Document:

ESC12311310K-1004062013RSAwardletter

EMERITUS CORPORATION 
AMENDED AND RESTATED 2006 EQUITY INCENTIVE PLAN 
 
RESTRICTED STOCK AWARD NOTICE 
(2014-2017 Performance Period)
Emeritus Corporation (the "Company") hereby grants to you a Restricted Stock Award (the "Award") for shares of the Company's Common Stock under the Company's Amended and Restated 2006 Equity Incentive Plan (the "Plan").  The Award is subject to all the terms and conditions set forth in this Restricted Stock Award Notice (the "Award Notice") and in the Restricted Stock Award Agreement and the Plan, which are incorporated into this Award Notice in its entirety.   
	
		
	Participant:
	______________

	Grant Date:
	______________

	Number of Restricted Shares Subject to the Award (the "Shares"):
	______________

	Fair Market Value Per Share on Grant Date (Informational, for tax purposes):
	$_____________

	Performance Period:
Plan Year:
Purchase Price (per Share):
	January 1, 2014 – December 31, 2017
January 1 – December 31
$0.00

Vesting Schedule (subject to the terms set forth in the Restricted Stock Award Agreement):
Following the end of each Plan Year in the Performance Period, Shares will vest based on the percentage of annual increase in the Company's Cash From Facility Operations, as adjusted, excluding any self-insurance reserve adjustments relating to claims arising from incidents occurring during the Performance Period ("CFFO") per share for such Plan Year ("Annual Adjusted CFFO Growth") and, as applicable, average compounded cumulative annual growth in adjusted CFFO per share during the elapsed portion of the Performance Period ("Average Adjusted CFFO Growth"), each as described below.
(a)    Annual Adjusted CFFO Growth.  Shares will vest and no longer be subject to forfeiture after each Plan Year in an amount equal to the product of (i) 25% of the total number of Shares subject to the Award and (ii) the percentage below that corresponds to the Annual Adjusted CFFO Growth percentage for the Plan Year (this percentage is labeled below as "Vesting Percentage," with straight-line interpolation for percentages that fall between the Annual Adjusted CFFO Growth percentages set forth below):

	
							
	 
	Annual Adjusted CFFO Growth

	 
	 
	 
	 
	 
	 
	 

	Vesting Percentage
	50%
	60%
	70%
	80%
	90%
	100%

No Shares will vest for a Plan Year pursuant to this section (a) in which Annual Adjusted CFFO Growth is not at least 7%, but Shares may vest for such Plan Year pursuant to section (b) below. 
(b)    Average Adjusted CFFO Growth.  In addition, for Plan Years 2, 3 and 4 in the Performance Period, any Shares that were eligible to vest during one or more prior Plan Years that did not vest during such year(s) may vest in a future Plan Year based on Average Adjusted CFFO Growth; provided, however, that Average Adjusted CFFO Growth must be at least 7% as calculated at the end of such Plan Year.  In such event, Shares will vest for a Plan Year based on Average Adjusted CFFO Growth according to the following formula: 
 
Step 1:
	
											
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	4

*  Maximum of 100%

OR, if greater, the number of Shares cumulatively vested as of the end of the immediately prior Plan Year
Step 2: Minus
(i) the number of Shares that vested during the Plan Year as a result of Annual Adjusted CFFO Growth and (ii) the number of Shares cumulatively vested as of the end of the immediately completed prior Plan Year.  This result will be "0" where no Shares are eligible to vest during a Plan Year by reason of Average Adjusted CFFO Growth.
For purposes of the foregoing "Applicable Plan Year" means the applicable Plan Year in the Performance Period—expressed in terms of 1, 2, 3 or 4, with 1 being the first such Plan Year in the Performance Period and 4 being the last.
(c)    Plan Year Vesting.  The sum of (a) and (b) above equals the total number of Shares that will be vested for a single Plan Year.  Any Shares that are not vested after completion of the Performance Period will automatically be forfeited to the Company. 
Additional Terms/Acknowledgement:  You acknowledge receipt of, and understand and agree to, the Award Notice and the attached Restricted Stock Award Agreement.  You further acknowledge that as of the Grant Date, the Award Notice, the Restricted Stock Award Agreement and the Plan set forth the entire understanding between you and the Company regarding the Award and supersede all prior oral and written agreements on the subject, except as may be set forth in a separate written agreement approved by the Committee (as defined in the Plan).  
	
