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SIXTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE
 
 
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE (this “Amendment”) is
dated as of March ___, 2007 (the “Effective Date”), and is among HEALTH CARE
PROPERTY INVESTORS, INC., a Maryland corporation (“HCP”), HCPI TRUST, a Maryland
real estate trust (“HCP Trust”), EMERITUS REALTY V, LLC, a Delaware limited
liability company (“ER-V”), ESC-LA CASA GRANDE, LLC, a Delaware limited
liability company (“La Casa Grande”) and TEXAS HCP HOLDING, L.P., a Delaware
limited partnership (“Texas HCP,” and together with HCP, HCP Trust, ER-V and La
Casa Grande, “Lessor”), on the one hand, and EMERITUS CORPORATION, a Washington
corporation (“Emeritus”), ESC III, L.P., a Washington limited partnership d/b/a
TEXAS-ESC III, L.P. (“Texas ESC”), EMERITUS PROPERTIES II, INC., a Washington
corporation (“Emeritus II”), EMERITUS PROPERTIES III, INC., a Washington
corporation (“Emeritus III”), EMERITUS PROPERTIES V, INC., a Washington
corporation (“Emeritus V”), EMERITUS PROPERTIES XIV, LLC, a Washington limited
liability company (“Emeritus XIV”), ESC-BOZEMAN, LLC, a Washington limited
liability company (“ESC Bozeman”) and ESC-NEW PORT RICHEY, LLC, a Washington
limited liability company (“ESC New Port Richey”) (collectively and jointly and
severally, as “Lessee”), on the other hand, with respect to the following:
 
RECITALS
 
A. Lessor is the current “Lessor” and Lessee is the current “Lessee” pursuant to
that certain Amended and Restated Master Lease dated as of September 18, 2002
(the “Original Master Lease”), as amended by that certain First Amendment to
Amended and Restated Master Lease dated August 31, 2003 (the “First Amendment”),
that certain Second Amendment to Amended and Restated Master Lease dated January
26, 2004 (the “Second Amendment”), that certain Third Amendment to Amended and
Restated Master Lease dated April 22, 2004 (the “Third Amendment”), that certain
Fourth Amendment to Amended and Restated Master Lease dated July 30, 2004 (the
“Fourth Amendment”), and that certain Fifth Amendment to Amended and Restated
Master Lease dated December 13, 2005 (the “Fifth Amendment,” and together with
the First Amendment, Second Amendment, Third Amendment, Fourth Amendment and
Fifth Amendment and the Original Master Lease, the “Master Lease”), covering the
Leased Property of thirty-five (35) separate Alzheimer’s care, congregate care,
assisted-living and/or skilled nursing care Facilities, all as more particularly
described in the Master Lease. All capitalized terms used in this Amendment and
not defined or modified herein shall have the meanings assigned to such terms in
the Master Lease.
 
B. The obligations of Lessee under the Lease are guaranteed pursuant to that
certain Guaranty of Obligations dated as of July 28, 2004 (as amended and
reaffirmed from time to time, the “Guaranty”), executed by Daniel R. Baty, an
individual (“Guarantor”), in favor of Lessor, as “Owner.”
 
C. Upon and subject to the terms of that certain Purchase and Sale Agreement and
Joint Escrow Instructions dated as of March __, 2007 (as the same may be amended
or modified from time to time in accordance with the terms thereof, the “SC
Purchase Agreement”), between HCP Trust, as “Seller,” and Emeritus, as “Buyer,”
HCP Trust has agreed to sell to Emeritus and Emeritus has agreed to buy from HCP
Trust, the Leased Property of the Easley, SC
 

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(Countryside) Facility, the Easley, SC (Summit Place) Facility and the
Spartanburg, SC Facility (collectively, the “SC Purchased Facilities,” and each
a “SC Purchased Facility”).
 
