLP Fund I, L.P.

	Anna Maria and Stephen Kellen Foundation, Inc

	Hartz Capital Investments, LLC

	Baron Small Cap Fund

	Baron Real Estate Fund

	ClearBridge Energy MLP Fund Inc.

	Granite Growth 124, LLC

	RCH Energy MLP Fund, L.P.

	MTP Energy Infrastructure Finance Master Fund, Ltd

	Hoak Public Equities, LP

	Hoak Private Equities I, L.P.

	Kayne Anderson MLP Fund, LP

	Kayne Anderson Non-Traditional Investments, LP

	Kayne Anderson Capital Income Partners (QP), LP

	Kayne Anderson Midstream Institutional Fund, LP

	KA-Sabes Investments, LLC

	KA-Sabes Investments II, LLC

	Hallco, Inc.

	Aribo Investments LLC

	Gary Lieberthal, TTEE

	WHI Equity Managers Fund LLC

	James J. Dunne III

	Brener International Group, LLC

	Mason Liquid Fund LLC

	Jonathan E. Fielding, TTEE

	Kenneth F. Yontz and Harry V. Carlson, Jr., TTEES

	Richard Glenn Merrill and Mary Kathleen Merrill TTEES

	Allan Rudnick and Paula Rudnick, TTES

	Allan M. Rudnick Custodian for Zoe B. Rudnick

	Allan M. Rudnick Custodian for Allison H. Rudnick

Schedule 1

 

	 

	Larry Sheakley

	William E. B. Siart

	Dennis S. Beck

	Tiger Veda, LP

	Tiger Veda Global LP

	Hartz Capital Investments, LLC

	New Eagle Holdings LLC

	The American Academy in Berlin

	Eagle Income Appreciation Partners L.P.

	Eagle Income Appreciation II L.P.

	Granite Growth 1234, LLC

	Rian A. A. Dartnell

	Becker Drapkin Partners (QP), LP

	Becker Drapkin Partners, LP

	The Northwestern Mutual Life Insurance Company

	Broadhaven LLC

	Thomas A. Harenburg Roth IRA

	Bransford Living Trust

Schedule 1ex1094eadanbaty012011.htm

EX-10.9.4

 

 

 

EMPLOYMENT AGREEMENT

 

 

THIS AGREEMENT made as of January 19, 2011.

 

BETWEEN:

 

Emeritus Corporation, a corporation duly incorporated under the laws of the State of Washington;

 

(“Emeritus")

 

AND:

 

Daniel R. Baty, an individual,

 

(the "Executive")

 

WHEREAS: Executive has been employed by Emeritus most recently as Chairman and Co-Chief Executive Officer;

 

WHEREAS:  Executive will resign from his position as Co-Chief Executive Officer but remain an employee and an officer of Emeritus;

 

WHEREAS:  Executive and Emeritus wish to formally record the terms and conditions upon which the Executive will remain employed by Emeritus, and each of Emeritus and the Executive have agreed to the terms and conditions set forth in this Agreement, as evidenced by their execution hereof.

 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

ARTICLE 1 

 

CONTRACT FOR SERVICES

 

	
1.1  

	
Engagement of Executive.  Subject to earlier termination of Employment as hereinafter provided, Emeritus hereby agrees to employ the Executive in accordance with the terms and provisions hereof. The Executive shall perform his duties hereunder in Seattle, Washington, at Emeritus’s corporate headquarters. However, Executive acknowledges and agrees that the performance of his duties hereunder may require significant domestic and some international travel.

  

1

  

 

	
1.2  

	
Term.  Unless terminated earlier in accordance with the provisions hereof, the term of employment under this Agreement shall commence on January 1, 2011 (the "Effective Date") and shall continue until terminated by either party as provided herein (the "Term").

 

	
1.3  

	
Duties.  As long as this Agreement remains in effect and unless and until otherwise agreed the Executive shall be considered employed on a full time basis and shall devote as much time and attention to the duties reasonably requested by Emeritus, as he and Emeritus reasonably determine appropriate.  Subject to the terms of Section 4.1 below, the Executive agrees and undertakes to inform the board of directors of Emeritus, (the "Board") promptly after becoming aware of any matter that may in any way raise a conflict of interest between the Executive and Emeritus under the Emeritus Code of Conduct or Code of Ethics.  The services hereunder shall be provided on the basis of the following terms and conditions:

 

ARTICLE 2 

 

COMPENSATION

 

	
2.1  

	
Compensation.