			
	EMERITUS CORPORATION

   
By:    
Title:    

	 
	PARTICIPANT

   
Taxpayer ID:    
Address:       
         

	Attachment: 
1.  Restricted Stock Award Agreement
	 
	 

EMERITUS CORPORATION 
AMENDED AND RESTATED 2006 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
Pursuant to your Restricted Stock Award Award Notice, (the "Award Notice") and this Restricted Stock Award Agreement (this "Agreement"),  Emeritus Corporation (the "Company") has granted you a Restricted Stock Award (the "Award") under its Amended and Restated 2006 Equity Incentive Plan  (the "Plan") for the number of shares of the Company's Common Stock indicated in your Award Notice.  The Award Notice, this Agreement and the Plan govern the terms of the Award.  Capitalized terms not explicitly defined in this Agreement or the Award Notice but defined in the Plan shall have the same definitions as in the Plan.
1.    Vesting
Shares that have vested and are no longer subject to forfeiture according to the vesting schedule set forth in the Award Notice are referred to herein as "Vested Shares."  Shares that are not vested and remain subject to forfeiture under the preceding schedule are referred to herein as "Unvested Shares."  Subject to Section 4 of this Agreement the Unvested Shares will vest (and to the extent so vested cease to be Unvested Shares remaining subject to forfeiture) in accordance with the vesting schedule set forth in the Award Notice.  Collectively, the Unvested Shares and the Vested Shares are referred to herein as the "Shares."
The determination of achievement of the performance goals applicable to the Shares, the number of Shares vested as a result thereof and any other matters with respect to the Award will be made by the Committee in its sole and absolution discretion and its determination will be final and binding.  The determination of vesting of Shares will be made by the Committee as soon as practicable after the applicable Plan Year.  Any resulting fractional shares will be rounded up to the nearest whole number of Shares (with 0.5 rounded up), provided that Vested Shares may not exceed the total number of Shares subject to the Award. 
2.    Transfer Restrictions
Any sale, transfer, assignment, encumbrance, pledge, hypothecation, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, whether voluntary or by operation of law, directly or indirectly, of Unvested Shares is strictly prohibited and void, except by will or the laws of descent and distribution.
3.    Status of Participant; No Right to Special Dividends
You will be recorded as a shareholder of the Company with respect to the Shares.  Notwithstanding the foregoing, Unvested Shares will not be entitled to any special dividends payable in connection with a reorganization of the Company or other transaction (or series of transactions) that results in a Change in Control or a Company Transaction.
4.    Effect of Company Transaction or Change in Control
4.1    In the event of a Company Transaction or a Change in Control, Unvested Shares will not become vested and no longer subject to forfeiture if and to the extent that the Award is continued, converted, assumed or otherwise replaced by a Successor Company; provided, however, that in the event of your Termination of Service (a) by the Company or the Successor Company for any reason other than for Cause or (b) by you for Good Reason (as defined in Section 4.2 of this Agreement), either in connection with or within one year following a Company Transaction or a Change in Control in which the Award is continued, converted, assumed or replaced by a Successor Company, any then Unvested Shares will become Vested Shares as of the effective date of such termination.  Following such Company Transaction or Change in Control, the Committee will be authorized, in its sole discretion, to make such adjustments to the performance goals applicable to the Award as it deems necessary or advisable as a result of the Company Transaction or the Change in Control.  In the event of a Company Transaction or a Change in Control in which the Award is not converted, assumed or replaced by a Successor Company, any then outstanding Unvested Shares will become Vested Shares immediately prior to completion of the Company Transaction or the Change in Control.
4.2    For purposes of this Agreement, "Good Reason" means the occurrence of any of the following conditions without your express, written consent: 