D. In connection with the “Closing” of the transactions contemplated by the SC
Purchase Agreement, and as a condition thereto, Lessor and Lessee desire to
amend the Master Lease (i) to remove from the Leased Property thereof the Land,
Leased Improvements, Related Rights, Fixtures, and Lessor’s Personal Property
relating to each of the SC Purchased Facilities, (ii) to terminate the Lease
with respect thereto (but not the Leased Property of any other Facility) and
(iii) to amend the Master Lease in certain other particulars, all as more
particularly set forth herein.
 
AMENDMENT
 
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
 
1. Amendment and Termination With Respect to the SC Purchased Facilities. As of
the Effective Date, the Master Lease is hereby amended to remove all references
to the SC Purchased Facilities, and each of them, and the Master Lease shall be
terminated with respect to the Leased Property of each of the SC Purchased
Facilities. The provisions of Section 5.2 of the Original Master Lease shall
apply with respect to such termination of the Lease with respect to each of the
SC Purchased Facilities. Notwithstanding the foregoing, the following
obligations of Lessee under the Master Lease, shall be preserved and continue
subsequent to the Effective Date:
 
(a) Lessee shall remain responsible for and shall indemnify and hold Lessor
harmless from and against any and all claims, liabilities, damages, actions and
causes of action, costs and expenses, including reasonable attorneys’ fees, for
which Lessee is responsible pursuant to the Master Lease with respect to the SC
Purchased Facilities, and each of them, and which accrue or have accrued before
the Effective Date; and
 
(b) Lessee shall remain responsible for all obligations of the “Lessee” under
the Master Lease which accrue or have accrued before the Effective Date until
full and complete payment and/or performance of the same, including payment of
all Rent with respect to the SC Purchased Facilities through the Effective Date.
 
2. Cash Security Deposit. Lessor and Lessee acknowledge that as of February 1,
2007, Lessee had on deposit with Lessor pursuant to Article XXI of the Original
Master Lease a Cash Security Deposit in the approximate amount of $5,554,524, of
which approximately $1,401,195 was allocable to the SC Purchased Properties. In
addition, as of February 22, 2007, the accrued and unpaid interest on such Cash
Security Deposit was approximately $1,925,637. Notwithstanding anything to the
contrary in Article XXI of the Original Master Lease, as amended to date, Lessor
and Lessee agree as follows:
 
(a) Upon the Closing under the SC Purchase Agreement, Lessee shall be entitled
to cause Lessor to apply all or a portion of the sum of the following to the
purchase price payable under the SC Purchase Agreement: (i) that portion of the
Cash Security Deposit allocable to the SC Properties, plus (ii) all accrued and
unpaid interest on the entire Cash Security
 

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Deposit as of the Closing Date, plus (iii) up to an additional $1,158,000.00 of
the Cash Security Deposit.
 
(b)  The amount of such additional portion of the current Cash Security Deposit
which Lessee elects to apply towards the purchase price payable under the SC
Purchase Agreement pursuant to clause (iii) of subsection (a) above and the SC
Purchase Agreement shall be referred to herein as the “Security Amount Deficit.”
Commencing on the first (1st) day of the first full calendar month following the
Closing under the SC Purchase Agreement, and on or before the first (1st) day of
each calendar month thereafter, Lessee shall replenish the Security Amount
Deficit by either depositing with Lessor one or more letters of credit or cash
pursuant to Article XXI of the Original Master Lease in amount not less than
$20,000 per month until the Security Amount Deficit is fully restored and Lessee
has on deposit with Lessor either one or more letters of credit or a Cash
Security Deposit in aggregate amount equal to the applicable Letter of Credit
Amount for each Facility remaining subject to the terms of the Master Lease, as
hereby amended. Lessor and Lessee acknowledge and agree that Lessee shall not be
entitled to receive any accrued interest payable on any portion of the Cash
Security Deposit pursuant to Article XXI of the Original Master Lease, as
amended, until such time as the Security Amount Deficit is fully restored and
Lessee has on deposit with Lessor either one or more letters of credit or a Cash
Security Deposit in aggregate amount equal to the applicable Letter of Credit
Amount for each Facility remaining subject to the terms of the Master Lease, as
hereby amended, and all such accrued interest otherwise payable under the Master
Lease on such Cash Security Deposit shall be retained by Lessor as part of the
Cash Security Deposit.
 