 

	
(a)  

	
As compensation for services rendered by the Executive during the Term, the Executive shall be paid an annualized salary (the "Salary") according to the following schedule:

 

From January 1, 2011 through December 31, 2011, his Salary will be equal to $600,000;

 

From January 1, 2012 through December 31, 2012, his Salary will be equal to $300,000;

 

From January 1, 2013 through December 31, 2013, his Salary will be equal to $300,000;

 

Thereafter, Executive’s Salary shall be mutually determined by Executive and the Compensation Committee of the Board.

 

Executive shall not be entitled to any additional pay for overtime hours. The Salary shall be paid to the Executive in accordance with Emeritus’s general policies and procedures, but no less than once per month. Except as specifically set forth herein, the Salary includes any and all payments to which the Executive is entitled from Emeritus hereunder and under any applicable law, regulation or agreement.

 

	
(b)  

	
Emeritus will deduct from Executive's Salary and any other amounts payable to Executive under this Agreement all applicable taxes, charges or other withholdings required by applicable law in any applicable territory, or otherwise properly authorized by Executive.

  

2

  

 

	
(c)  

	
Executive shall be paid the incentive compensation to which he is entitled under applicable Emeritus plans in respect of services performed in 2010, but shall not be entitled to any incentive compensation in respect of services performed after December 31, 2010.

 

	
2.2  

	
Stock Options.

 

	
(a)  

	
Upon execution of this Agreement, and subject to approval by the Subcommittee for Qualified Based Compensation of the Compensation Committee of the Board, Executive shall receive a stock option grant under the Company’s Amended and Restated 2006 Equity Incentive Plan to purchase 300,000 shares of Emeritus common stock at an exercise price equal to the closing market price of Emeritus’s common stock on the date of grant.  The option will vest 1/3 on each of December 31, 2011, December 31, 2012 and December 31, 2013 subject to the Executive's continued service, expire 10 years after the date of grant and otherwise generally have the terms and conditions then applicable to options granted to executives of the Company.

 

	
(b)  

	
The stock option grants provided for in Section 2.2(a) above will be in lieu of any stock option awards Executive would otherwise be entitled as an executive or outside director of Emeritus.

 

	
2.3  

	
Expenses.  The Executive will be reimbursed by Emeritus for all reasonable business expenses actually incurred by the Executive in connection with his duties, within previously approved budgets, upon submission of a monthly statement of expenses.

 

	
2.4  

	
Benefits.  During the Term of this Agreement, Executive shall be entitled to participate in Emeritus’s employee benefit plans, policies, programs and arrangements (including, without limitation, paid vacation and holidays, sick leave, and plans providing retirement benefits and medical, dental, hospitalization, life, and disability as may be amended from time to time, on the same terms as other executive officers of Emeritus to the extent Executive meets the eligibility requirements for any such plan, policy, program or arrangement, and will be covered by Emeritus’s directors’ and officers’ liability insurance).  Following  termination of Executive’s employment, Emeritus shall pay Executive a lump sum equal to eighteen (18) months of COBRA premiums at the rate in effect under the Emeritus’ group health plan in which Executive is participating (and for the coverage in effect for Executive (and his spouse and dependent children) under that group health plan) immediately prior to the date of Executive’s termination of employment.  Such payment shall be made within thirty (30) days after Executive's termination of employment, unless a later payment date is required by Section 8.13 herein.

 

	
2.5  

	
Deductions.  The Executive acknowledges that all payments by Emeritus in respect of the services provided by the Executive shall be net of all amounts which Emeritus as employer is required to deduct or withhold from Salary or other payments to an executive in accordance with the statutory requirements (including, without limitation, income tax,

  

3

  

 

employee contributions and unemployment insurance contributions) of any applicable jurisdiction (including, without limitation, the law of the State of Washington).