(a)    a material diminution in either your annual base salary or in your total compensation package (except for a diminution in connection with a general diminution for all executives of the Company or the Successor Company and except for a diminution attributable to your or the Company's or the Successor Company's failure to meet applicable performance targets, goals or similar criteria);
(b)    a material diminution in your authority, position, duties or responsibilities relative to your authority, position, duties and responsibilities immediately prior to the Company Transaction or Change in Control;
(c)    a material breach by the Company or a Successor Company of this Agreement; or
(d)    any requirement by the Company or a Successor Company that you relocate your principal place of work more than 50 miles from its location on the date immediately prior to the Company Transaction or Change in Control. 
Notwithstanding the foregoing, your Termination of Service will not be for Good Reason unless (i) you notify the Company in writing of the existence of the condition which you believes constitutes Good Reason within 90 days of the initial existence of such condition (which notice specifically identifies such condition), (ii) the Company or the Successor Company fails to remedy such condition within 30 days after the date on which it receives such notice (the "Remedial Period"), and (iii) you actually terminate employment or service within 30 days after the expiration of the Remedial Period.
5.    Securities Law Compliance
5.1    You represent and warrant that a copy of the Plan, the Plan Summary for the Plan, and all information that you deem necessary to evaluate the merits and risks of the acquisition of the Shares has been made available to you.
5.2    You hereby agree that you will in no event sell or distribute all or any part of the Shares unless (a) there is an effective registration statement under the Securities Act and any applicable state securities laws covering any transaction involving the Shares or (b) the Company receives an opinion of your legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.  You also hereby confirm that you have been informed that although the Shares acquired pursuant to this Agreement have been registered under the Securities Act, if and so long as you are an affiliate of the Company for purposes of Rule 144 of the Securities Act, any subsequent sale of such Shares by you must either be registered under the Securities Act or must satisfy the requirements of Rule 144 or another applicable exemption from such registration requirements.
6.    Termination of Employment or Service
Except as otherwise set forth in Section 4 of this Agreement, unless the Committee determines otherwise, all Unvested Shares will immediately be forfeited to the Company upon your Termination of Service without payment of any consideration to you; provided, however, that if your Termination of Service occurs after a Plan Year in which you were participating but prior to the Committee's determination of achievement of applicable performance goals and/or issuance of any Vested Shares for such completed Plan Year, you will remain eligible to receive any Vested Shares for such Plan Year.  
7.    Section 83(b) Election for Restricted Stock Award
You understand that under Section 83(a) of the Internal Revenue Code of 1986 (the "Code"), the fair market value of the Unvested Shares on the date the forfeiture restrictions lapse will be taxed, on the date such forfeiture restrictions lapse, as ordinary income subject to payroll and withholding tax and tax reporting, as applicable.  For this purpose, the term "forfeiture restrictions" means the right of the Company to receive back such Unvested Shares upon your Termination of Service. You understand that you may elect under Section 83(b) of the Code to be taxed at ordinary income rates on the fair market value of the Unvested Shares at the time they are acquired, rather than when and as the Unvested Shares cease to be subject to the forfeiture restrictions.  Such election (an "83(b) Election") must be filed with the Internal Revenue Service within 30 days from the grant date of the Restricted Stock Award.  
You understand that there are significant risks associated with the decision to make an 83(b) Election.  If you make an 83(b) Election and the Unvested Shares are subsequently forfeited to the Company, you will not be entitled to a deduction for any ordinary income previously recognized as a result of the 83(b) Election.  If you make an 83(b) Election and the value of the Unvested Shares subsequently declines, the 83(b) Election may cause you to recognize more compensation income than you would have otherwise recognized.  On the other hand, if the value of the Unvested Shares increases and you have not made an 83(b) Election, you may recognize more compensation income than you would have if you had made the election.
