EX 10.68.26 3RD Amend to lease McKinney TX


    THIRD
      AMENDMENT TO LEASE AGREEMENT

    (MCKINNEY,
      TX)

    


    Dated
      as
      of June 30, 2005 (the “Effective Date”) 

    


    HR
      ACQUISITION OF SAN ANTONIO, LTD.  (f/k/a
      Capstone Capital of San Antonio, Ltd.), an Alabama limited partnership
      (“Lessor”), ESC
      IV, L.P.,
      a
      Washington limited partnership doing business in Texas as Texas-ESC IV, L.P.
      (“Lessee”), and EMERITUS
      CORPORATION,
      a
      Washington corporation and DANIEL
      R. BATY,
      an
      individual resident of the State of Washington (collectively, “Guarantor”),
      agree as follows:

     

    
      	1.  	
              Preliminary
                Statements.
                Lessor entered into that certain Lease Agreement dated as of December
                31,
                1996 with Integrated Living Communities of McKinney, L.P. (the “Original
                Lessee”), as amended by that certain First Amendment to Lease Agreement
                dated as of December 1, 1997, as assigned by the Original Lessee
                to HB-ESC
                V, L.P., a Washington limited partnership (“HB-ESC”) by Assignment and
                Assumption Agreement dated as of May 9, 2002, as further amended
                by Second
                Amendment to Lease Agreement dated as of May 9, 2002, as further
                assigned
                by HB-ESC to Lessee by Assignment and Assumption of Lease Agreement
                dated
                as of December, 31, 2003 (as amended to date and as further amended
                hereby
                and as assigned, the “Lease”). Pursuant to the Lease, Lessor, as landlord,
                and Lessee, as tenant, have leased certain real property and improvements
                located at 1650 S. Stonebridge Drive, McKinney, Texas 75070, together
                with
                all Personal Property (as defined in the Lease). Lessee has requested,
                and
                Lessor has agreed, to further amend the Lease in the manner set forth
                in
                this Third Amendment to Lease Agreement (this “Amendment”), effective as
                of the date hereof. 

            


    

     

     

    
      	2.  	
              Definitions.
                As used herein, the term “Lease” means the Lease as hereby amended and
                modified. Unless the context otherwise requires, all capitalized
                terms
                used herein without definition shall have the definitions provided
                therefore in the Lease. 

            


    

     

     

    
      	3.  	
              Amendments.
                The Lease is hereby amended as
                follows:

            


    

     

     

    
      	a.  	
              The
                caption on Section 7.3 is hereby revised to read as follows: “Rent
                Coverage—Consolidated and Facility”

            


    

     

     

    
      	b.  	
              Section
                7.3(a) is hereby deleted in its entirety and the following inserted
                in
                lieu thereof:

            


    

     

     

    
      	(a)  	
              As
                used herein, the following terms shall have the meanings
                indicated:

            


    

     

     

    “Consolidated
      Coverage Ratio” means, as of the end of each quarterly reporting period, the
      ratio of (i) EBITDARM on a consolidated basis 

     


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    


     

    for
      the
      Facility and the Related Facilities during the preceding twelve month period
      to
      (ii) the principal (excluding any prepayments or principal at maturity),
      interest and lease (capital and operating) payment obligations of Lessee with
      respect to the Facility and the Related Facilities (including the Minimum Rent
      but excluding the Minimum Rent Adjustment and any principal and interest
      payments on the Loan (as defined in Section 2.5 hereof)) during the preceding
      twelve month period. 

     

     

    “EBITDARM”
      means, as of the end of each quarterly reporting period, the income (or deficit)
      from all operations related to the Facility or the Facility and the Related
      Facilities, as applicable, during the preceding twelve month period before
      any deduction for
      (i)
      interest charges paid or accrued during the preceding twelve month period
      (including imputed interest) on any lease (capital or operating) obligations
      (including this Lease), (ii) income taxes for such period, (iii) any amounts
      in
      respect of depreciation or amortization for such period, (iv) the rent due
      under
      all leases (capital and operating) including this Lease and the leases for
      the
      Related Facilities, as applicable, during the preceding twelve month period
      and
      (v) any actual or assumed management fees paid or incurred during the preceding
      twelve month period.

     

     

    “Facility
      Coverage Ratio” means, as of the end of each quarterly reporting period, the
      ratio of (i) EBITDARM on a consolidated basis for the Facility during the
      preceding twelve month period to (ii) the principal (excluding any prepayments
      or principal at maturity), interest and lease (capital and operating) payment
      obligations of Lessee with respect to the Facility (including the Minimum Rent
      but excluding the Minimum Rent Adjustment and any principal and interest
      payments on the Loan) during the preceding twelve month period. 