 
(c) From and after the Effective Date, the phrase “at an annual rate equal to
nine percent (9%)” appearing in Section 21.5 of the Original Master Lease shall
be amended to read “at an annual rate equal to the Federal Funds Target Rate in
effect from time to time.” For purposes of such Section 21.5 of the Original
Master Lease, as hereby amended, “Federal Funds Target Rate” shall mean the
applicable “target rate” or “intended federal funds rate” as announced from time
to time by the Federal Open Markets Committee (or any successor thereto) (the
“FOMC”) for overnight federal fund loans between depository institutions that
are members of the Federal Reserve System of the United States, or if such
“target rate” or “intended federal funds rate” ceases to be established or
announced by the FOMC, such other comparable rate as reasonably selected by
Lessor.
 
 3. Financial Statements.
 
(a)In lieu of the financial reporting requirements set forth in Section
25.1.2(c) of the Original Master Lease, from and after the Effective Date of
this Amendment, Lessee shall furnish to Lessor within forty-five (45) days after
the end of each month from and after the Effective Date of this Amendment, all
unaudited monthly financial reports for each Facility that Lessee produces for
reporting purposes and detailed statements of income and detailed operational
statistics regarding occupancy rates, patient and resident mix and patient and
resident rates by type for each such Facility for each calendar month. Lessee
agrees to provide updated unaudited Facility financial reports within (60) days
of each calendar quarter-end and within (90) days of each year-end should any
adjustments impact any Facility.
 

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(b) A new Section 25.3 is hereby added to the Original Master Lease to read in
its entirety as follows:
 
“25.3 Lessee’s Submission of Certificates/Statements in Electronic Format.
Lessee shall be obligated to furnish Lessor with all certificates and statements
required under this Article XXV by (i) delivery of printed copies of the same to
Lessor at its address set forth in Article XXXIII below or any other address
that Lessor may from time to time designate in writing and (ii) electronic
delivery of the same to Lessor in Microsoft® Office Excel format (or such other
format as Lessor may from time to time reasonably require) at any electronic
mail address that Lessor may from time to time designate in writing.”
 
4. Representations and Warranties of Lessee. As of the Effective Date hereof,
each Lessee represents and warrants to the Lessor as follows:
 
(a) Lessee is duly organized and validly existing under the laws of its state of
organization/formation, is qualified to do business and in good standing in the
State and has full power, authority and legal right to execute and deliver this
Amendment and to perform and observe the provisions of this Amendment to be
observed and/or performed by Lessee.
 
(b) This Amendment has been duly authorized, executed and delivered by Lessee,
and constitutes and will constitute the valid and binding obligations of Lessee
enforceable against Lessee in accordance with its terms, except as such
enforceability may be limited by creditors rights, laws and general principles
of equity.
 
(c) Lessee is solvent, has timely and accurately filed all tax returns required
to be filed by Lessee, and is not in default in the payment of any taxes levied
or assessed against Lessee or any of its assets, or subject to any judgment,
order, decree, rule or regulation of any governmental authority which would, in
each case or in the aggregate, adversely affect Lessee’s condition, financial or
otherwise, or Lessee’s prospects or the Leased Property.
 
(d) No consent, approval or other authorization of, or registration, declaration
or filing with, any governmental authority is required for the due execution and
delivery of this Amendment, or for the performance by or the validity or
enforceability of this Amendment against Lessee.
 
(e) The execution and delivery of this Amendment and compliance with the
provisions hereof will not result in (i) a breach or violation of (A) any Legal
Requirement applicable to Lessee or any Facility now in effect; (B) the
organizational or charter documents of such party; (C) any judgment, order or
decree of any governmental authority binding upon Lessee; or (D) any agreement
or instrument to which Lessee is a counterparty or by which it is bound; or (ii)
the acceleration of any obligation of Lessee.
 