THE FORM FOR MAKING AN 83(b) ELECTION IS ATTACHED TO THIS AGREEMENT AS EXHIBIT B.  YOU UNDERSTAND THAT, IF YOU DECIDE TO MAKE AN 83(b) ELECTION, IT IS YOUR RESPONSIBILITY TO FILE SUCH AN ELECTION WITH THE INTERNAL REVENUE SERVICE AND THAT FAILURE TO FILE SUCH AN ELECTION WITHIN THE 30‐DAY PERIOD MAY RESULT IN THE RECOGNITION OF ORDINARY INCOME BY YOU AS THE FORFEITURE RESTRICTIONS LAPSE. You further understand that an additional copy of such election form should be filed with your federal income tax return for the calendar year in which the date of this Agreement falls.  You acknowledge that the foregoing is only a summary of the federal income tax laws that apply to the Award of the Shares under this Agreement and does not purport to be complete.  YOU FURTHER ACKNOWLEDGE THAT THE COMPANY HAS DIRECTED YOU TO SEEK INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE CODE AND THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH YOU MAY RESIDE.
You agree to execute and deliver to the Company with this Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto as Exhibit A.  You further agree that if you choose to make an 83(b) Election with the Internal Revenue Service, you will also deliver to the Company with the signed Award Notice a signed copy of the 83(b) Election.
8.    Independent Tax Advice
You acknowledge that determining the actual tax consequences to you of receiving or disposing of the Shares may be complicated.  These tax consequences will depend, in part, on your specific situation and may also depend on the resolution of currently uncertain tax law and other variables not within the control of the Company.  You are aware that you should consult a competent and independent tax advisor for a full understanding of the specific tax consequences to you of receiving or disposing of the Shares.  Prior to executing this Agreement, you either have consulted with a competent tax advisor independent of the Company to obtain tax advice concerning the Shares in light of your specific situation or have had the opportunity to consult with such a tax advisor but have chosen not to do so.
9.    Book Entry Registration of the Shares 
The Company will issue the Shares by registering the Shares in book entry form with the Company's transfer agent in your name and the applicable restrictions will be noted in the records of the Company's transfer agent and in the book entry system.  No certificate(s) representing all or a part of the Shares will be issued until the Shares become Vested Shares.
10.    Stop‐Transfer Notices
You understand and agree that, in order to ensure compliance with the restrictions referred to in this Agreement, the Company may issue appropriate "stop‐transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.  The Company will not be required to (a) transfer on its books any Shares that have been sold or transferred in violation of the provisions of this Agreement or (b) treat as the owner of the Shares, or otherwise accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
11.    Clawback
The Shares will be subject to any clawback or recoupment policy adopted by the Company pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or as required by other law or the listing requirements of any national securities exchange on which the Common Stock is listed.
12.    Tax Withholding
As a condition to the removal of restrictions from your Vested Shares registered in book entry form with the Company's transfer agent, you agree to make arrangements satisfactory to the Company for the payment of any federal, state, local or foreign withholding tax obligations that arise either upon receipt of the Shares or as the forfeiture restrictions on any Shares lapse.  Notwithstanding the previous sentence, you acknowledge and agree that the Company and any Related Company has the right to deduct from payments of any kind otherwise due to you any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to the Award.
13.    General Provisions
13.1    Notices
Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail.  Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address that such person has specified by written notice to the other.  The Company or you may change, by written notice to the other, the address previously specified for receiving notices.  Notices delivered to the Company shall be addressed as follows: 
Emeritus Corporation
Attn:  Compensation Department
3131 Elliott Avenue, Suite 500 
    Seattle, Washington 98121 