     

     

    
      	c.  	
              The
                lead in language in Section 7.3(b) is hereby deleted in its entirety
                and
                the following inserted in lieu
                thereof:

            


    

     

     

    Lessee
      agrees and covenants with Lessor that, so long as this Lease is in  effect,
      Lessee will achieve and maintain, on a consolidated basis, the  Consolidated
      Coverage Ratios set forth below: 

     

     

    Period   Required
      Consolidated Coverage Ratio

     

    (i) Prior
      to
      the date in (ii)   No
      requirement

    


    
      	(ii)  	
              For
                each calendar quarter 1.05
                to 1.0

            


    

    during
      the calendar year 

    beginning
      1/1/07


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    


    
      	(iii)  	
              For
                each calendar quarter 1.10
                to 1.0

            


    

    during
      the calendar year 

    beginning
      1/1/08

    


    
      	(iv)  	
              For
                each calendar quarter 1.15
                to 1.0

            


    

    during
      the calendar year

    beginning
      1/1/09

    


    
      	(v)  	
              For
                each calendar quarter1.20
                to 1.0

            


    

    during
      the calendar year

    beginning
      1/1/10 and during

    each
      calendar year thereafter

     

    
      	d.  	
              Section
                7.3(c) of the Lease is hereby deleted in its entirety and the following
                is
                substituted therefore:

            


    

     

     

    Lessee
      agrees and covenants with Lessor that, so long as this Lease is in  effect,
      Lessee will achieve and maintain the Facility Coverage Ratios set  forth
      below:

     

     

    Period    Required
      Facility Coverage Ratio

     

    
      	(i)  	
              Prior
                to the date in (ii)No
                requirement

            


    

    


    
      	(ii)  	
              For
                each calendar quarter 1.0
                to 1.0

            


    

    during
      the calendar year 

    beginning
      1/1/08

    


    
      	(iii)  	
              For
                each calendar quarter 1.05
                to 1.0

            


    

    during
      the calendar years

    beginning
      1/1/09 and 1/1/10

    


    
      	(iv)  	
              For
                each calendar quarter1.10
                to 1.0

            


    

    during
      the calendar year

    beginning
      1/1/11 and during

    each
      calendar year thereafter

    


    e. The
      following shall be added as new Section 7.3(d):

    Lessee
      acknowledges that the reporting requirements set forth in Section 24 hereof
      shall not be affected by the provisions of this Section 7.3 and accordingly
      that
      Lessee shall be required to provide all the financial reports and information
      contained therein whether or not Lessee is then required to comply with the
      covenants set forth above.

    



    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    f. The
      following shall be added as new Section 2.5:

    


    
      	(a)  	
              As
                used herein, the following terms shall have the meanings
                indicated:

            


    

    


    “Borrower”
      means Emeritus Corporation, a corporation organized under the laws of the State
      of Washington, its successors and permitted assigns. 

    


    “Lender”
      means Healthcare Realty Trust Incorporated, its successors and
      assigns.

    


    “Loan” 
      has
      meaning set forth in Section 1.2 of the Loan  Agreement.

    


    “Loan
      Agreement” means the loan agreement of even date herewith made between Lender
      and Borrower together with all other documents evidencing, securing, amending,
      supplementing, extending, renewing or otherwise related thereto.  

     

    “Minimum
      Rent Adjustment” shall mean the dollar amount which would be required to be paid
      on a monthly basis from the Minimum Rent Adjustment Effective Date in order
      to
      fully amortize the then current balance of the Loan allocated to this Lease
      (the
“Fixed Component of the Minimum Rent Adjustment”), together with a monthly
      return at the rate stated in Section 2(a) of the Note (the “Return Component of
      the Minimum Rent Adjustment”), over a period of time until midnight on April 30,
      2013. 

     

    “Minimum
      Rent Adjustment Effective Date” means the date of the occurrence of an Event of
      Default (as defined in the Loan Agreement) under the Loan Agreement, which
      is
      not waived by Lender.

    


    “Minimum
      Rent Adjustment Schedule” means a schedule setting out the Fixed Component of
      the Minimum Rent Adjustment and the Return Component of the Minimum Rent
      Adjustment payable by Lessee to Lessor each month in respect of this
      Lease.

    


    “Note”
      means the Promissory Note of even date herewith made by Borrower in favor of
      Lender pursuant to the Loan Agreement, together with all other documents
      evidencing, securing, amending, supplementing, extending, renewing or otherwise
      related thereto.


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    


    “Rent
      Adjustment Notice” means a written notice from the Lender to the Borrower and
      Lessee requiring the Minimum Rent Adjustment to be paid from and after the
      Minimum Rent Adjustment Effective Date. 