 

ARTICLE 3 

 

CONFIDENTIALITY

 

	
3.1  

	
Maintenance of Confidential Information.  The Executive acknowledges that in the course of employment hereunder the Executive will, either directly or indirectly, have access to and be entrusted with information (whether oral, written or by inspection) relating to Emeritus or its subsidiaries, affiliates, associates or customers (the "Confidential Information"). For the purposes of this Agreement, "Confidential Information" includes, without limitation, any and all trade secrets, inventions, innovations, techniques, processes, formulas, drawings, designs, products, systems, creations, improvements, documentation, data, specifications, technical reports, customer lists, supplier lists, distributor lists, distribution channels and methods, retailer lists, reseller lists, employee information, financial information, sales or marketing plans, competitive analysis reports and any other thing or information whatsoever, whether copyrightable or uncopyrightable or patentable or unpatentable.  The Executive acknowledges that the Confidential Information constitutes a proprietary right, which Emeritus is entitled to protect.  Accordingly the Executive covenants and agrees that during the Term and thereafter until such time as all the Confidential Information becomes publicly known and made generally available through no action or inaction of the Executive, the Executive will keep in strict confidence the Confidential Information and shall not, without prior written consent of Emeritus, disclose, use or otherwise disseminate the Confidential Information, directly or indirectly, to any third party; notwithstanding the restrictions in the foregoing provisions, information shared by Executive with Emeritus pursuant to the Shared Opportunities Agreement (defined below) shall not be subject to such restrictions.

 

	
3.2  

	
Exceptions.  The general prohibition contained in Section 3.1 against the unauthorized disclosure, use or dissemination of the Confidential Information shall not apply in respect of any Confidential Information that:

 

	
(a)  

	
is available to the public generally in the form disclosed;

 

	
(b)  

	
becomes part of the public domain through no fault of the Executive;

 

	
(c)  

	
is already in the lawful possession of the Executive at the time of receipt of the Confidential Information; or

 

	
(d)  

	
is compelled by applicable law to be disclosed, provided that the Executive gives Emeritus prompt written notice of such requirement prior to such disclosure and provides assistance in obtaining an order protecting the Confidential Information from public disclosure.

  

4

  

 

	
3.3  

	
Fiduciary Obligation. The Executive declares that the Executive’s relationship to Emeritus is that of an officer and fiduciary, and the Executive agrees to act towards Emeritus and otherwise behave as a fiduciary of Emeritus.

 

ARTICLE 4 

CONFLICTS OF INTEREST

 

	
4.1  

	
Conflict of Interest: Except as otherwise provided in the Shared Opportunities Agreement of even date between Emeritus and Executive, Executive acknowledges that he maintains an affirmative obligation to continue to notify Emeritus and the Board in each and every case that it is apparent that activities or investments in which he is engaged could pose a conflict of interest with Emeritus, whether or not permitted under Section 3.1 and 3.2 above.

 

	
4.2  

	
No Solicitation. Executive shall not directly or indirectly solicit or take away, or attempt to solicit or take away, any person then employed by Emeritus for purposes of employment by or any consulting relationship with Executive or any other person, firm, corporation, partnership, limited liability company or other entity during the term of this Agreement.

 

ARTICLE 5 

TERMINATION

 

	
5.1  

	
At all times during the initial three-year term of Executive’s employment under this Agreement, Emeritus shall be entitled to terminate Executive’s employment for “cause” upon written notification to Executive of the grounds for termination.  If Executive’s employment is terminated for “cause,” Executive will not be entitled to and shall not receive any compensation or benefits of any type following the effective date of termination.  As used in this Agreement, the term “cause” shall be limited to acts of embezzlement, fraud, conviction of a felony, plea of guilty or nolo contendere to a felony charge.  Emeritus shall give Executive written notice prior to terminating Executive’s employment based upon a breach of this Agreement, setting forth the exact nature of any alleged breach and the conduct required to cure such breach.  Executive shall have thirty (30) days from the giving of such notice within which to cure.

 

	
5.2  

	
After December 31, 2013 either Emeritus or Executive may terminate this agreement for any reason upon 60 days' prior written notice to the other party.

 

	
5.3  

	
Executive shall be entitled to terminate this Agreement based upon Emeritus’s breach of this Agreement or the Shared Opportunities Agreement.  Executive shall give Emeritus written notice prior to terminating this Agreement.  Emeritus shall have thirty (30) days from the giving of such notice within which to cure.