Notices to you shall be addressed at the address set forth on the Award Notice (or any subsequent address provided to the Company by you in writing). 

13.2    No Waiver
No waiver of any provision of the Award Notice or this Agreement will be valid unless in writing and signed by the person against whom such waiver is sought to be enforced, nor will failure to enforce any right hereunder constitute a continuing waiver of the same or a waiver of any other right hereunder.
13.3    Undertaking
You hereby agree to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either you or the Shares pursuant to the express provisions of this Agreement.
13.4    Entire Contract
This Agreement, the Award Notice and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof and supersede all prior oral or written agreements on the subject.  This Agreement is made pursuant to the provisions of the Plan and will in all respects be construed in conformity with the express terms and provisions of the Plan.
13.5    Successors and Assigns
The provisions of this Agreement will inure to the benefit of, and be binding on, the Company and its successors and assigns and you and your legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person will have become a party to this Agreement and agreed in writing to join herein and be bound by the terms and conditions hereof.
13.6    Counterparts
This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but which, upon execution, will constitute one and the same instrument.
13.7    Governing Law
The provisions of the Award Notice and this Agreement will be governed by the laws of the state of Washington, without giving effect to principles of conflicts of law.

EXHIBIT A 
 
ACKNOWLEDGMENT AND STATEMENT OF DECISION REGARDING SECTION 83(b) ELECTION
The undersigned, a recipient of _______ shares of common stock of Emeritus Corporation, a Washington corporation (the "Company"), pursuant to a restricted stock award granted under the Company's Amended and Restated 2006 Equity Incentive Plan (the "Plan"), hereby states as follows:
1.    The undersigned acknowledges receipt of a copy of the Restricted Stock Award Notice and the Restricted Stock Award Agreement (collectively, the "Restricted Stock Award Agreement") and the Plan relating to the offering of such shares.  The undersigned has carefully reviewed the Plan and the Restricted Stock Award Agreement pursuant to which the award was granted.
2.    The undersigned either (check and complete as applicable)
(a)      has consulted, and has been fully advised by, the undersigned's own tax advisor, ________________________, whose business address is _________________________, regarding the federal, state and local tax consequences of receiving shares under the Plan, and particularly regarding the advisability of making an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and pursuant to the corresponding provisions, if any, of applicable state law, or
(b)      has knowingly chosen not to consult such a tax advisor.
3.    The undersigned hereby states that the undersigned has decided (check as applicable)
(a)      to make an election pursuant to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned's executed Restricted Stock Award Notice, an executed form entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986", or
(b)      not to make an election pursuant to Section 83(b) of the Code.
4.    Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the undersigned's acquisition of shares under the Plan or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
	
		
	Dated:  _______________
	    
Recipient

	 
	    
Print Name

EXHIBIT B 
 
ELECTION UNDER SECTION 83(b)  
OF THE INTERNAL REVENUE CODE OF 1986  

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer's receipt of the property described below:
1.    The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER:      
ADDRESS:          
        
IDENTIFICATION NO. OF TAXPAYER:      
TAXABLE YEAR:  ___________
2.    The property with respect to which the election is made is described as follows:  _______________ shares of the Common Stock of Emeritus Corporation., a Washington corporation (the "Company").
3.    The date on which the property was transferred is:  __________________________
4.    The property is subject to the following restrictions:
The property is subject to a forfeiture right pursuant to which the Company can reacquire the Shares if certain performance goals are not met with respect to the shares or if the taxpayer's services with the Company terminate prior to vesting of the shares.  The Company's right to receive back the shares lapses in annual installments over a four-year period.
5.    The aggregate fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is:  $____________
6.    The amount (if any) paid for such property is:  $___________
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above‐described property.  The undersigned is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner of Internal Revenue. 

	
		
	Dated:  _______________
	    
Taxpayer

DISTRIBUTION OF COPIES
1.    File original with the Internal Revenue Service Center where the taxpayer's income tax return will be filed.  Filing must be made by no later than 30 days after the date of grant.
2.    Attach one copy to the taxpayer's income tax return for the taxable year in which the property was transferred.
3.    Mail one copy to the Company at the following address:
Emeritus Corporation 
3131 Elliott Avenue, Suite 500 
Seattle, Washington 98121

23525-0006/LEGAL28633265.2ESC12311310K-106110BuyOutAgreement09012013CFSA

AGREEMENT

This Agreement (this “Agreement”) is made and entered into as of the 18th day of November, 2013 (the “Execution Date”) by and among Emeritus Corporation, a Washington corporation (“Emeritus”) and Daniel R. Baty (“Baty”).