5. Reaffirmation of Master Lease. Lessor and Lessee hereby acknowledge, agree
and reaffirm that the Master Lease, as hereby amended, is and the parties intend
the same for all purposes to be treated as a single, integrated and indivisible
agreement and economic unit.
 
6. Full Force and Effect; Counterparts; Facsimile Signatures. Except as hereby
amended, the Master Lease shall remain in full force and effect (including with
respect to
 

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the Leased Property of the balance of the Facilities). This Amendment may be
executed in any number of counterparts, all of which shall constitute one and
the same instrument. Telecopied signatures may be used in place of original
signatures on this Amendment, and Lessor and Lessee both intend to be bound by
the signatures of the telecopied document.
 
[Signatures on Next Page]
 

 

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
attested by their respective officers, members or partners thereunto duly
authorized.
 
“LESSOR”
 
HEALTH CARE PROPERTY INVESTORS, INC.,
 
a Maryland corporation
 

 
By: /s/ Brian J. Maas
 
Its: Senior Vice President
 

 
HCPI TRUST,
 
a Maryland real estate trust
 

 
By:  /s/ Brian J. Maas
 
Its: Senior Vice President
 
TEXAS HCP HOLDING, L.P.,
 
a Delaware limited partnership
 

 
By: Texas HCP G.P., Inc.,
 
a Delaware corporation,
 
its general partner
 
By: /s/ Brian J. Maas
 
Its: Senior Vice President
 
EMERITUS REALTY V, LLC,
 
a Delaware limited liability company
 

 
By: Health Care Property Investors, Inc.,
 
a Maryland corporation,
 
its sole member
 
By: /s/ Brian J. Maas
 
Its: Senior Vice President
 
ESC-LA CASA GRANDE, LLC, a
 
a Delaware limited liability company
 
By: Health Care Property Investors, Inc.,
 
a Maryland corporation,
 
its sole member
 
By: / s/ Brian J. Maas
 
Its: Senior Vice President
 

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“LESSEE”

EMERITUS CORPORATION,
a Washington corporation

By: /s/ Eric Mendelsohn
Its: Director of Real Estate and Legal Affairs

ESC III, L.P.,
 
a Washington limited partnership
 
d.b.a. Texas - ESC III, L.P.
 
By: ESC G.P. II, Inc.,
 
a Washington corporation,
 
its general partner
 
By: /s/ Eric Mendelsohn
Its: Director of Real Estate and Legal Affairs

EMERITUS PROPERTIES II, INC., a Washington corporation
 
By: /s/ Eric Mendelsohn
Its: Director of Real Estate and Legal Affairs

EMERITUS PROPERTIES III, INC., a Washington corporation
 
By: /s/ Eric Mendelsohn
Its:  Director of Real Estate and Legal Affairs

EMERITUS PROPERTIES V, INC., a Washington corporation
 
By: /s/ Eric Mendelsohn
Its: Director of Real Estate and Legal Affairs

EMERITUS PROPERTIES XIV, LLC, a Washington limited liability company
 

 
By:
EMERITUS CORPORATION,

a Washington corporation

By: /s/ Eric Mendelsohn 
Its: Director of Real Estate and Legal Affairs 

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ESC-BOZEMAN, LLC, a Washington limited liability company
 

 
By:
EMERITUS CORPORATION,

a Washington corporation

By: /s/ Eric Mendelsohn 
Its: Director of Real Estate and Legal Affairs 

 
ESC-NEW PORT RICHEY, LLC, a Washington limited liability company
 

 
By:
EMERITUS CORPORATION,

a Washington corporation

By: /s/ Eric Mendelsohn 
Its: Director of Real Estate and Legal Affairs 

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CONSENT, REAFFIRMATION AND AGREEMENT OF GUARANTOR
 
The undersigned Guarantor hereby (i) reaffirms all of its obligations under the
Guaranty, (ii) consents to the foregoing Amendment, and (iii) agrees that the
Guaranty as hereby reaffirmed, and shall extend to the Master Lease, as so
amended.
 

 
/s/ Daniel R. Baty
Daniel R. Baty, an individual

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