  

5

  

 

ARTICLE 6  

MUTUAL REPRESENTATIONS

 

	
6.1  

	
Executive represents and warrants to Emeritus that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound, and (ii) do not require the consent of any person or entity.

 

	
6.2  

	
Emeritus represents and warrants to Executive that this Agreement has been duly authorized, executed and delivered by Emeritus and that the fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement of other instrument to which it is a party or by which it is bound, and (ii) do not require the consent of any person of entity.

 

	
6.3  

	
Each party hereto warrants and represents to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless if enforcement is sought in proceeding in equity or at law).

 

ARTICLE 7 

 

NOTICES

 

	
7.1  

	
Notices.  All notices required or allowed to be given under this Agreement shall be made either personally by delivery to or by facsimile transmission to the address as hereinafter set forth or to such other address as may be designated from time to time by such party in writing:

 

	
(a)  

	
in the case of Emeritus, to:

 

Attn: Granger Cobb

             President and Chief Executive Officer

             Emeritus Corporation

             3131 Elliott Avenue, Suite 500

             Seattle, WA  98121

 

	
(b)  

	
in the case of the Board, to:

Rob Marks, Compensation Committee Chair

Marks Ventures, LLC

35 Mason Street, 3rd Floor

Greenwich, CT  06830

 

	
(c)  

	
and in the case of the Executive, to the Executive’s last residence address known to Emeritus.

  

6

  

 

	
7.2  

	
Change of Address.  Any party may, from time to time, change its address for service hereunder by written notice to the other party in the manner aforesaid.

 

ARTICLE 8 

 

GENERAL

 

	
8.1  

	
Entire Agreement.  As of the date hereof, any and all previous agreements, written or oral between the parties hereto or on their behalf relating to the employment of the Executive by Emeritus are null and void.  The parties hereto agree that they have expressed herein their entire understanding and agreement concerning the subject matter of this Agreement and the Shared Opportunities Agreement and it is expressly agreed that no implied covenant, condition, term or reservation or prior representation or warranty shall be read into this Agreement relating to or concerning the subject matter hereof or any matter or operation provided for herein.

 

	
8.2  

	
Further Assurances.  Each party hereto will promptly and duly execute and deliver to the other party such further documents and assurances and take such further action as such other party may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created hereby.

 

	
8.3  

	
Waiver.  No provision hereof shall be deemed waived and no breach excused, unless such waiver or consent excusing the breach is made in writing and signed by the party to be charged with such waiver or consent.  A waiver by a party of any provision of this Agreement shall not be construed as a waiver of a further breach of the same provision.

 

	
8.4  

	
Amendments in Writing.  No amendment, modification or rescission of this Agreement shall be effective unless set forth in writing and signed by the parties hereto.

 

	
8.5  

	
Assignment.  Except as herein expressly provided, the respective rights and obligations of the Executive and Emeritus under this Agreement shall not be assignable by either party without the written consent of the other party and shall, subject to the foregoing, enure to the benefit of and be binding upon the Executive and Emeritus and their permitted successors or assigns.  Nothing herein expressed or implied is intended to confer on any person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

	
8.6  

	
Severability.  In the event that any provision contained in this Agreement shall be declared invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, such provision shall be deemed not to affect or impair the validity or enforceability of any other provision of this Agreement, which shall continue to have full force and effect.

 

	
8.7  

	
Headings.  The headings in this Agreement are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

  

7

  

 

	
8.8  

	
Number and Gender.  Wherever the singular or masculine or neuter is used in this Agreement, the same shall be construed as meaning the plural or feminine or a body politic or corporate and vice versa where the context so requires.

 

	
8.9  

	
Time.  Time shall be of the essence of this Agreement.

 

	
8.10  

	
Governing Law.  This Agreement shall be construed and interpreted in accordance with the laws of the State of Washington applicable therein, and each of the parties hereto expressly agrees to the jurisdiction of the courts or arbitration forum of the State of Washington.

 

	
8.11  

	
Enurement.  This Agreement is intended to bind and enure to the benefit of Emeritus, its successors and assigns, and the Executive and the personal legal representatives of the Executive.