RECITALS

A.Emeritus and Baty are parties to an Agreement dated as of October 1, 2004, (as amended, “CFSA”) which, as of the date hereof, relates to nine (9) assisted living facilities, including the two (2) facilities listed below (the “Facilities”):

Emeritus at The Seasons, Reno, Nevada
Emeritus at Brookside Estates, Middleburg Heights, Ohio  

B.The Facilities are owned by Health Care REIT, Inc. and/or affiliates thereof (“HCN”) and leased by HCN to, and operated by, Emeritus.

C.The CFSA grants to Emeritus the Buy Out Option (as defined in the CFSA) during the Buy Out Period (as defined in the CFSA) with respect to all of Baty’s rights under the CFSA for the Buy Out Price (as defined in the CFSA). Emeritus was entitled to exercise the Buy Out Option as of October 1, 2009. Emeritus and Baty have agreed that, notwithstanding anything to the contrary set forth in the CFSA, that, as of the Effective Date, Emeritus shall be entitled to exercise the Buy Out Option as to less than all of the facilities subject to the terms thereof.

D.Emeritus and Baty are interested in documenting the terms and conditions to which they have agreed.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS FOLLOWS:

		
	1.
	The Buy Out. 

(a)In consideration for the payment of Two Million Nine Hundred Fifty Eight Thousand Nine Hundred Ninety Five and no/100 Dollars ($2,958,995) from and after September 1, 2013 (the “Effective Date”) Baty shall have no further rights and Emeritus shall have no further obligations under the CFSA with respect to the Facilities.   

(b)Emeritus acknowledges and agrees that Baty has guaranteed the obligations of Emeritus under that First Amended and Restated Master Lease dated as of April 1, 2011 (as amended, the “HC REIT Lease”) pursuant to that First Amended and Restated Unconditional and Continuing Lease Guaranty dated as of January 1, 2011 (the “Baty Lease Guaranty”) and that the Baty Lease Guaranty will remain in effect from and after the Effective Date. Accordingly, in the event a demand is made on Baty at any time after the Effective Date with respect to the Baty Lease Guaranty, (i) to the extent that such demand is as a result of a default under the HC REIT Lease which is not cured within any cure period set forth therein or waived by HC REIT and is related solely to either or both of the Facilities, Emeritus shall, upon demand, fully indemnify, defend and hold Baty harmless with respect to any amounts paid by Baty under the Baty Guaranty to HC REIT and (ii) to the extent that such demand is as a result of a default under the HC REIT Lease which is not cured within any cure period set forth therein or waived by HC REIT but such default does not relate solely to either or both of the Facilities, then Emeritus shall, upon demand, indemnify, defend and hold harmless Baty with respect to any amounts paid by Baty under the Baty Guaranty to HC REIT multiplied by a fraction the numerator of which is the Base Rent (as that term is defined in the HC REIT Lease) then due under the HC REIT Lease with respect to the Facilities and the denominator of which is the total Base Rent then due under the HC REIT Lease (the “Indemnity Percentage”). For purposes of calculating the Indemnity Percentage hereunder and under that Amended and Restated Agreement dated as of February 11, 2011 among the parties hereto with respect to three of the other facilities subject to the HC REIT Lease (Emeritus Estates, Emeritus at Myrtlewood Estates and Gardens at White Chapel) (the “Baty 1 Buy Out Agreement”) and under that Agreement dated November 1, 2011 among the parties herewith with respect to one other facility subject to the HC REIT Lease (Wilburn Gardens) (the “Baty 2 Buy Out Agreement”), the parties agree that the Base Rent has been allocated between the facilities covered by the HC REIT Lease in the manner set forth in Exhibit C hereto and that, as of the Effective Date, the Indemnity Percentage is 72.3%, it being understood and agreed that (i) Section 1(b) of the Baty 1 Buy Out Agreement is hereby deemed amended by replacing the reference therein to an Indemnity Percentage of 34.2% with the Indemnity Percentage set forth herein of 72.3% and that Exhibit C thereto is replaced in its entirety with Exhibit A hereto and (ii) Section 1(b) of the Baty 2 Buy Out Agreement is hereby deemed amended by replacing the reference therein to an Indemnity Percentage of 52.7% with the Indemnity Percentage set forth herein of 72.3% and that Exhibit B thereto is replaced in its entirety with Exhibit A hereto.  