    


    
      	(b)  	
              In
                the event Lessee receives a Rent Adjustment Notice, Lessor and Lessee
                shall prepare a Minimum Rent Adjustment Schedule in accordance with
                the
                provisions of this Agreement within ten (10) days after receipt by
                Lessee
                of the Rent Adjustment Notice and thereafter, Lessee shall pay to
                Lessor
                each month, the Minimum Rent Adjustment in accordance with the Minimum
                Rent Adjustment Schedule. The first installment of the Minimum Rent
                Adjustment shall be payable on the first day of the calendar month
                following the date on which the Minimum Rent Adjustment Schedule
                is agreed
                upon. Each payment of the Minimum Rent Adjustment is to be made in
                the
                same manner and at the same time as the Minimum Rent provided however,
                for
                all other purposes, the Minimum Rent Adjustment shall not be included
                within the definition of Minimum Rent.


            


    

    


    
      	(c)  	
              Payment
                of the Minimum Rent Adjustment shall be effective as of the Minimum
                Rent
                Adjustment Effective Date and shall last until the repayment in full
                of
                the sums due under the Loan allocated to this
                Lease.

            


    

    


    
      	(d)  	
              The
                Minimum Rent Adjustment shall be paid in addition to the Minimum
                Rent,
                Additional Charges or any other amounts due under this Lease; provided
                however, (i) no rent cap or other maximum rental increase in this
                Lease
                shall be affected in any manner by the application of the Minimum
                Rent
                Adjustment; (ii) annual Minimum Rent increases and other rent increases
                provided for in this Lease shall be calculated as though no Minimum
                Rent
                Adjustment is payable and (iii) no determination of Fair Market Rental
                Value shall be affected in any manner by the Minimum Rent Adjustment.
                

            


    

    


    
      	(e)  	
              From
                and after the date on which the first installment of Minimum Rent
                Adjustment becomes payable by Lessee pursuant to Section 2.5(b) above,
                all
                payments received by Lessor and denominated by Lessee as payments
                of
                Minimum Rent and Minimum Rent Adjustment, shall be first applied
                towards
                payment of the Minimum Rent due in respect of the period to which
                the
                payment relates and then towards payment of the Minimum Rent Adjustment
                due in accordance with the Minimum Rent Adjustment Schedule. The
                payment
                allocated to the Minimum Rent 

            


    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    Adjustment
      shall then be applied first to the Return Component of the Minimum Rent
      Adjustment (with such amount being credited dollar for dollar against the Return
      Component of the Minimum Rent Adjustment due) and second, to the Fixed Component
      of the Minimum Rent Adjustment due in accordance with the Minimum Rent
      Adjustment Schedule (such amount to be credited dollar for dollar against the
      Fixed Component of the Minimum Rent Adjustment due). 

    


    
      	(f)  	
              If
                any installment of Minimum Rent Adjustment is not paid within ten
                days
                after the date when due, Lessee shall pay to Lessor interest at the
                Overdue Rate on the amount unpaid, from the date when due to the
                payment
                thereof.

            


    

     

    g. The
      language appearing at (c) of Article XVIII is hereby deleted in its entirety
      and
      the following inserted in lieu thereof:

     

    


    all
      other
      sums (other than the Minimum Rent Adjustment), if any, payable pursuant to
      the
      provisions of this Lease with respect to the Leased Property. 

    


    h. Section
      19.2 of the Lease is hereby deleted in its entirety.

    


    i. Section
      19.4 of the Lease is hereby deleted in its entirety and the following is
      substituted therefor:

    


    Lessee
      shall have the option to purchase the Leased Property as of the last day of
      the
      Initial Term (the “Closing Date”) upon written notice to Lessor delivered no
      later than 180 days prior to the end of the Initial Term (the “Option Exercise
      Notice”) for a purchase price equal to the Minimum Purchase Price, provided that
      no Event of Default has occurred and is continuing on the date of the Option
      Exercise Notice and no Event of Default has occurred and is continuing on the
      Closing Date. If not sooner exercised, the option to purchase granted hereby
      will expire and be of no further force and effect upon the expiration of the
      Initial Term or the earlier termination of this Lease. As a condition to the
      exercise of the option to purchase, Lessee shall be required to simultaneously
      exercise its option to purchase set forth in all the Related Leases still in
      existence at the time of the Lessee’s exercise of the option relating to the
      Leased Property. Notwithstanding anything in this Lease or the Related Leases
      to
      the contrary, Lessee shall have no option to purchase the Leased Property or
      any
      other Leased Property under any Related
      Leases
      so long as any Event of Default has occurred and is continuing on the Option
      Exercise Date or on the Closing Date for any such Leased
      Property.