 

	
8.12  

	
Attorneys Fees.  In the event of any litigated dispute between or among any of the parties to this Agreement, the reasonable legal fees and expenses of the party successful in such dispute (whether by way of a decision by a court or other tribunal) will be paid promptly by the unsuccessful party upon presentation by the successful party of an invoice therefore.

 

 

	
8.13  

	
Compliance with Code Section 409A.  The parties intend that this Agreement and any payments and benefits thereunder comply with the deferral, payout and other limitations and restrictions imposed under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  Notwithstanding anything herein to the contrary, this Agreement shall be interpreted, operated and administered in a manner consistent with such intentions.  Without limiting the generality of the foregoing, and notwithstanding any other provision of this Agreement to the contrary:

 

	
  

	
(a)   

	
if at the time Executive’s employment hereunder terminates, Executive is a “specified employee,” as defined in Treasury Regulation Section 1.409A-1(i) and determined using the identification methodology selected by the Company from time to time, or if none, the default methodology, any and all amounts payable under this Agreement on account of such termination of employment that would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid in a lump sum on the first day of the seventh month following the date on which Executive’s employment terminates or, if earlier, upon Executive’s death, except (i) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Treasury Regulation Section 1.409A-1(b); (ii) benefits which qualify as excepted welfare benefits pursuant to Treasury Regulation Section 1.409A-1(a)(5); and (iii) other amounts or benefits that are not subject to the requirements of Code Section 409A;

 

  

8

  

	
  

	
(b)   

	
a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h) after giving effect to the presumptions contained therein, and, for purposes of any such provision of this Agreement, references to a "terminate," “termination,” “termination of employment” and like terms shall mean separation from service;

 

 

	
  

	
(c)   

	
each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments;

 

	
  

	
(d)  

	
with regard to any provision in this Agreement, including, without limitation, Section 2 hereof, that provides for reimbursement of expenses or in-kind benefits, except for any expense, reimbursement or in-kind benefit provided pursuant to this Agreement that does not constitute a "deferral of compensation," within the meaning of Treasury Regulation Section 1.409A-1(b), (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

 

	
8.14  

	
Disputes

 

	
(a)  

	
Except as expressly set forth elsewhere in this Agreement, it is mutually agreed between the parties that arbitration shall be the sole and exclusive remedy to redress any dispute, claim or controversy (thereinafter referred to as “dispute”) involving the interpretation of this Agreement or the terms, conditions or termination of this Agreement or the terms, conditions or termination of Executive’s employment with Emeritus.  It is the intention of the parties that the arbitration award will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms.

 

	
(b)  

	
The arbitrator shall be chosen from a list provided by the American Arbitration Association and the Arbitration shall be conducted before a single arbitrator in Seattle, Washington, pursuant to the Employment Dispute Resolution Rules of the American Arbitration Association then in effect. Emeritus shall bear all expenses of the arbitration.  Each party shall be responsible for the costs of their own attorneys and related costs (expert witnesses, exhibits, etc.), except to the extent that the arbitrator awards attorneys’ fees as part of the arbitration decision.

  

9

  

 

	
(c)  

	
The arbitrator shall not have jurisdiction or authority to change any provision of this Agreement by alterations of, additions to or subtractions from the terms hereof.  The arbitrator’s sole authority shall be to interpret or apply any provision(s) of this Agreement.

 

	
(d)  

	
The parties agree that the provisions hereof, and the decision of the arbitrator with respect to any dispute, shall be the sole and exclusive remedy for any alleged breach of this Agreement or the employment relationship.  The parties hereby acknowledge that since arbitration is the exclusive remedy, neither party has the right to resort to any federal, state or local court or administrative agency concerning breaches of this Agreement and that the decision of the arbitrator shall be a complete defense of any suit, action or proceeding instituted in any federal, state or local court before any administrative agency with respect to any dispute which is subject to arbitration as herein set forth.  The arbitration provisions hereof shall, with respect to any dispute, survive the termination or expiration of this Agreement.

  

10

  

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement effective as of the date and year first above written.

 

 

EMERITUS CORPORATION

 

 

 

By:   /s/ Granger Cobb 

        Name: Granger Cobb

        Title:  President and Chief Executive Officer

 

 

DANIEL R. BATY

By:  /s/ Daniel R. Baty

        Name: Daniel R. Baty (Executive)

  

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