2.Representations and Warranties. Each of the parties hereto does hereby represent and warrant the other parties hereto as follows:

(a)    Such party shall full power and authority to enter into this Agreement and to consummate the transactions contemplated by the terms hereof.

(b)    The execution of this Agreement by such party and the consummation of the transactions contemplated by the terms hereof by such party does not, in the case of Emeritus conflict with the Articles of Incorporation or Bylaws of such entity or in the case of each such party conflict with any agreement, document or instrument, judgment, order or decree to which such party is a party or by which it may be bound or affected. 

(c)    This Agreement is the valid, binding and enforceable obligation of such party, subject to such limitations on the enforceability hereof as may be imposed by creditors rights law and general principles of equity.

(d)    Neither the execution of this Agreement by such party or the consummation of the transactions contemplated by the terms hereof, requires such party to secure any consent or approval, including, but not limited to, in the case of Emeritus, the approval of its Board of Directors that has not been obtained as of the Execution Date.

3.Closing Costs. Each of the parties hereto shall be responsible for its own attorneys fees and costs incurred in connection with the drafting and negotiation of this Agreement.  Emeritus, on the one hand, and Baty, on the other hand, shall share on a 50-50 basis any costs or expenses otherwise associated with the execution of this Agreement and the consummation of the transactions contemplated by the terms hereof, including, but not limited to, any consent fees or legal fees which may now or hereafter be due and owing to HC REIT in connection with the consummation of the transactions contemplated by the terms thereof.
  
4.Entirety. This Agreement represents the entire and final agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, discussions or writings with respect thereto. For the avoidance of doubt, the parties acknowledge and agree that (a) nothing herein shall be construed as limiting any rights or obligations which Baty or Emeritus may have under the CFSA with respect to any real property tax overpayments or underpayments related to the Facilities for any period prior to the Effective Date and (b) the CFSA shall remain in full force and effect as to the remaining seven (7) facilities described therein and shall only terminate on the Effective Date as to the Facilities. In furtherance and not in limitation of the foregoing, in the event of a real and/or personal property tax refund related to any period prior to the Effective Date, Emeritus shall remit to Baty his prorate share thereof calculated in accordance with the terms of the CFSA and in the event of a real and/or personal property tax assessment arising from the underpayment of real and/or personal property taxes related to any period prior to the Effective Date, Baty shall remit to Emeritus his prorate share thereof calculated in accordance with the terms of the CFSA.

5.Amendments. This Agreement may not be amended except by written instrument signed by the parties hereto.

6.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington.

7.Attorneys Fees. In the event of a dispute with respect to the interpretation or enforcement of the terms of this Agreement, the prevailing party shall be entitled to collect from the other its reasonable costs and attorneys fees including its costs and fees on appeal.

8.Construction. Each of the parties acknowledges and agrees that it has participated in the drafting and negotiation of this Agreement. Accordingly, in the event of a dispute with respect to the interpretation or enforcement of the terms of this Agreement not provision shall be construed to favor or disfavor either party hereto.

9.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day and year first set forth above.

EMERITUS CORPORATION

By:    /s/ Eric Mendelsohn               
Its:    ERIC MENDELSOHN
SVP Corporate Development

                        
/s/ Daniel R. Baty         
DANIEL R. BATY

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