    



    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    j. The
      following shall be added to Section 37.1 after the definition of
“Land”:

    


    “Landlord’s
      Investment” means $7,333,430 plus the sum of all Capital Addition Costs relating
      to the Leased Property paid for or financed by Lessor which as of the date
      of
      repurchase of the Leased Property have not been repaid by Lessee, less the
      net
      amount (after deduction of all reasonable legal fees and other costs and
      expenses, including expert witness fees, incurred by Lessor in connection with
      obtaining any such award or proceeds) of all Awards received by Lessor from
      Condemnation of the Leased Property. 

    


    k. The
      definition of “Minimum Purchase Price” set forth in Section 37.1 of this Lease
      is hereby amended to read as follows:

    


    “Minimum
      Purchase Price” means the greater of (i) the Fair Market Value of the Leased
      Property at the time of delivery of the Option Exercise Notice or (ii) the
      Landlord’s Investment as such amount is increased at the rate of three percent
      compounded annually for each year (to be prorated for partial years) between
      the
      Effective Date and the Closing Date.

    


    l. The
      definition of “Rent” set forth in Section 37.1 of this Lease is hereby amended
      to read as follows:

    


    “Rent” means,
      collectively, the Minimum Rent, the Additional Charges and if applicable, the
      Minimum Rent Adjustment (the latter being separate from the Minimum
      Rent). 

     

    
      	4.  	
              Counterparts.
                This Amendment may be executed in one or more counterparts, each
                of which
                shall be an original and taken together shall constitute one and
                the same
                document. Signature and acknowledgment pages, if any, may be detached
                from
                the counterparts and attached to a single copy of this document to
                physically form one document. The failure of any party hereto to
                execute
                this Amendment or any counterpart hereof, shall not relieve the other
                signatories from their obligations hereunder.


            


    

     

     

    
      	5.  	
              Waivers.
                Lessee hereby (i) acknowledges that, as of the date hereof, to Lessee’s
                knowledge there is no default on the part of Lessor under the Lease,
                and
                (ii) acknowledges that, as of the date hereof, there are no offsets
                or
                defenses to payment of the obligations of the Lessee under the
                Lease.

            


    

     

     

    
      	6.  	
              Execution
                by Guarantor.
                Guarantor has joined in the execution of this Amendment for the purpose
                of
                (i) agreeing to the terms and conditions of this Amendment, and (ii)
                confirming Guarantor’s guaranty of payment and performance of all of the
                Obligations, which in the case of the guaranty by Daniel
                

            


    

     


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


     

    R.
      Baty,
      shall not include any obligations relating to payment of the Minimum Rent
      Adjustment. 

     

     

    
      	7.  	
              Entire
                Agreement.
                This Amendment, the Loan Agreement and the documents executed pursuant
                to
                the terms of the Loan Agreement, set forth the entire understanding
                and
                agreement of the parties hereto in relation to the subject matter
                hereof
                and supersede any prior negotiations and agreements between the parties
                relative to the subject matter
                hereof.

            


    

     

     

    
      	8.  	
              Force
                and Effect of Amendment.
                Except as specifically amended, modified, or supplemented as set
                forth in
                this Amendment, the Lease remains in full force and effect.
                

            


    

     

     

    
      	9.  	
              Execution
                by Telefacsimile.
                Any copy of this Amendment bearing a signature of a party to this
                Amendment and sent by facsimile to any other party shall be deemed
                a
                manually-executed original of this Amendment, and shall be deemed
                sufficient to bind such party. 

            


    

     

    



    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      intending to be legally bound hereby, the parties hereto have caused this Third
      Amendment to Lease Agreement to be executed as of the day and year first above
      written. 

    


    


    LESSOR:

    


    HR
      ACQUISITION OF SAN ANTONIO, LTD.

            


    By
      its
      general partner:

    HR
      Acquisition of Texas, Inc.

                            /s/ 
      J.D.
      Carter Steele

    By: 
      J.D. Carter Steele      

    Title: 
      Senior Vice President and Chief Operating Officer      

    


    


    LESSEE:

    


    ESC
      IV,
      L.P.

    


    By
      ESC GP
      II, Inc.

    Its:
      General Partner

    


    By:
      :/s/
      William M. Shorten   

    William
      M. Shorten

    Title:
      Director of Real Estate Finance 

    


    


    GUARANTOR:

    


    


    Emeritus
      Corporation

    


    


    By: :/s/
      William M. Shorten 

    William
      M. Shorten

    Title: Director
      of Real Estate Finance

    


    


    


    :/s/
      Daniel R. Baty 

    Daniel
      R.
      Baty

     

    
      
        
        

      

      
        9